Downing Street has pushed back at claims that Chancellor Rachel Reeves misled the public over the state of the public finances ahead of the 26 November Budget, after the Office for Budget Responsibility published an unusual letter detailing what the Treasury knew and when. The OBR said Reeves was on course to meet her fiscal rules before measures, though with less headroom than in March.

In his 28 November letter to the Treasury Committee, OBR chair Richard Hughes set out five forecast rounds: the first, on 3 October, showed the current budget in 2029–30 narrowly in deficit by £2.5bn; by 31 October the third round showed a £4.2bn surplus against the current balance rule. The eventual £21.7bn headroom came only after policy choices in the Budget itself.

That timeline sits uneasily with pre‑Budget messaging. On 4 November Reeves delivered a Downing Street scene‑setter stressing weaker productivity and preparing the ground for difficult tax choices, even as the OBR’s letter makes clear that higher wages and inflation were already offsetting the productivity hit in the public finance numbers.

The political reaction has been sharp. Conservative leader Kemi Badenoch accused Reeves of having “lied to the public”, while Shadow Chancellor Mel Stride argued she highlighted the productivity downgrade without acknowledging the offset from wages. No 10 dismissed the idea that the public or markets were misled.

Reeves ultimately avoided raising the headline rates of income tax, but the Budget still delivered medium‑term tax rises of around £26bn a year by 2029–30. Key measures include extending the freeze on income tax thresholds for a further three years to 2030–31, bringing National Insurance onto salary‑sacrificed pension contributions above £2,000 from April 2029, and higher tax rates on dividends, savings and property income. A new “mansion tax” on £2m‑plus homes also features.

For households, the threshold freeze is the quiet driver. The OBR estimates the extensions raise £8.0bn in 2029–30 and mean about 780,000 more basic‑rate payers, 920,000 more higher‑rate payers and 4,000 more additional‑rate payers than if the freezes had ended in 2028. Hargreaves Lansdown calculates that someone on £50,000 could pay roughly £8,165 more over the freeze period.

This is the arithmetic of fiscal drag: nominal pay rises lift earnings into fixed tax bands even when rates are unchanged. The OBR says its summer supply stocktake trimmed underlying productivity growth by 0.3 percentage points, but stronger wages and higher inflation made receipts more tax‑rich than in March-one reason the pre‑measures outlook still met the rules.

Employers also need to budget for the freeze to the employer National Insurance secondary threshold until 2030–31, which the OBR says was previously cut to £5,000. As pay drifts higher, more of the wage bill attracts NICs, a slow‑burn pressure point for SMEs planning 2026–2030 payroll costs and benefits.

Markets absorbed the drama. After the accidental early release of OBR documents on Budget morning and the subsequent statement, 10‑year gilt yields eased to below 4.45%, the FTSE 100 rose about 0.6% and sterling firmed around 0.2%, according to Euronews. OBR chair Richard Hughes later said he would resign if Parliament or the Chancellor asked following the leak.

For readers, the near‑term playbook is straightforward. If your pay is rising while thresholds are frozen, your effective tax rate will creep up: check codes, adjust cash‑flow and, where possible, spread bonuses. Employers should stress‑test 2026–2031 payrolls for higher NICs and review salary‑sacrifice pensions before the 2029 changes bite.

The Treasury Committee will quiz the OBR next week, alongside a review into the inadvertent leak. Expect plenty of political heat over who said what when; for households and firms, the salient fact is that the rules were met pre‑measures and the extra headroom now depends on roughly £26bn a year of new taxes.