No 10 denies Reeves misled on Budget headroom
Today, 28 November 2025, you’ll see headlines saying Rachel Reeves talked up a “black hole” before the UK Budget and others saying she didn’t mislead anyone. Here’s the short version: Downing Street says the chancellor did not mislead the public, while a newly published letter from the Office for Budget Responsibility (OBR) sets out when the Treasury knew the fiscal rules would still be met-just with less wriggle room.
The OBR’s timeline matters for truth-testing. In a letter to MPs, chair Richard Hughes explains that on 3 October the first pre‑measures forecast showed Reeves narrowly missing her “current budget” rule by £2.5bn. By 20 October, a second round had her back on course, and by Friday 31 October the third round showed headroom of £4.2bn on the key rule (and £11.1bn on debt falling). Those margins later rose to £21.7bn and £24.4bn after ministers’ policy choices. That is the official sequence.
So why the row? In a Downing Street speech on 4 November and a BBC Radio 5 Live interview on 10 November, Reeves warned that weaker productivity would make meeting the rules “very difficult” without painful trade‑offs. Those comments fuelled days of speculation that income tax rates could rise-despite Labour’s manifesto pledge. No 10 now says she set out the challenges, not a false crisis.
What the watchdog actually said is important for students of economics. The OBR did downgrade its underlying productivity assumption by 0.3 percentage points over the summer. But it also told the Treasury that higher wages and inflation would lift tax receipts, offsetting much of the hit. In other words, weaker productivity wasn’t the only moving part.
In the end, Reeves did not raise the headline rates of income tax on Budget day (Wednesday 26 November). But the Budget still added around £26bn in extra tax by the end of the forecast, including a three‑year extension of the freeze to income tax thresholds-sometimes called “fiscal drag” because rising pay pulls more people into higher bands over time.
Key term: headroom. Think of headroom as the safety margin between the fiscal rule and the latest forecast. If the rule says the day‑to‑day budget must be in surplus in 2029–30, headroom is how far above zero the OBR reckons the surplus will be. Smaller headroom means less capacity to absorb bad news without changing taxes or spending.
Key term: fiscal rules. The government is working to two big ones. First, the “stability rule”: everyday spending should be paid for from tax by 2029–30. Second, the “investment rule”: a measure of public sector debt should be falling by the end of the forecast. These rules shape every Budget decision you hear about.
Productivity versus wages-why they got mixed up. Lower productivity growth tends to mean weaker future growth in output and tax. But if wages and prices are rising faster than expected, tax receipts can be higher in cash terms. The OBR’s letter says it flagged the 0.3 percentage point productivity cut to the Treasury in August, alongside the offsetting effect of stronger pay and prices.
What this means for your payslip. Freezing thresholds while wages rise means a bigger slice of your income can be taxed at higher rates even if rates don’t change. The OBR and broadcasters like Sky News estimate millions will be drawn into higher bands over time, one reason the threshold freeze raises several billions by 2029–30.
The politics, plainly. Conservatives, led by Kemi Badenoch, say Reeves “lied to the public” and used a grim story as a smokescreen for tax rises. No 10 rejects that, saying the chancellor was straight about the choices and then explained them in the Budget. You’re hearing competing narratives; the published OBR timeline helps you test them.
What happens next. The Treasury Committee has published the OBR letters and will quiz Richard Hughes at 10:00 on Tuesday in Westminster. Expect detailed questions on what ministers knew and when, plus follow‑up on the separate leak of OBR material before the Budget. This is where facts get pinned down in public.
Bottom line for learners and teachers. The evidence shows two things can be true at once: the OBR did cut its productivity outlook, and Reeves still had pre‑Budget headroom-smaller than last year but positive-before choosing a £26bn tax package. The argument now is not just about maths, but about how honestly politicians frame difficult choices.