Prime Minister Keir Starmer personally approved Chancellor Rachel Reeves’s controversial description of a supposed fiscal “black hole”, despite being told by the Office for Budget Responsibility that the public finances were not in deficit.
The confirmation from Downing Street has intensified the sense of a government losing its grip on credibility, authority and public trust.
Officials admitted the Prime Minister had been briefed on updated OBR forecasts before Reeves delivered her speech portraying the public finances as requiring tax rises. The watchdog had already informed the Treasury that stronger tax receipts meant there was a £4.2bn surplus before policy measures, and that the productivity downgrade had not created a shortfall. Reeves pressed ahead anyway, presenting a picture of unavoidable fiscal strain.
Critics have described the episode as a deliberate political manoeuvre, one that now risks deepening a crisis around both Starmer and his Chancellor. Downing Street claimed Reeves’s remarks were “entirely accurate”, a defence that has convinced few inside or outside Westminster.
Growing Calls for Accountability
Reeves now faces demands to resign from Conservative MPs, Reform UK, unions and even her own party’s figures. What began as pressure on the Chancellor has rapidly expanded into a direct challenge to the Prime Minister’s judgement, integrity and leadership.
One Labour source said the pair were “inextricably tied”, adding that Starmer is only standing by Reeves because their political fates are now locked together. Another senior Labour figure warned that “there are clearly questions for Keir and Rachel to answer”, while a Labour MP said bluntly, “It’s hard to see how they come back from this.”
Inside Labour, frustration is shifting from quiet concern to overt anger. Figures who had previously defended the leadership now argue that both Starmer and Reeves have forfeited public confidence by standing behind a narrative the OBR does not support. Several party insiders say privately that both should go, insisting neither can credibly lead after this episode.
FCA Inquiry and Market Concerns
Reeves is also facing scrutiny from the Financial Conduct Authority after being accused by the Conservatives of causing market volatility with remarks they describe as misleading. Sir Mel Stride wrote to the FCA chief executive, saying Reeves’s comments meant “market speculation has been rife and the gilt markets volatile”. He said that investors, businesses and families relied on statements “which we now know to have been misleading”.
The Chancellor may also be compelled to answer urgent questions in the Commons, and she faces a challenging broadcast interview on Sunday over claims she misled the public.
Meanwhile, critics point out that Reeves suggested income tax rises were necessary even after the OBR had already confirmed there was no deficit. Her Downing Street speech claimed that productivity was “weaker than we previously thought” and insisted, “I am being honest with people”, a statement now widely questioned across Westminster.
Pressure From All Sides
Opponents have seized on the crisis. A Conservative petition demands Reeves be sacked, while former chancellor Nadhim Zahawi said, “She has to resign, her position is becoming untenable by the minute.”
Unite general secretary Sharon Graham condemned Reeves for continuing what she called a “shameful stealth tax” by freezing income tax thresholds. Reform UK deputy leader Richard Tice said it was “time to change course with a new chancellor”.
Even government sources attempted to shift blame onto the OBR for publishing its correspondence. One said the watchdog’s actions felt “adversarial”, a claim that drew little sympathy given the mounting evidence contradicting the Chancellor’s narrative.
Starmer Searches for a Way Out
The Prime Minister is expected to try to regain control with a speech promoting faster economic growth and accelerated industrial strategy reforms. But growing numbers inside Labour see this as damage limitation rather than leadership.
Downing Street denied suggestions that Treasury officials were considering scrapping the OBR and insisted the government “fully backs” the watchdog.
A Leadership Crisis Taking Shape
Across the political spectrum, the conclusion is becoming unavoidable. Reeves’s handling of the figures has left her credibility severely damaged, and Starmer’s decision to sign off on her narrative has drawn him directly into the controversy. Critics now argue that both have “lost the trust of the public” and cannot recover it.
The emerging view among Labour MPs, unions and opposition parties is stark. Many are now saying neither the Prime Minister nor the Chancellor can be trusted after approving claims the OBR says were not accurate, and that the pair should step aside before further eroding confidence in government.
