what did Rachel Reeves know — and when?

Rachel Reeves has been accused of misleading the public by exaggerating the fragile state of public finances in the run-up to this week’s Budget, to justify raising taxes in order to increase social care spending.

The row was sparked by revelations on Friday by the Office of the Fiscal Controller, the Office for Budget Responsibility, that the official fiscal forecasts were better than the Chancellor had suggested earlier in the autumn.

So what did Reeves say — and what did she know — in the past three months?

August 7: During the summer recess at Westminster, the Office for Budget Responsibility contacted the Chancellor. Richard Hughes, head of the Office for Budget Responsibility, has sent a special note summarizing the findings of the FCA’s pre-Budget assessment of the supply side of the UK economy.

The memo delivered the news that Labor ministers had been dreading for months: the Office for Budget Responsibility would cut its central forecast for productivity growth by 0.3 percentage points. This alone would cut public finances by £16 billion, according to budget documents released last week.

The move came after an annual “assessment” of the economy by the Office of Budget Control. Economists had long been anticipating the downgrade because previous forecasts by the Office for Budget Responsibility had implied an unexpected rebound in growth.

September 17: The Budget Office transmitted its preliminary economic forecasts to the Treasury Department. This confirmed the decline in productivity but crucially indicated that the effect would be largely offset by increases in real wages and inflation.

Reeves set a fiscal rule under which the government needs to fully fund day-to-day spending with revenue by 2029-30.

The OBR’s full financial forecasts, which arrived on 3 October, suggest the government’s current balance target of £2.5bn will fall short of being met. If Reeves wants to maintain its current fiscal margin of £10bn, it will need to raise around £12.5bn through tax increases or spending cuts.

September 26: In an interview with The Times on the eve of the Labor Party conference in Liverpool, Reeves hinted at higher taxes, blaming “hard” productivity cuts, while ignoring countervailing factors that mitigate the problem. “I will respond to him because it is important that I can give that confidence that we will continue to provide economic stability,” she pledged.

September 29: The Chancellor said she had not received the Office for Budget Responsibility’s final projections, but acknowledged “we will respond to those projections with a mix of changes, if necessary, in relation to tax and spending.”

October 20: OBR sent out an update to its forecast where its outlook was somewhat rosier. It is estimated that the government will be on track to meet its fiscal target with a surplus margin of £2.1 billion – still below the previous fiscal high.

October 27: The Financial Times revealed that the Office for Budget Responsibility has made a 0.3 percentage point cut in its productivity growth forecast. She cited analyst estimates that this could result in a £20 billion loss to public finances, while adding that offsetting factors could influence the ultimate size of the fiscal hole. External forecasters disagreed on what the productivity cut would mean, with analysts such as Michael Saunders of Oxford Economics stressing that it could be balanced by higher wage expectations.

October 27: As speculation mounted about an income tax hike, Reeves used a speech in Saudi Arabia to say she was ready and willing to increase taxes to meet her fiscal rules and provide resilience against future shocks. She added that the Office for Budget Responsibility was “likely to reduce productivity” as a result of the financial crisis and Brexit.

October 31: The Office for Budget Responsibility passed its final advance action forecasts to the Treasury, at which point public finances improved again. The government was on track to meet its financial target of £4.2 billion. This was down from the £10bn financial rise in March, but only by £6bn or so.

Reeves could now have achieved his fiscal targets without raising taxes, but the Chancellor would have faced investor backlash by leaving such a good margin.

The Chancellor also needed to find almost £7bn to pay for previous shifts on cutting disability payments and winter fuel payments for pensioners. Removing the two-child benefit cap in the Budget would cost another £3bn.

November 4: Reeves made the unusual decision to hold a pre-Budget speech and press conference in Downing Street. The implicit message was that tax increases were coming and that the general public needed to prepare for a higher income tax. “What I want people to understand before the budget is the circumstances we face,” she said. “Everyone will have to contribute.”

We now know that this promotion of an income tax rise – a major breach of Labour’s manifesto – was taking place while public finances were tight, but the deficit compared to March was relatively modest.

06 November: After weeks of speculation across Fleet Street about a rise in income tax, The Times reports it will rise in the Budget.

November 13: Late in the evening, the Financial Times revealed that Reeves and the Prime Minister had dropped the income tax hike plan, prompting government bond yields to jump the next morning.

November 14: Bloomberg first reported in a press conference that the income tax policy had been dropped because the economic outlook improved at the last minute, with a fiscal decline of £20 billion instead of £30 billion. The Financial Times reported the same figure that day, citing government officials, and quoted a senior official as saying: “I will not deny that politics was a factor.”

The Office for Budget Responsibility has now revealed that changes to its forecasts since 31 October were driven solely by the Government’s policy proposals.

November 26: Budget day. The Office for Budget Responsibility’s budget commentary – including Reeves’ tax changes – was accidentally leaked 50 minutes before the Chancellor began speaking in the House of Commons, after a Reuters reporter guessed the website URL for the report. Ministers were furious, while a senior Labor MP called for Hughes’ resignation.

Reeves announced £26bn in tax rises, mostly to fund increases in social care spending and a doubling of the “fiscal buffer”.

November 28: A letter from Hughes of the Office of Budget Oversight to Dame Meg Hellyer, Chair of the Treasury Select Committee, outlining “the evolution of our forecasts between early August and Budget Day.” The letter, which showed there was no financial black hole, sparked an angry reaction from opposition MPs.

The letter was intended to “lay out the facts” about the development of the CBO’s forecasts in light of “the unusual amount of speculation on this subject ahead of Budget Day,” Hughes wrote.

He added: “I consider it appropriate to provide the committee with some limited details from previous rounds of forecasts in order to address any potential misconceptions regarding them.”

Hughes is due to appear before the Treasury Select Committee on Tuesday, where he will undoubtedly face further questions about how the briefing war has developed.