Reeves accused of ‘fiscal fandango’ amid OBR forecast changes
The Bank of England’s former chief economist Andy Haldane has accused Rachel Reeves of overseeing “fiscal fandango” in the lead-up to the Budget amid months of speculation around expected tax rises.
Speaking to the BBC, Haldane blasted months of speculation around the Budget that had caused “paralysis” in the UK economy.
His comments came days after he had criticised “repeated mistakes” on Budget leaks that had stunted growth in the country.
He told the BBC on Sunday morning: “We have had month upon month of speculation – fiscal fandango,” Haldane said.
“That has been costly for the economy. It’s caused paralysis among businesses and consumers. It’s the single biggest reason growth has flatlined in the second half of the year.
“Next week, we need a decisive action that puts to bed and beyond reproach any notion of further tax rises.”
Haldane’s intervention has come amid calls for the Chancellor to increase her headroom at the Budget to reduce the chances of forecasts wiping out her headroom.
It has also come as reports suggested Reeves had been able to ditch plans to raise income taxes due to improved projections on public finances by the Office for Budget Responsibility (OBR).
In response to claims of Budget speculation stifling growth, transport secretary Heidi Alexander said the process had taken place on “shifting sands” due to changes in OBR forecasts before the Budget.
“The review that the OBR has done about the productivity forecasts has meant that this whole process has really taken place on shifting sands to start off with, and we’ve got a very challenging global economic environment,” Alexander said.
Reeves promises post-Budget welfare reform
Criticism of the government’s handling of the Budget process will pile pressure on Reeves to deliver a Budget that keeps economic growth on track while maintaining political support across the voter base.
Writing in The Sunday Times, Chancellor Rachel Reeves said she would push ahead with welfare reform after the Budget amid further reports that she would make a £3bn commitment to scrap the two-child benefit cap.
The Chancellor said she is determined to stop the government from squandering funds, adding that “there is nothing fair or progressive about unfairness and waste in government”.
The £3bn spending commitment will be seen as a means to fend off growing opposition to Keir Starmer and Reeves on the Labour backbenches, though she may face some questions over hiking taxes while letting disability payments increase by over £20bn over the next four years.
In a message to traders in bond markets looking for greater fiscal prudence from the government, Reeves said in The Sunday Times she would introduce welfare support to tackle youth unemployment and curb fraud in the system.
The main focus of the Budget would be to lower the cost of living, which could prompt further interest rate cuts and help lower government borrowing costs.
“These choices are only possible because of the stability we have brought back to the economy. With my ironclad commitment to the fiscal rules, I will maintain financial stability and bring down debt,” she wrote in The Sunday Times.
“I will build the headroom I need so that the country is prepared for increasingly unstable global headwinds.”
According to the newspaper, the main tax rises at the Budget will include freezing the income tax threshold for another two years and adding a “mansion tax” that involves a surcharge on the most expensive properties.
Reeves is also expected to make national insurance be paid above a new cap on salary sacrifice schemes and to introduce a pay-per-mile scheme on electric cars.