Fears Rachel Reeves might have to return for MORE tax as OBR chief warns government's books are still vulnerable after Budget - with welfare costs rising
Fears have been fuelled that Rachel Reeves might be back for even more tax as the Treasury watchdog warned that the public finances are still vulnerable.
Professor David Miles, who sits on the OBR's committee, said the £22billion of 'headroom' the Chancellor had left herself at the Budget was still not 'very large'.
The intervention comes after Ms Reeves carefully avoided repeating the now-broken promise she made last year that taxes would not rise again.
Tensions have been running high between the OBR and Treasury after the body's head Richard Hughes was forced to quit.
The departure was ostensibly over an extraordinary Budget leak - but Mr Hughes had incurred the wrath of ministers by revealing that Ms Reeves was told months ago that there was no black hole in the finances.
She continued to deliver blood-curdling warnings about the problems publicly, despite Labour's own policy choices being responsible for most of her difficulties.
Professor David Miles, who sits on the OBR's responsibility committee, said the £22billion of 'headroom' the Chancellor had left herself at the Budget was still not 'very large'
The intervention comes after Ms Reeves carefully avoided repeating the now-broken promise she made last year that taxes would not rise again
Speaking at a Centre for Policy Studies (CPS) event, Prof Miles said Ms Reeves had opted to increase taxes instead of trimming spending.
Prof Miles pointed out that the OBR's productivity downgrade controversially talked up by the Treasury for weeks before the package had been 'more than offset' by higher forecasts on tax revenues and inflation.
But he laid out that the previous £10billion of 'headroom' detected in March had been wiped out by spending that had risen 'quite a lot'.
That included significant extra welfare costs, after Labour humiliatingly abandoned a bid to curb benefits 'substantially' and restored the winter fuel allowance to millions of pensioners.
Prof Miles told the event this morning: 'So all those moving parts, where that left the situation for the Chancellor... was that the so-called headroom which had been £10billion was pretty much all gone.'
The OBR official said Ms Reeves was left with 'virtually no headroom and a well-expressed desire from the government that they wanted the headroom to be not just back where it was... but quite a long way North of that'.
Prof Miles said the £26billion of tax increases the Chancellor imposed by 2029 was 'in a sense the means used to create a bigger buffer or headroom rather than substantial cuts in spending'.
'Obviously it's a political decision how you try to close that gap, or indeed whether you try and close that gap,' he added.
Prof Miles said there is a 'lot to be said for trying to have a bigger buffer against the fiscal targets'.
But he warned that the £22billion of 'headroom' forecast now still might not be enough - amid concerns that much of the the tax increases are backloaded towards the end of the decade, despite spending racking up now.
'It's still not a very large number relative to the kinds of shocks and uncertainty that come along,' he said.
Prof Miles also dismissed griping from Ms Reeves and Keir Starmer about the timing of the OBR's long-term productivity review - which they have attempted to blame for tax increases.
He said the independent body had to wait for the 'dust to settle' after Covid and the energy price spike.
The official also shrugged off complaints that the OBR did not score any of the government's policies as adding significantly to growth - the PM's stated number one priority.
Richard Hughes dramatically quit as the head of the OBR on Monday following months of tensions with the Chancellor
A letter from the OBR to the Treasury Select Committee was published spelling out the timetable of exactly what forecasts were provided to the Chancellor as she drew up her Budget package
He said that while elements such as the India trade deal would have minor benefits, extending the tax thresholds freeze for another three years would be a drag on growth. Neither was scored in the OBR's outlook figures.
'Some people would say we are very slow to count things that might be good for growth in the future,' he said.
'They don't mind it when we're slow not to count things that are bad for growth.'
Prof Miles batted away questions about the Treasury's briefing campaign up the Budget, having yesterday criticised the emergence of 'misconceptions' that the OBR's forecasts had fluctuated dramatically.
However, he played down the idea that Ms Reeves's highly unusual breakfast-time Downing Street press conference on November 4 was 'misleading' about the generally grim state of the books.
