Keir Starmer on Monday mounted a robust defence of his government’s tax‑raising budget, insisting he is “proud” of the package and rejecting claims that ministers misled the public about the state of the public finances.
Speaking at a neighbourhood centre in London, the prime minister said the November budget, which will raise about £26bn a year in extra tax by the end of the decade, represented “fair choices” to protect public services, tackle child poverty and rebuild economic resilience after years of “decline”.
His comments came as a growing backlash over how the budget was trailed threatens to become the first major test of Labour’s economic credibility in office. Opposition parties allege the Treasury exaggerated talk of a large fiscal “black hole” in the run‑up to the statement, even after official forecasts had improved, in order to soften voters up for tax rises.
Starmer insisted that was not the case. ‘We did not mislead the public,’ he said, arguing that decisions were taken against a backdrop of shifting projections from the Office for Budget Responsibility (OBR), including an early downgrade to productivity that at one point appeared to push the government close to breaking its own fiscal rules.
According to correspondence later published by the OBR’s chair, Richard Hughes, the watchdog produced five pre‑budget assessments for the Treasury this autumn. The first, in early October, suggested the chancellor, Rachel Reeves, was on course to miss at least one fiscal rule by a narrow margin. But subsequent iterations through October and November showed the rules being met, as higher‑than‑expected inflation and wages bolstered tax receipts, albeit with only slender headroom.
Despite this improvement, Reeves spent much of November warning of “tough choices” ahead. In a speech on 4 November she highlighted the hit to the public finances from weaker productivity and hinted that keeping Labour’s manifesto pledge not to raise the main rates of income tax might require “deep cuts” elsewhere. A mid‑month radio interview struck a similar note, helping to fuel media speculation about a £20–30bn “black hole”.
The OBR’s letter, released after budget day, showed that by late November Reeves was projected to meet her main fiscal rule – putting debt on a falling path in five years’ time – with headroom approaching £22bn once her measures were factored in. That revelation prompted Conservative leader Kemi Badenoch to accuse her of having “lied to the public” and to demand her sacking.
Reform UK has called for the prime minister’s independent ethics adviser to investigate whether Reeves breached the ministerial code by giving a misleading impression of the scale of the problem. The Scottish National party’s Westminster leader, Stephen Flynn, has written to the Financial Conduct Authority alleging that Treasury briefings about a “non‑existent” £20bn gap amounted to market manipulation. Neither body has announced a formal inquiry.
Downing Street argues that ministers simply set out the uncertainties facing the economy rather than specific forecast numbers, and that the later improvements did not remove the need for difficult decisions. Officials point out that, even after the budget, the five‑year margin over Reeves’s rule remains historically modest, leaving little room for shocks without forcing spending cuts or fresh tax rises.
The budget itself combined some of the sharpest tax increases in recent years with a flagship pledge to scrap the two‑child limit on benefits from April. The OBR expects the change to boost payments for around 560,000 families and, according to government figures, could lift up to half a million children out of poverty by the end of the decade.
To pay for that and to build what Reeves describes as a stronger “fiscal buffer”, the Treasury has extended the freeze on income tax thresholds, a move that will pull an estimated 1.7 million more people into higher bands by 2029–30. A new levy on properties worth more than £2m will be introduced later this decade, while higher tax rates on dividends, savings and rental income and a new charge on some salary‑sacrifice pension contributions are due to take effect from 2029. The OBR says the overall tax burden is now on course to reach about 38 per cent of national income by 2030–31, a modern‑era high.
Reeves has framed the package as progressive, arguing that wealthier households and those with substantial assets will shoulder a greater share of the burden. In her budget speech she said there would be “no return to austerity” and that maintaining investment in the NHS and infrastructure required “everyone to make a contribution”.
Inside Labour, the decision to fund abolition of the two‑child cap through higher taxes rather than spending cuts has reassured many MPs after an earlier revolt over welfare reforms. Others, particularly in marginal seats, are uneasy about the impact of prolonged threshold freezes on “working people” already struggling with living costs.
Starmer on Monday tried to shift the debate from the row over forecasts to his wider economic mission, promising a long‑term push for growth built on regulatory reform, what he calls a “moral” overhaul of welfare, and closer economic ties with the European Union. He argued that building up a sizeable fiscal cushion was essential to avoid the kind of market turmoil that followed the Conservative mini‑budget in 2022.
With Labour now trailing Reform UK in some national polls and both the prime minister and chancellor recording historically low satisfaction ratings, the stakes are high. Whether voters accept Starmer’s claim that the budget was an honest attempt to “confront reality” – rather than a tax grab sold on overstated gloom – may shape not only his economic strategy, but his chances in next year’s local and devolved elections.