The £16bn lie at the heart of Starmer’s Budget defence

When Sir Keir Starmer mounted a defence of Rachel Reeves on Monday morning, he cited one figure in particular to justify her fear-mongering over the state of the economy in the run up to the Budget.

His references to the productivity downgrade from the Office for Budget Responsibility (OBR), which wiped £16bn off the Treasury’s tax takings, were supposed to back up the Chancellor’s claims about the strain on the public finances.

However, in citing the figure, the Prime Minister may be misleading the public again – the same charge levelled at Ms Reeves.

Because while that number is correct and forms part of the story behind the tax rises announced by the Chancellor last week, it is not the full picture.

Higher-than-expected inflation and a greater tax burden have contributed to the Exchequer raking in much more money than thought, to the tune of £32bn.

It means that overall tax revenues are higher than expected, not lower, despite the hit to productivity calculated by the OBR.

That adds some crucial context to Sir Keir’s comments on Monday when he said the £16bn productivity hit ahead of the Budget put the Chancellor in a “difficult” position.

Challenged on whether briefings on a huge fiscal black hole were “misleading”, he said: “To be told at the beginning of the process you’re £16bn worse off than you may otherwise have been is a significantly difficult starting point.

“Of course, it was right that we flagged that we started in this position, and my strong view is it would have been wrong to rule out measures that may have to be taken as a result.”

In reality, this £16bn loss was more than cancelled out by gains from inflation and other upward trends, bringing a net positive change in revenue.

The decision to focus on the productivity numbers and not the inflation side is at the core of a row about whether Downing Street was effectively overplaying the squeeze on the public finances ahead of the Budget.

Taking all the changes as a whole, the OBR revealed on Friday that the Government was not facing a massive black hole this autumn, contrary to popular belief.

In fact, when Ms Reeves gave her ominous press conference on Nov 4, she was actually up around £4bn against her fiscal rules.

At its biggest, the black hole forecast by the OBR in the run-up to the Budget was £2.5bn.

That was starkly different to the broad picture being painted by the Treasury, which suggested the Chancellor was contending with a £20-£30bn deficit.

Ms Reeves has taken most of the heat for the pre-Budget briefings, with critics including Kemi Badenoch, the Tory leader, demanding her resignation.

But she is not the only one who knew the Government was on track to meet its fiscal rules and still led people to believe the economy was under strain.

The Prime Minister, who was aware there was no black hole to speak of, told MPs on Nov 3: “We had the fastest growing economy in the G7 in the first half of this year, but everyone knows the Budget takes place against a difficult economic backdrop.

“It’s becoming clearer that the long-term impact of Tory austerity, their botched Brexit deal and the pandemic on Britain’s productivity, is worse than even we feared.

“Faced with that, we will make the tough but fair decisions to renew our country and build it for the long term.”

Sir Mel Stride, the shadow chancellor, told The Telegraph: “Keir Starmer is trying to pull the wool over everyone’s eyes to hide from his own choices.

“Labour have spent weeks misleading the public about the economy, cherry-picking figures to invent a black hole that never existed.

“Labour have increased taxes not because they had to, but because they chose to increase the benefits bill and do not have the backbone to control government spending.

“The Prime Minister must take responsibility for the spin, the leaks and the chaos his team has created – the buck stops with him.”

Sir Keir is said to have kept his Cabinet in the dark about the “reality” of the OBR forecasts. 

One minister told The Times: “Had we been told, we might have been in a position to advise against setting hares running on income tax and giving the public the impression we are casual about our manifesto commitments.

“The handling of this Budget has been a disaster from start to finish.”

Given that he signed off on her Nov 4 speech, where she is accused of exaggerating the fiscal shortfall, Sir Keir has been forced to stick by his Chancellor so far.

If she goes down for this, or admits guilt in any way, he will have his own questions to answer.

[Source: Daily Telegraph]