Rachel Reeves, Chancellor of the Exchequer, during a visit to University College London Hospital on Wednesday.ADRIAN DENNIS/Reuters
Britain’s Chancellor of the Exchequer Rachel Reeves announced nearly $50-billion worth of tax increases on Wednesday in a long-awaited budget speech that was upended by an embarrassing leak of every budget measure.
The leak came from the Office for Budget Responsibility, or OBR, an independent government agency that serves as a watchdog on public spending.
The OBR accidentally uploaded a detailed analysis of the budget on its website Wednesday morning, several hours before Ms. Reeves was set to unveil it in the House of Commons. The agency quickly removed the link but not before the report had been widely circulated.
“We apologize for this technical error and have initiated an investigation into how this happened,” the OBR said in a statement.
Ms. Reeves was forced to begin her speech by admonishing the OBR. “This is deeply disappointing, and a serious error on their part,” she told MPs.
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The mishap marred what Ms. Reeves had hoped would be an opportunity to respond to critics who have questioned her competence. Instead, the botched announcement only caused more uncertainty about her political future.
“Any short-term credit the Chancellor hoped to gain from the content of the budget will be wiped out by criticism of the government’s inability to even announce it properly,” said Stuart Fox, a politics lecturer at the University of Exeter.
In the weeks leading up to the budget, Ms. Reeves had already faced criticism for sowing confusion about her priorities. She floated the idea of raising income-tax rates and then backed down. She promised to tighten the welfare system and then bowed to pressure from Labour MPs and increased spending on a child-welfare benefit by £3-billion (about $5.57-billion) annually.
Wednesday’s budget was full of an assortment of tax increases that will raise £26-billion, or $48-billion, by 2030. By then, the OBR said taxes will hit a historic high of 38 per cent of gross domestic product.
The tax measures include a property-tax surcharge on homes worth more than £2-million ($3.7-million), new levies on gambling companies and a three-year freeze of income-tax thresholds, which means that as incomes rise with inflation more people will be pulled into higher tax brackets.
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Ms. Reeves acknowledged the increased burden but insisted that the tax hikes were necessary to shore up a £30-billion ($55.7-billion) shortfall in the country’s public finances.
“I am asking everyone to make a contribution,” she said. “But I can keep that contribution as low as possible because I will make further reforms to our tax system today to make it fairer, and to ensure the wealthiest contribute the most.”
The Chancellor won plaudits from several economists for building in a £22-billion ($40.8-billion) cushion, more than double the amount she set aside in last year’s budget. The extra money will give her more breathing room to address future contingencies and avoid speculation about the need for further tax increases.
“This additional headroom could reassure bond markets on the sustainability of the U.K.’s finances, which in turn could bring down debt interest payments,” said Peter Arnold, the chief U.K. economist at Ernst and Young.
Ms. Reeves also boosted the minimum wage and took steps to lower the cost of living by freezing rail fares and removing a green levy on energy bills.
“These are my choices. Not austerity. Not reckless borrowing. Not turning a blind eye to unfairness,” she told MPs.
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Britain’s sluggish economy has given Ms. Reeves little room to manoeuvre.
In its report, the OBR increased its forecast for economic growth this year to 1.5 per cent from 1 per cent. However, the agency said growth was expected to remain at that level until 2030, roughly 0.5 per cent lower per year than it forecast last March.
One of the biggest challenges is Britain’s anemic productivity.
The OBR said the country’s productivity – measured as economic output per worker – has suffered from several factors including Brexit, the COVID-19 pandemic and Russia’s full-scale invasion of Ukraine, which drove up energy prices.
Since the 2008 financial crisis, “the U.K. has experienced its most significant and long-lasting slowdown in productivity growth since the Industrial Revolution,” the OBR said. “The U.K.’s productivity slowdown has also been greater than in any other major advanced economy.”
The watchdog cut its medium-term forecast for productivity growth by 0.3 per cent to 1 per cent, which will result in as much as £16-billion ($29.7-billion) in forgone tax revenue.
“The productivity problems have historically been significant,” said Lucy Rigby, a Labour MP who is Economic Secretary to the Treasury. She told reporters that Ms. Reeves was “doubling down on every effort to try and shift productivity in the right direction, and indeed deal with the root causes, one of which is the historic levels of under investment.”
Ms. Reeves was attacked by opposition politicians for raising taxes in two straight budgets despite promising during last year’s election campaign that Labour would not increase taxes for working families.
“Instead of showing some backbone and getting spending under control, Reeves has launched a welfare splurge and paid for it by hiking taxes on working people,” said Conservative Leader Kemi Badenoch.