This morning, there’s a debate raging about whether Rachel Reeves can survive the revelation that she deliberately lied to the voters, the markets and Parliament over her £26billion Budget hammer blow to the working people of Britain. But that’s the wrong question.
The real issue is whether the Chancellor will have to resign, or if she’s heading to jail.
The facts are uncontested. On September 17, Reeves was handed some good news. The Office for Budget Responsibility (OBR) informed her the £20billion budget black hole she believed she was facing had actually shrunk to £2.5billion, as a result of changes to real wages and inflation.
Yet for some inexplicable reason, she ignored the new positive forecast. On November 4, she delivered a bizarre ‘scene-setting’ speech in which she produced a chilling analysis of the nation’s finances.
‘It is my job to deal with the world as we find it,’ she said, ‘not the world as I would wish it to be. Not to commentate or speculate. But to act.’
Immediately afterwards, her aides explained this meant income tax was going to have to rise. Then Reeves panicked. In the face of opposition from her own backbenchers – and with Labour‘s focus groups showing a potentially existential backlash against a manifesto breach – it was hurriedly announced the basic rates of tax would not be raised after all.
At which point, the markets moved. Confronted by the Chancellor’s clear loss of nerve, yields on government bonds soared, ratcheting up the already mountainous government debt.
Rachel Reeves speaks to nurses and members of the media during a visit to University College London Hospital
Someone inside the Treasury hurriedly picked up the telephone to Alex Wickham, a journalist for the financial and political news service Bloomberg, and briefed him that the OBR forecast (at that time, still highly confidential) had given the Chancellor more financial room for manoeuvre.
The decision to drop the hike in tax rates was an economic, not political, decision they insisted. So Reeves lied. And then lied. And then lied. And then lied again.
She insisted during the election she would not raise taxes on working people. In last year’s Budget she underlined that pledge, saying: ‘I have come to the conclusion that extending the threshold freeze would hurt working people.’
A few days later, she tripled down, saying: ‘Public services now need to live within their means because I’m really clear, I’m not coming back with more borrowing or more taxes.’
Then she decided public services wouldn’t have to live within their means after all. The tax threshold freeze would be extended. Taxes on working people would rise. And, as we now know, the explanation given for those rises was a complete fiction as well.
So Rachel Reeves didn’t just lie. She lied about raising taxes. She lied about raising them on working people. And then she lied about the very reason for her lying.
But that’s not where the perfidy ends. As the OBR confirmed, the Chancellor was not dealing with the world as it was. She deliberately distorted the fiscal picture to justify her tax raid.
Contrary to her claim, she was consistently ‘commenting and speculating’, first to manage political expectations, then to try to stabilise the markets when that management went awry. With potentially dire consequences.
Yesterday, Shadow Chancellor Mel Stride wrote to Nikhil Rathi, head of the Financial Conduct Authority (FCA), demanding an investigation into an apparently clear attempt to manipulate the markets through selective and unauthorised briefing of highly sensitive data – a prima facie breach of regulatory law.
The FCA’s rules are clear. ‘Criminal sanctions for insider dealing and market manipulation can incur custodial sentences of up to ten years and unlimited fines.’ Reeves knows this only too well.
In 2005, while working at the Bank of England, she wrote a paper: ‘Do financial markets react to Bank of England communication?’
Rachel Reeves during her budget speech in the House of Commons on Wednesday
In it she stated: ‘The idea that transparency is always good is not universal.’
She also looked at how speeches influence markets. Her conclusion was that they tended to have ‘little impact’, but then added: ‘We do not suggest that individual speeches or comments never materially influence market prices. Several speeches… have indeed occurred on days of large movements in financial markets.’
In previous scandals, Reeves has feigned ignorance, such as the recent furore over her letting licence. But it’s difficult to see how she can repeat that trick this time. If she admits authorising the briefing of sensitive market data, she is damned. And if she denies involvement, it confirms an authorised leak, necessitating a full investigation.
This weekend, Labour MPs are alarmed and perplexed at how their Chancellor has precipitated yet another government crisis.
‘Why did she do it?’ one exclaimed. ‘How did she think this wouldn’t come out?’
The answer is Reeves’ increasingly selfish fight for political survival. Ministers I’ve spoken to in recent weeks have been speculating about her constructing a ‘war-chest’ to be unveiled in the run-up to the next election.
As one said, ‘This fiscal headroom line is rubbish. What she wants is a huge reserve she can splash on tax cuts in the run-up to polling day.’ Which would in effect mean trying to buy off voters with their own money.
Rachel Reeves was always going to face a reckoning over her deceit. As things stand, she will be fortunate if that involves only the loss of her job, and not her liberty.
