The U.K.’s budget watchdog has taken full responsibility for the unprecedented early publication of its budget forecast — but warned that it may happen again if its arrangements don’t change. Last week, the Office for Budget Responsibility’s economic and fiscal outlook — which contained detailed information on what would be in the budget — was accidentally made accessible before Chancellor Rachel Reeves delivered her budget in parliament.  In its investigation into what happened, the OBR said the “pressure on the small team involved” to ensure that the fiscal forecast was published immediately after Reeves finished her speech on Nov. 26 led to the use of a “pre-publication facility” which although is “commonly used” creates a “potential vulnerability if not configured properly.” “The twice-yearly task of publishing a large and sensitive document is out of scale with virtually all of the rest of its publication activities,” said the investigation, which was hastily carried out by peer Sarah Hogg and OBR board member and City bigwig Susan Rice. It called for “completely new arrangements” to be put in place for the publication of market-sensitive documents, and urged the Treasury to pay “greater attention” to the need for adequate support when funding the OBR. The watchdog said that given its small size, it used an outside web developer to upload its contents. It found multiple attempts by outside parties to access the document before it was published, by guessing the URL, and also revealed there was a successful attempt to do so in an earlier major March publication. On Nov. 26, the day of the budget, there were 44 unsuccessful requests to the URL between 5.16 and 11.30 a.m. as the document had not yet been uploaded. Between 11.30 and 11.35 a.m., the web developer began uploading documents to the draft area of the OBR’s website, which the watchdog believed was not publicly accessible. At 11.35 a.m., an IP address which had made 32 previous unsuccessful attempts to gain access to the site accessed it for the first time successfully. Six minutes later, at 11.41 a.m., Reuters sent a news alert reporting the government would raise taxes by £26.1 billion by 2029-2030. The URL was then widely accessed by journalists, markets and other parties between 11.30 a.m. and 12.08 p.m., after which it was removed by the OBR. The report also reveals that one IP address successfully accessed the March version of the fiscal outlook, when Reeves delivered her spring statement. The log shows the document being accessed at 12.38 p.m., five minutes after Reeves started speaking and nearly 30 minutes before publication. “It is not known what, if any, action was taken as a result of this access and there is no evidence at this stage of any nefarious activity arising from it,” the report says. The report doesn’t review how financial markets were influenced by the early publication, but says the OBR will cooperate with the Financial Conduct Authority. The investigation described the mistake as the “worst failure” in the 15-year history of the OBR, but said that it was not a case of intentional leakage, or “pressing the publication key too early.”  OBR chief Richard Hughes is due to appear before MPs Dec. 2 where he will be fighting for his future. Speaking to Sky News on Sunday, the chancellor repeatedly declined to say whether Hughes was safe in his job.  Earlier today, Keir Starmer said that while he was “very supportive” of the OBR, the breach of market-sensitive information was a “massive discourtesy” to parliament. 

Cameron Brown is a former special adviser at HM Treasury and is now a senior adviser at Charlesbye Strategy. Anyone who believes Christmas starts earlier each year should spend some time inside the U.K. Treasury. When the country hears the first faint echoes of Mariah Carey drifting through the supermarket PA system in mid-November, retailers call it the “Christmas creep.” Westminster gets something far less jolly: the “budget creep.” The annual moment when rumors fatten, hints mutate, and half the fiscal package appears to be public before the chancellor has typed a single word. I saw this more closely than most. Within a single extraordinary fortnight, I went from serving Liz Truss’ first Chancellor Kwasi Kwarteng to working with his successor Jeremy Hunt, moving from the budget that blew up the bond markets to the one built to calm them. Few advisers get to serve a chancellor who detonates a budget, as well as the one brought in to steady the ship only days later. And there is no better crash course in the life cycle of a budget: the whispers, the over-interpretation, the panic, the denial and the sudden transformation of every think tanker with a spreadsheet into a clairvoyant. Once that ambiguity takes hold, human nature does the rest. We aren’t built to tolerate secrets. Tell people they will hear nothing until a fixed date, and every stray comment starts to glow with imagined significance. A throwaway remark from a minister becomes a coded signal; an economist’s speculative prediction on X becomes an afternoon of fiscal sleuthing. But the problem isn’t journalism or the widespread speculation, it’s a system that asks the country to stare at a locked door for months and then expresses surprise when people try the handle. And when you can see the real-world consequences — from hiring freezes and delayed investment decisions to families cutting back their groceries — watching the country whip itself into a frenzy over phantom tax measures isn’t charming. Inside the Treasury, meanwhile, things look stranger