'Of course I didn't' lie about budget forecasts, chancellor tells Sky News - as Badenoch calls for her to resign

The chancellor has insisted to Sky News that she did not lie to the public about the state of the public finances ahead of the budget.

Rachel Reeves is facing widespread accusations that in a speech from Downing Street on 4 November in which she laid the groundwork for tax rises, she misled the country and led the public to believe the fiscal situation was worse than it actually was.

Asked directly by Sky's Trevor Phillips if she lied, she said: "Of course I didn't."

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Ms Reeves said the decision by the independent Office for Budget Responsibility (OBR) to review and downgrade productivity meant the forecast for tax receipts was £16bn lower than expected.

As a result, she said she needed tax rises to create more fiscal headroom (the amount by which government can increase spending or cut taxes without breaking its own fiscal rules) to reassure the financial markets and create stability in the economy.

But the OBR has said it told the chancellor in its forecast on 31 October that there was a £4.2bn budget surplus, rather than a black hole following the productivity downgrade, and Trevor challenged her on why she did not say that to the nation and argue that more headroom was needed.

She replied: "I said in that speech that I wanted to achieve three things in the budget - tackling the cost of living, which is why I took £150 off of energy bills and froze prescription charges and rail fares.

"I wanted to continue to cut NHS waiting lists, which is why I protected NHS spending. And I wanted to bring the debt and the borrowing down, which is one of the reasons why I increased the headroom.

"£4bn of headroom would not have been enough, and it would not give the Bank of England space to continue to cut interest rates."

Ms Reeves also said: "In the context of a downgrade in our productivity, which cost £16bn, I needed to increase taxes, and I was honest and frank about that in the speech that I gave at the beginning of November."

She confirmed that the prime minister was aware of the fiscal forecasts and what she was going to say in her speech on 4 November about the challenges facing the UK economy, saying: "Keir [Starmer] and myself met regularly to discuss the budget and the choices, because these are the choices of this government.

"And I'm really proud of the choices that we made - to cut waiting lists, to cut inflation, and to build up that resilience in our economy."

Tax rises 'not on scale of last year'

Following her budget last year, in which she raised taxes, the chancellor was explicit to Trevor that she would "never need to do that again" or "come back for more".

But Ms Reeves did raise taxes by freezing income tax thresholds until 2031, and implementing a range of smaller tax rises totalling £26bn, so Trevor put to her that what she said last year was not true.

She replied: "The budget this year was not on the scale of the one last year, but as I set out in my speech at the beginning of November, the context for this budget did change and I did have to ask people to contribute more."

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She conceded that it is "true" that she said she wouldn't have to raise taxes, and has now done so, but said it was "for reasons not in my control", pointing to the OBR's decision to conduct a productivity review.

But Conservative leader Kemi Badenoch hit out at the chancellor's handling of the economy, telling Trevor: "I think the chancellor has been doing a terrible job. She's made a mess of the economy, and [...] she has told lies. This is a woman who, in my view, should be resigning."

'I am choosing children'

Ms Reeves also told Trevor that she is "proud to be the chancellor that lifts half a million kids out of poverty" through her decision to lift the two-child cap on benefits from April, which was brought in by the Conservatives in 2017 and meant parents could only claim universal credit or tax credits for their first two children.

Trevor put to her polling that shows that while 84% of Labour members are in favour of scrapping the cap, just 37% of those who voted Labour in 2024 think it should be scrapped.

And asked if she is choosing party over country, the chancellor replied: "I am choosing children, Trevor. This lifts more than half a million children out of poverty, combined with our changes on free breakfast clubs, extending free school meals, 30 hours [of] free childcare for working parents of pre-school age children.

"You can put up those percentages, but the people I was thinking about were kids who I know in my constituency, who go to school hungry and go to bed in cold and damp homes. And from April next year, those parents will have a bit more support to help their kids."

Liberal Democrat deputy leader Daisy Cooper told Trevor that her party backs the decision, saying: " First of all, we think it is morally the right thing to do. And secondly, because it saves money for the taxpayer in the longer term, because we know that children growing up in poverty end up costing the taxpayer more because they have worse health outcomes, worse educational outcomes as well."

But she added that they are "deeply concerned" about "this double whammy stealth tax on both households and on high streets".

'We need growth in our economy'

But the Tory leader hit out at the decision, telling Trevor that lifting the two-child benefit cap is "not the way" to lift children out of poverty, and saying that it means the government is "taxing a lot of people who are struggling to pay for those on benefits".

Ms Badenoch said: "About half a million families are going to be getting an uptick of about £5,000. Many other people don't have £5,000 lying around.

"We believe that people on benefits should have to make the same decisions about having children as everybody else. And remember, we're not talking about child benefits here. We're talking about the universal credit element of it. You get child benefit for as many children as you have.

"But at some point, someone needs to draw a line somewhere."

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Ms Badenoch argued that the way to ensure children are not in poverty is to "make sure that their parents have jobs and that those jobs pay well", and said the level of unemployment has increased "every single month" since Labour came to office in July 2024.

"What we need is growth in our economy. Simply taking out from people who are struggling and giving to a different group of people is not making the economy better," she said.

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