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What the hell’s just happened?
On Thursday night I was told that Chancellor Rachel Reeves and Prime Minister Sir Keir Starmer were now not going to raise income tax, having had anonymous briefings for weeks that a manifesto-breaking tax rise was coming, culminating in the speech in Downing Street by the chancellor last week alluding to that.
Politics live: U-turn on budget income tax rise triggers ‘not normal’ market volatility
I had also heard the prime minister was going to make a speech next week to the same effect.
The U-turn – first broken in the Financial Times – was not something the government wanted to leak, and there is anger in Downing Street.
I was told late last night by a source that the decision had been taken to back off income tax rises.
There is obviously some consternation, to say the least, that ministers, the party, the public have been marched up the hill, only to be marched back down again. It all adds to a sense of chaos and a government out of control. So what on earth is going on?
Read more: How No 10 plunged itself into crisis
Let’s first do the economics of it. I was told this morning by Treasury sources that the fiscal forecasts from the Office of Budget Responsibility are stronger than expected.
There had been expectations of a £30bn-£40bn black hole in the public finances.
But I’m told today that black hole is actually closer to £20bn: the chancellor also wants headroom of perhaps up to £15bn, but I’m told the change in forecasts has changed the calculation. I’m told wage growth has been stronger which has helped tax receipts and improved forecasts.
So, where does that…
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