FCA pressed to investigate Treasury over Budget briefings
The Financial Conduct Authority has been urged to wade into the row between the Treasury and the Office for Budget Responsibility and investigate government briefings about a so-called £20bn fiscal hole.
Scottish National Party leader Stephen Flynn urged the City regulator to investigate Reeves and other Downing Street officials over “deliberately false and misleading” briefings about public finances.
In his letter to the body, Flynn suggested government officials had engaged in “market manipulation” by telling media outlets there was a hole in public finances.
His letter came as the Office for Budget Responsibility (OBR) revealed that there was no shortfall in public finances at the time of Reeves’ press conference on 4 November strongly hinting that income tax rates would be hiked because costly productivity downgrades had forced her hand to raise revenue.
Using anonymous Treasury sources, several media reports suggested that there was a £20bn fiscal hole that Reeves was required to fill.
Several reports suggested income taxes would be hiked until the Financial Times published a story stating those plans had been ditched a week and a half after the press conference.
But OBR chair Richard Hughes revealed that there was no shortfall in the public finances. As of the 31 October, Reeves was set to meet her fiscal rules by £4.2bn.
A Treasury spokesperson said: “We are not going to get into the OBR’s processes or speculate on how that relates to the internal decision‑making in the build‑up to a Budget but the Chancellor made her choices to cut the cost of living, cut hospital waiting lists and double headroom to cut the cost of our debt.”
Budget briefings ‘had impact on Bank of England’
Flynn’s letter is set to add to concerns that Downing Street officials misled the public after Tory leader Kemi Badenoch accused the Chancellor of lying.
Pointing to the ‘scene setter’ speech in early November, Flynn said: “That intervention from the Chancellor, alongside the briefings on the need to fill the non-existent £20bn Treasury black hole, had a significant impact on the financial markets, on business investment decisions, on foreign exchange rates and will likely have fed into the Bank of England decision-making around interest rates which took place two days after her speech.”
He called for an “immediate investigation into the accusations of false and deeply misleading Budget briefings emanating from a UK Treasury led by the Chancellor Rachel Reeves”.
A Number 10 spokesperson has denied suggestions that Reeves misled the public by saying she was highlighting “the challenges the country was facing”.
There have been mixed responses to the Budget’s attempts to fix public finances from leading economists.
While the Institute for Fiscal Studies (IFS) claimed there was little “fiscal repair job” to be done given her headroom had not been wiped out, it warned that back-loaded tax rises represented “fiscal fiction”.
The Resolution Foundation said the fiscal “repair job” had been delayed as the left-leaning think tank suggested Budget policies were “deceiving”.
City economists have largely welcomed Reeves’ extra £22bn headroom though some, including economists at Schroders, have cautioned that further tax rises could come amid the UK’s economic woes.