Reeves denies she misled public over UK's finances prior to Budget

The Conservatives have accused the Chancellor of giving an overly pessimistic impression of the public finances as a "smokescreen" to raise taxes. Badenoch claimed Reeves had "lied to the public".

But Downing Street has denied the accusations and Prime Minister Keir Starmer is expected to back Reeves' budget decisions in a speech on Monday, saying the chancellor's decisions will help tackle cost of living pressures and lower inflation.

Opening the interview, Kuenssberg asked Reeves whether she could be trusted and the chancellor responded: "Yes."

Kuenssberg then outlined what the chancellor said in a speech on 4 November, when Reeves indicated there was less cash than previously forecast due to a productivity downgrade, and she was likely going to need to raise taxes as a result.

Reeves explained that, despite what critics were saying, "I didn't have an extra £4bn to play with" but instead that the OBR figures had been downgraded from £9.9bn headroom in spring to £4.2bn in the autumn.

Headroom is the term for money leftover after the government meets its expected budget costs under its own fiscal rules, providing a financial buffer for unexpected costs.

"I clearly could not deliver a budget with just £4.2bn of headroom," she said, as that would have been "the lowest surplus any chancellor ever delivered", and she would "rightly" have been facing criticism for the headroom being too small.

She said: "I was clear that I wanted to build up that resilience and that is why I took those decisions to get that headroom up to £21.7bn."

Pushed on whether she had exaggerated the situation in order to pave the way for a £16bn increase in welfare, Reeves said she also had to factor in policy choices made in the previous six months on welfare and the Winter Fuel Allowance.

She said: "I did say when those policies changed just before the summer that we would have to find that money in the Budget, so I was very upfront about that.

"Yes, I did make the decision in the Budget to scrap the two-child [benefit] limit - that was funded by increases on online gambling taxes and also by cracking down on tax avoidance and tax evasion, fully costed and fully funded, and lifting half a million children out of poverty."

Asked if she had broken the spirit, if not the letter, of her manifesto commitment on taxation by freezing income tax thresholds, Reeves said: "I recognise I did not say that in the manifesto but since then we've had both a significant downgrade in the productivity forecast but also huge global turbulence."

She added: "I have to respond to all those things because, if I were to lose control of the public finances, we would be punished.

"Punished by financial markets that hold £2.6tn of public debt, and punished with higher interest rates, which wouldn't affect just the country but would also affect every single business that borrows, and every single family that has a mortgage."

Appearing on the same show, Badenoch said she was "absolutely not" satisfied with Reeves' explanation and she should instead have cut welfare spending. She urged the chancellor to quit.

She said: "The chancellor called an emergency press conference telling everyone about how terrible the state of the finances were and now we have seen that the OBR was telling her the complete opposite.

"She was raising taxes to pay for welfare - the only thing that was unfunded was the welfare payments that she has made, and she's doing it on the backs of a lot of people out there who are working very hard and getting poorer - and because of that I believe she should resign."

Badenoch added her shadow chancellor Mel Stride has written a letter of complaint to the Financial Conduct Authority asking for an investigation, accusing the chancellor of trying to "pitchroll for her Budget", which could constitute "market manipulation".

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