Rachel Reeves has been accused of delivering a ‘smoke and mirrors’ Budget as pubs, hotels, shops and restaurants could face crippling tax rises next year.
On Wednesday, the Chancellor announced a reform of business rates, which critics have claimed is a ‘stealth tax’ on the high street which could trigger mass shop closures early next year.
This follows fresh accusations on Friday that Ms Reeves ‘lied’ to the public and the markets after the Treasury’s own watchdog revealed she was told months ago that there was no hole in the public finances.
The Budget this week promised a ‘new golden era for hospitality’ as Ms Reeves said in her Commons speech that she would ‘permanently lower tax rates for over 750,000 retail, hospitality and leisure properties’.
She announced plans to introduce a new tiered system for business rates, whereby the tax charge would vary depending on the size and value of a business’ premises, saying this would deliver ‘the lowest tax rate since 1991’ for the hospitality sector.
Yet on the same day, a separate government agency released a new, much higher assessment of the value of the buildings used to calculate business rates – meaning the levy will actually increase significantly next year for the average high street business, the Times reported.
Ms Reeves also left out of her speech the fact that the 40 per cent discount on business rates, introduced for many pubs, restaurants and shops during the pandemic, will be ending in April.
Combined, this will undermine any potential benefits from the reforms announced in Reeves’ Wednesday speech, leading critics to label it a ‘stealth tax’ and the result of a ‘smoke and mirrors’ Budget.
The Chancellor’s Budget on Wednesday failed to mention that there would be a new, much higher assessment of the value of the buildings used to calculate business rates, nor that the 40 per cent discount on business rates for many pubs, restaurants and shops introduced during the pandemic would be ending in April
It comes as Ms Reeves was accused of ‘lying’ after the Treasury watchdog revealed on Friday that she was told months ago that there was no hole in the public finances – despite giving a series of grim warnings about the state of the government’s books in the run-up to the Budget.
The Chancellor flagged that the Office for Budget Responsibility was downgrading productivity, as well as blaming everything from Brexit to Tory austerity and Donald Trump for a ‘worse than expected’ outlook.
Ms Reeves even made a highly unusual ‘scene setter’ speech in Downing Street on November 4 hinting that she would have to breach Labour’s manifesto promises not to increase income tax.
And six days later she gave an interview to the BBC in which she insisted that the only way to balance the books without an income tax hike was to cut ‘capital spending’ – something she made clear she was not willing to do.
However, a bombshell letter from the OBR to the Treasury committee has now laid bare that Ms Reeves has known since September that revisions to tax revenues had almost completely offset a £21billion productivity downgrade.
By October 31 the watchdog said it had informed Ms Reeves that she was in fact meeting both her fiscal rules without the need for any action – giving her more than £4billion in headroom.
In the event the Chancellor announced an eye-watering £30billion package of tax rises on Wednesday, a large chunk of which went on benefits rises that had been demanded by mutinous Labour MPs.
She had already U-turned on the hints of income tax rises – if they were ever seriously considered – but only after the fact they were not happening was leaked to the Financial Times.
Rachel Reeves was accused of ‘lying’ to the public and markets on Friday after the Treasury’s own watchdog revealed she was told months ago that there was no hole in the public finances
In a letter to the Treasury Select Committee published today, OBR chair Richard Hughes set out the exact timeline of what the Chancellor was told.
The watchdog’s initial forecasts did not account for the costs of Labour’s humiliating U-turns on benefits curbs and scrapping winter fuel allowance.
But Mr Hughes spelled out that Ms Reeves had been notified in mid-September that the impact of productivity downgrades – worth around £21billion a year – had been wiped out by upgrades to taxes.
‘The 0.3 percentage point reduction in underlying productivity growth was included in our Round 1 forecasts for the economy (transmitted to the Treasury on 17 September) and for the public finances (transmitted to the Treasury on 3 October),’ he said.
‘Our Round 1 forecast was also a full forecast and therefore also included increases in real wages and inflation which offset the impact of the productivity downgrade on receipts.’
He said that ‘other changes in the outlook for spending’ meant that the Treasury’s target for balancing spending was missed by a small margin of £2.5billion.
The target for having public sector debt falling was seen as being missed by a tiny £0.5billion.
‘Our Round 3 fiscal forecast, the final pre-measures forecast, was submitted to the Chancellor on Friday 31 October,’ Mr Hughes continued.
‘In this forecast round, both of the Government’s fiscal targets were on course to be met with headroom of £4.2billion for the current balance and £11.1billion for PSNFL falling.
‘No changes were made to our pre-measures forecast after 31 October.
‘The only changes to the post-measures forecast reflected the impact of the policies submitted by the Treasury in the two subsequent forecast rounds: Round 4, which reflected the impact of the Government’s initial policy package, and Round 5, which reflected the impact of the final policy package.’
Ms Reeves defended the huge tax rises in her Budget by saying she had rebuilt the headroom to more than £20billion – double the amount after her previous fiscal package.
Tory leader Kemi Badenoch posted on X: ‘Yet more evidence, as if we needed it, that the Chancellor must be sacked.
‘For months Reeves has lied to the public to justify record tax hikes to pay for more welfare.
‘Her Budget wasn’t about stability. It was about politics: bribing Labour MPs to save her own skin. Shameful.’
Shadow chancellor Mel Stride said: ‘Rachel Reeves’ broken tax promises and the briefing debacle in the run up to the Budget have had real consequences for our economy and for people across the country. The Chancellor must now do the right thing and step down.’
Tory frontbencher Neil O’Brien said: ‘She lied so that she could produce ”better than expected” numbers and say rates were not going up as a budget ”rabbit”.’
One Treasury veteran told the Daily Mail that playing ‘fast and loose’ with briefings would come back to bite the Chancellor.
‘HM Treasury cannot mislead media – they need to be trusted as their word may be needed to stop bad stuff happening,’ the veteran said.
Downing Street denied that Ms Reeves had ‘misled’ the country, saying she had been ‘very clear’ about the decisions.
Asked about the OBR telling Ms Reeves that the productivity downgrade had already been fully offset, a No10 spokesman said: ‘At the Budget she set out the decisions very, very clearly.’
Pressed that Ms Reeves could have ‘significantly misled’ markets, the spokesman said: ‘I don’t accept that. As she set out in the speech she gave here, she talked about the challenges the country is facing. She set out the decisions very clearly at the Budget.’
