The Chancellor described how she decided on tax policies with the PM (Image: Getty)
Rachel Reeves has insisted that the Prime Minister shares responsibility for her controversial Budget decisions, which critics warn will result in pensioners and low-wage workers paying income tax for the first time. Ms Reeves told MPs that the pair worked “together as a team” and that Sir Keir Starmer had been talked through “all the options”.
The Chancellor was grilled at the Treasury Select Committee on the decision not to raise income tax rates but instead freeze the point at which people must pay the tax for a further three years. The Institute for Fiscal Studies claims the decision to freeze personal tax thresholds between 2028 and 2031 will result in about 700,000 more people paying income tax and a million more paying higher rates. In the previous year’s Budget, Ms Reeves had said “extending the threshold freeze would hurt working people” and “would take more money out of their pay slips”.
Ms Reeves described how she and Sir Keir came to a joint decision.
She said: “The Prime Minister and I met two to three times a week during the Budget process.
“That is not always the case between Chancellors and Prime Ministers, I recognise that, but there is a very close partnership between myself and the Prime Minister, and so we took him through all of the numbers and and all of the options, and we decided it together as a team because that is what the Prime Minister and I am.”
Read more: Jobless families ‘£18k better off’ than working neighbours post-Budget
Read more: Britons give damning verdict on Rachel Reeves’s ‘broken promises’ Budget
Ms Reeves denied the freeze in the tax thresholds was a breach of the manifesto because it “referred to the rates of income tax and National Insurance and the rate of VAT”.
The run-up to the Budget was marked by multiple leaks about the Treasury’s plans. This culminated with the Office for Budget Responsibility (OBR) publishing its assessment online before the Chancellor had delivered her speech.
Treasury permanent secretary James Bowler told the MPs a leak inquiry will cover ministers as well as officials and advisers.
Ms Reeves said: “The Budget had too much speculation. There were too many leaks, and much of that, those leaks and speculation, were inaccurate, very damaging, as well as the IT security issues.
“I want to say on the record how frustrated I am and have been by these incidents and the volume of speculation and leaks, and that is why I am doing something about it, because we cannot allow this to happen again.
“A leak inquiry is under way with my full support, being led by the permanent secretary at the Treasury, and we are also conducting a review of the Treasury security processes to inform future fiscal events.”
Ms Reeves insisted a Financial Times story that disclosed she had dropped plans for an income tax rise was based on a leak, not an authorised briefing.
Describing the story as “incredibly damaging”, she told the MPs: “It was not briefing that was signed off by me, any of my ministers or officials. It was unacceptable. That is why there is a leak inquiry going on.”
Mr Bowler hit back at the suggestion leak inquiries “don’t get anywhere,” saying: “It is the case that, even in the last year, across government, civil servants have been found to accidentally or deliberately leak information and that has led to action including dismissal.”
During the Treasury Committee hearing, the Chancellor clashed with former Treasury minister Dame Harriet Baldwin.
Dame Harriet said: “In the run-up to the General Election you said that you had no plans for tax rises beyond what was in your manifesto and that you would focus on growth.
“You have now put together two of the biggest tax-raising Budgets in UK history, and the Office for Budget Responsibility has told us that there is not a single measure overall that has a positive growth impact.
“They think, in fact, tax hikes are harming growth.”
Rachel Reeves before the Treasury Committee (Image: Parliament TV)
Ms Reeves defended her decisions, claiming that on the weekend she became Chancellor, she was told by Treasury officials of a “£22billion black hole” in the public finances and that revenues had been hit by a £16billion downgrade to productivity.
Insisting that the Government is working for growth, she said: “In the week of the Budget, we made further progress on the runway at Heathrow; we signed off the film studio at Marlow.”
But Dame Harriet suggested her “revealed preference now” is that “you hike taxes a lot”, arguing the “impact of the speculation in the run-up to this Budget had a real-world impact” on mortgages, pensions and decision-making.
She challenged the Chancellor to rule out introducing capital gains tax on primary residences and scrapping the pensions triple lock. Ms Reeves said neither would happen.
Later in the House of Commons, Shadow Chancellor Sir Mel Stride attacked the conduct of Ms Reeves, saying: “The reason why [this] Government has failed can be distilled down to just two words. One of them is ‘deceit’ and the other is ‘incompetence’.”
He claimed that “about 90,000” in the hospitality sector had been “destroyed” as “direct consequences of the increase in National Insurance”.
Sir Mel said: “I have spent a lot of time speaking to employers, everything from the large employers down to those in the high streets – they are all struggling and they are struggling because of the decisions that were taken by this Chancellor.”
