The Chancellor she had made choices to increase taxes and improve public infrastructure, and had ‘chosen to protect public spending’.
Rachel Reeves defended her recent Budget as “fair and necessary”, saying more of the economic “burden” of her decisions should fall on the wealthy.
In an interview with The Guardian, she said she had made choices to increase taxes and improve public infrastructure, and had “chosen to protect public spending”.
“I wasn’t willing to cut public services, because people voted for change at the election,” she said.
Ahead of the Budget, warnings suggested that Rachel Reeves could face a fiscal gap of up to £20 billion in meeting her self-imposed rule of not borrowing for day-to-day spending.
However, controversy emerged after the Office for Budget Responsibility (OBR) revealed on Friday it had informed the Chancellor as early as September 17 that the gap was likely smaller than initially expected.
Ms Reeves said: “People often talk about what chancellors do in their budget, but sometimes what’s more important are the things you don’t do. One of the things I didn’t do was cut the investment that I put into capital spending, new schools and hospitals, new energy infrastructure, rail infrastructure.
“It would have been the easiest thing to do to say the OBR’s done this downgrade, you need to cut our cloth accordingly.”
Ms Reeves also denied claims that working-age people were being asked to carry the bulk of the economic burden.
“It’s quite clear that the economic burden in the budget was not about age. It was about wealth,” she said.
“People who bear more of the burden are those with big incomes and assets… so I don’t accept that.”
Conservative leader Kemi Badenoch said the revelation from the OBR showed Ms Reeves had “lied to the public” and should be sacked.
Downing Street was asked on Friday whether Ms Reeves’ warnings of coming difficult decisions despite the OBR’s improved forecasting meant she had misled the public and the markets in the run-up to the Budget.
“I don’t accept that,” the Prime Minister’s official spokesman said.
He added: “As she set out in the speech that she gave here (Downing Street), she talked about the challenges the country was facing and she set out her decisions incredibly clearly at the Budget.”
On November 4, Ms Reeves set the scene for the Budget with a Downing Street speech that suggested tax rises were needed to secure the UK’s economic future and that poor productivity growth would have “consequences for the public finances” in terms of lower tax revenue.
But a letter from the OBR to the Treasury Select Committee of MPs published on Friday appeared to suggest an improved tax take from growing wages and inflation meant that gap had diminished before she even made the speech.
Dame Meg Hillier, Labour chairwoman of the committee, asked OBR chief Richard Hughes to set out a timeline for its pre-Budget forecast process, which informed the Chancellor’s decision-making.
The OBR’s first fiscal forecast ahead of the Budget, received by Treasury officials on September 17, suggested the black hole was £2.5 billion.
The watchdog’s final forecast on October 31 then suggested that it had been eliminated altogether and that there was now a £4.2 billion net positive above the Chancellor’s day-to-day spending plans.
The prospect of a hike in income tax rates – which was trailed for several weeks – was dropped on November 13, with the Treasury citing improved forecasting.
However, the OBR suggested it had provided ministers with no new forecasting in November.
“No changes were made to our pre-measures forecast after October 31,” the watchdog’s letter to the Treasury Select Committee said.
At the Budget on Wednesday, Ms Reeves hiked taxes by £26 billion, including by freezing thresholds on income tax.
The tax hikes come in response to downgraded economic forecasts but also increased welfare spending because of the abolition of the two-child benefit cap and the Labour revolt over attempts to curb the benefits bill.
Ms Reeves also used some of the tax take to build herself a bigger buffer against her borrowing rules.
The Chancellor also told the newspaper the leak of the OBR’s Economic and Fiscal Outlook (EFO), published more than half an hour before the Chancellor delivered her Commons statement, was “a bit of a scary moment”.
“My worry was that the budget is a story as well as a set of numbers … but in the end it was, I think, OK,” she said.
OBR chairman Richard Hughes has launched an investigation involving a cybersecurity expert, and said he would be prepared to resign if the Chancellor and MPs on the Treasury Committee lost confidence in him.
