Rachel Reeves faced a brutal attack from Labour’s own Treasury watchdog today over the Budget ‘psychodrama’.
Meg Hillier accused the Chancellor of ‘throwing grenades’ at markets in the run-up to the crucial fiscal package on November 26.
Dame Meg, who chairs the powerful Treasury Select committee, warned that Ms Reeves needed to take responsibility for extraordinarily chaotic briefings about the fiscal position.
The intervention – in an article for The i Paper – comes after the Chancellor endured a bruising session in front of the cross-party MPs earlier this week, wriggling as she tried to justify the shambles.
Critics say she talked up ‘black hole’ in the public finances that effectively did not exist to justify announcing another massive round of tax hikes.
There was grim evidence of the consequences this morning as official figures showed GDP unexpectedly dropping into the red in October, with fears of worse to come.
Dame Meg, a Labour veteran who was a minister under Gordon Brown and served in the shadow cabinet, warned that the Treasury’s handling of the Budget had ‘real-world’ impact.
‘We are all accustomed to the proverbial ‘rolling of the pitch’, which essentially means that the government indicates where it intends to make major tax or spending changes in a bid to prepare financial markets for what it’s going to announce,’ she wrote.
‘The pitch rolling is intended to prevent any wild volatility in government borrowing on Budget day.
‘I’m afraid what occurred this year, with the shadow of the mini-Budget looming large, was less a rolling of the pitch and more akin to throwing several grenades on to the pitch.’
Dame Meg highlighted the way Ms Reeves and officials had heavily signalled that a manifesto-busting income tax hike was coming, before it emerged the idea had been abruptly dropped.
That sparked pandemonium on the gilts market, with interest on government debt rising sharply as traders priced in risk that Ms Reeves was not serious about balancing the books.
In order to contain the situation government sources briefed a number of journalists on November 14 that the idea had been dropped because the OBR had recently upgraded tax revenue forecasts.
However, an exact timetable of forecasts released by the OBR later showed that was not the case. In fact the body had been telling the Chancellor since September that productivity downgrades had been offset by higher wages and inflation.
By the end of October she knew the public finances were in a small surplus without accounting for Labour’s own decisions to scrap the two-child benefit cap and humiliating U-turns on other welfare curbs.
Ms Reeves still delivered a highly unusual speech on November 4 giving blood-curdling warnings that ‘everyone’ would need to ‘contribute’ to bailing out the government.
Dame Meg said the government changing its mind on income tax was ‘worse’ because it ‘left everyone either confused or annoyed’.
‘This was a glaring error and one from which all at the Treasury must learn,’ she wrote.
‘Another part of me laments the impact of confused and excessive speculation in the lead up to the Budget.
‘The Institute for Fiscal Studies chief Helen Miller told us last week that she’d seen that ‘firms and individuals are holding back their decision-making’ due to out-of-control briefing and counter-briefing.
‘Westminster psychodrama has a real-world impact, and the Government must choose its words extremely carefully. It’s regrettable that it doesn’t appear to have done so in recent months.’
Dame Meg acknowledged that the Treasury had to strike a difficult balance between ‘preparing the country and financial markets while preserving the sanctity of Parliament as the avenue for announcing major policy decisions’.
‘But the Chancellor has wanted this job for most of her life,’ she added.
‘It is her responsibility to identify and accept the mistakes made within the process she leads and make sure they do not happen again.
‘Now, more than ever, the country needs leadership with the strength to acknowledge what has gone wrong and learn from it.’
Ms Reeves told the committee this week that there were ‘too many leaks’ about the Budget and they were ‘very damaging’.
The Chancellor insisted she was ‘frustrated’ and is now ‘doing something about it’ by launching an official probe into who was responsible.
She said a ‘review’ is also being conducted into the department’s ‘security processes’.
Dame Meg added on Times Radio this morning: ‘What I’m saying here very clearly is that the Treasury as a whole has a responsibility… pitch-rolling is one thing, but over-egging things or spinning things or changing positions has been quite, there’s been a lot of that noise around this budget.
‘It has not been helpful.’
