OBR confronted Treasury about ‘unhelpful’ policy leaks before Reeves’ Budget

Britain’s economic watchdog confronted senior government officials over a series of chaotic leaks and briefings about the Budget ahead of Rachel Reeves’ formal announcement, it has emerged, as it was forced to deny being “at war” with the Treasury.

Officials at the Office of Budget Responsibility (OBR) told the Treasury committee on Tuesday that leaks over the fiscal statement – which included proposals over mansion tax, income tax, ISAs and pensions, as well as briefings about the state of the public finances – were “unhelpful”.

Budget responsibility committee member Professor David Miles was quizzed by MPs a day after the watchdog’s boss Richard Hughes resigned following a critical report into how the OBR’s assessment of the chancellor’s plans was inadvertently published online before she had delivered her speech last Wednesday.

But it also come as Ms Reeves’ faced questions over allegations that she misled the country and the markets ahead of the Budget by failing to disclose that the OBR had told her she had a £4bn surplus rather than a £20bn deficit.

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The briefings by Ms Reeves and by officials were a major cause of concern for the OBR, Professor Miles told MPs.

“I don’t think there was any formal complaint. We were obviously aware that information seemed to be getting into the press,” he told the committee.

“There was lots of information appearing in the press which wouldn’t normally be out there and this wasn’t, from our point of view, particularly helpful.”

Asked if the OBR raised it with the Treasury, he said: “I think it was clear that we didn’t find this helpful. We made that clear.”

Former Bank of England chief economist Andy Haldane has also previously warned that the briefings and U-turns on issues like income tax were “the single biggest reason why [economic] growth has flatlined”.

Speaking on Tuesday, Prof Miles also insisted that the OBR is not at loggerheads with the government but admitted that he hoped for a “smoother” process next year.

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Two days after the Budget, the OBR sent a letter to the Treasury committee suggesting the outlook for the economy was better than Ms Reeves had described. The chancellor and the prime minister also failed to back the watchdog over the Budget document blunder, with Sir Keir Starmer describing it as a “serious error” and a “massive discourtesy” to parliament, hours before Mr Hughes quit.

Prof Miles told MPs: “I think we felt there was a need in that letter to set the record straight and to remove some misconceptions that we saw circulated in the media.”

In another flashpoint, ministers are reported to be frustrated that the watchdog did not undertake its review of productivity forecasts earlier, while the Conservatives were still in charge, leaving Labour to deal with the hit to expected tax revenues.

Prof Miles said: “I wouldn’t say we were at war with the Treasury. I mean, we have a very close relationship with the Treasury. In fact, we rely not just on the Treasury but other departments in government for analysis of many sorts of measures.”

He added: “There are lots of very good – from my point of view – economic analysts in the Treasury and we rely heavily upon them.

“I hope we can run a process in the future – and we’ll do everything we can – that is somewhat smoother than the process we’ve just been through.”

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Prof Miles told MPs the letter had been intended to correct “misconceptions” in the press that the OBR was either acting as the government’s “patsy” or that its forecasts had been “all over the shop”.

In the run-up to the Budget, Ms Reeves had repeatedly warned that the OBR’s downgrading of productivity would have an impact on the public finances – fuelling speculation that she would break Labour’s manifesto commitment not to increase income tax rates.

During an unusual speech on 4 November, the chancellor appeared to roll the pitch for manifesto-busting increases in income tax, saying the OBR’s downgrade of productivity would have an impact on the public finances.

The chancellor in part blamed the £26bn of tax rises in the Budget on the downgrade, which delivered a £16bn hit to tax revenues.

But it has since emerged that, by the time the speech was given, the OBR was forecasting that she would remain within her rules of funding day-to-day spending through taxes rather than borrowing by a “very small” margin of £4.2bn, due in part to the tax impacts of higher wages and inflation.

Speaking on Tuesday, Prof Miles said Ms Reeves’s pre-Budget speech and press conference was not “inconsistent” with the figures she had been given by the OBR.

He said: “My interpretation was, and others might interpret differently, that the chancellor was saying that this was a very difficult Budget and very difficult choices needed to be made.

“And I don’t think that that was in itself inconsistent with the final pre-measures assessment we’d made, which, although it showed a very small positive amount of so-called headroom, it was wafer-thin.”

On 10 November, Ms Reeves told the BBC that sticking to the manifesto commitment not to increase income tax rates would only be possible with “deep cuts” to public investment.

But by the end of the week, the plan to hike income tax had been dropped, with Treasury sources indicating an improvement in the OBR forecasts, in a dramatic U-turn which added to the chaos in the run-up to the Budget, even though there had been no change.

Prof Miles said: “It’s certainly true that there wasn’t any immediately good bit of news in that particular window.”

Giving his personal view, he added: “I don’t think it was misleading for the chancellor to say that the fiscal position was very challenging at the beginning of that week.

“Whether a message was then put out to say ‘well, it’s less challenging by the end of the week’, I don’t know, and I don’t know where that message would have come from.

“It certainly didn’t reflect anything that was news from the OBR being fed into the government.”

The evidence session comes on a day when the Organisation for Economic Cooperation and Development (OECD) has warned that after Ms Reeves’ Budget, economic growth expectations are down while unemployment is likely to go up.

Meanwhile, Downing Street has denied suggestions that the government put pressure on Mr Hughes to resign after the Budget leak investigation into the OBR.

A spokesman said: “It is categorically untrue that Richard Hughes was forced to go. The chancellor has written to Richard and thanked him for leading the office for Budget Responsibility in his many years dedicated to public service.

“The government more widely, is absolutely committed to the OBR’s Independence and its vital role as a core part of our fiscal framework, which is why one of the first acts of this Parliament introduced the fiscal lock so that the OBR could never be sidelined.”