Call for probe into possible market abuse in Budget run-up

Shadow chancellor Mel Stride has called for the UK’s financial regulator to investigate “possible market abuse” by people working in the Treasury and Downing Street in the run-up the Budget.

The move comes as Chancellor Rachel Reeves denied she misled the public over the state of the country’s finances, after it emerged she and officials had been told they were in better shape than widely thought – but she still gave briefings that the Tories described as overly pessimistic.

The Conservatives have called on her to resign and Stride sent a letter to the Financial Conduct Authority (FCA) requesting a probe into potential market manipulation.

“Confidential market sensitive information appears to have been spun, leaked and misused – and markets, businesses and families have paid the price,” he claimed.

The FCA regulates financial services firms in the UK and part of its role is handling and investigating reports of market abuse, such as insider dealing or market manipulation.

In his letter to the head of the regulator, Stride outlined briefings which were made in the run-up to the Budget over the picture of the country’s finances, the economy, and speculation over tax rises.

“It seems increasingly clear that the Chancellor has been giving an inaccurate picture of the economic and fiscal context and this appears to be driven by political considerations,” he wrote.

He claimed “leaks and spin” from the Treasury had led to market speculation being “rife and the gilt markets volatile”.

The FCA has confirmed it received the letter and the BBC understands it will respond.

The reaction of financial markets has been closely watched in the run-up and aftermath of the Budget giving the impact the tax and spending policies could have on UK borrowing costs.

Many governments sell bonds – essentially IOUs – to raise money for public spending and in return they pay interest.

But how credible the markets deem a chancellor’s grip on the finances can affect how much it costs governments to borrow money.

Following Reeves’s Budget on Wednesday, the cost of government borrowing fell slightly, signalling a vote of confidence with the policy annoucements.

Reeves announced a series of tax rises, and extended a further three-year freeze of the thresholds at which people pay tax and higher income tax rates, meaning millions of people will be pulled in and have to pay more from their pay packets. She also scrapped the two-child benefit cap.

But the chancellor has faced since accusations she misled the public about the state of the public finances in the run-up.

Reeves repeatedly talked about a downgrade to the UK’s predicted economic productivity that would make it hard for her to meet her borrowing rules, fuelling speculation that the income tax rates themselves would be raised, which would break a manifesto pledge.

On 4 November, she used a rare pre-Budget speech in Downing Street to warn the UK’s productivity was weaker “than previously thought” and that “has consequences for the public finances too, in lower tax receipts.”

Then, on 10 November, Reeves told the BBC: “It would, of course be possible to stick with the manifesto commitments, but that would require things like deep cuts in capital spending.”

However, it has since emerged that the Office for Budget Responsbility (OBR), had told the Treasury on 31 October that it was on course to meet its main borrowing rule by £4.2bn, although the figure was less than the £9.9bn buffer Reeves had left herself last year.

In a letter to the Commons Treasury select committee, OBR chairman Richard Hughes revealed that he also told the chancellor on 17 September that the public finances were in better shape than widely thought.

As well as the Conservatives, the SNP has also written to the FCA urging it to look into claims of “deliberately false and misleading” briefings.

Reports in the run-up to the Budget had suggested the chancellor could have faced a £20bn gap in meeting her tax and spending rules as a result of the OBR’s productivity downgrade.

Speaking to the BBC on Sunday, Reeves hit back at critics, arguing the £4.2bn headroom she had wasn’t an “extra 4bn to play with”, but rather a downgrade from the £9.9bn buffer she had last year.

“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.”

Conservative leader Kemi Badenoch called on Reeves to resign and 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 had told her the complete opposite,” she said.

“She was raising taxes to pay for welfare.”