still. Budgets appear to be grand set pieces, but the real action begins six weeks earlier, with the Office for Budget Responsibility’s (OBR) first forecast. Hidden inside is the number everyone fixates on: the sacred “headroom.” In theory, this figure shows what the chancellor can spend without breaching her fiscal rules. In practice, it behaves like musical chairs, constantly shifting until the music stops and everyone solemnly treats the final figure as destiny despite the fact that it is based on projections five years out — as though pandemics, wars and global shocks politely submit advance notice. During one budget under Hunt, for example, the initial OBR forecast suggested we might have extra breathing space. A senior official murmured: “We might be able to do something interesting” — which, in Treasury culture, counts as reckless hedonism. Then, only days later, gilt yields twitched, growth was revised down, and the headroom shrank like a wool sweater in a boil wash. Outside commentators insisted the chancellor had changed strategy, while it was simply the arithmetic tightening its grip. By the time the country reaches peak excitement, however, the budget is pretty much at the printers. Two weeks before the speech, the Treasury must submit its major measures to the OBR, so they can be modeled. And once that happens, the concrete sets. Chancellor Rachel Reeves isn’t hunched over a laptop rearranging tax bands like chess pieces at 3 a.m. the night before. Still, the theater endures. Hence the lasting allure of the so-called “budget rabbit” — a move former Chancellor George Osborne had perfected with a “one more thing, Mr. Speaker” flourish. Kwarteng, on the other hand, attempted the same trick with a cut to Britain’s top tax rate, only to conjure the only rabbit in history that bit the magician and set fire to the stage. This is why pitch-rolling has become so routine and normalized. It is the quiet art of easing people toward an unpopular measure, so that nobody falls off their chair when it appears. Not because the Treasury loves theatrics, but because surprise decisions can jolt markets. Contentious measures are now introduced gently over time, so Bank of England Governor Andrew Bailey doesn’t have to ring the Monetary Policy Committee for an unscheduled catch-up. Much of what looks like leaking is simple deduction. Anyone with a calculator, the Treasury’s publicly available ready reckoners and a feel for the political weather can narrow the options. Rule out the unaffordable, cross out the implausible and what remains points in one or two directions. But silence is no safer. Each year someone proposes the Treasury adopts a genius strategy of saying nothing at all. And while ideal in theory, in practice, this creates a vacuum for paranoia to rush into. Deny one rumor and its opposite becomes gospel; deny nothing and silence becomes a knowing wink and a nudge. Leave a wild claim like “doubling VAT” unchallenged for a day, and you will spend the next week hosing down hysteria from MPs and the public — and rightly so. Treasury officials are right about one thing, though: Some tax ideas should never be aired, even when they’re being actively developed. Certain measures trigger such powerful behavioral responses that the responsible course is to deny them outright. Whisper “stamp duty cuts,” and the housing market freezes. Float a hint about dividend reform, and accountants begin rearranging client affairs before the budget team has even met. And as Reeves is discovering, even the faintest suggestion of a wealth or exit tax sends globally mobile individuals browsing one-way flights to Dubai. This reveals a deeper problem. Our tax system is being contorted to satisfy arbitrary five-year windows built on forecasts nobody can honestly pretend to believe. Chancellors end up ratcheting up the tax burden not because the policy case demands it, but because the spreadsheet does. As long as fiscal policy is chained to these crystal-ball projections for 2029, we will keep making real-world decisions to appease an unknowable future. And yet, as flawed as the current system is, it is still preferable to what came before. Former Labour Prime Minister Gordon Brown’s era of fiscal optimism involved forecasts for an economy that existed only in the minds of ministerial speechwriters, as growth, investment, tax receipts — everything floated serenely and implausibly upward year after year. The OBR was designed to bring sobriety. Having lived through the best and worst of this process, I can say the real problem isn’t the speculation itself but a system built on projections that collapse at the smallest market movements. We keep trying to deliver tax policy inside an artificial window, dictated by a forecast that’s out of date before the ink dries, and then act surprised when ministers reach for ever higher taxes to satisfy a number that was never real in the first place. Until that changes, the ritual will repeat. The numbers will wobble, rumors will swirl and the budget creep will appear early. My advice is simple: Abandon the crystal balls, stop pretending the future can be modeled to the nearest decimal place, and let the chancellor get on with governing before the music stops.

Mujtaba Rahman is the head of Eurasia Group’s Europe practice. He tweets at @Mij_Europe. With less than two weeks to go before the U.K. budget, Chancellor of the Exchequer Rachel Reeves made a spectacular U-turn. As recently as last week, Reeves was preparing the ground for a controversial move to to raise income tax rates by 2 pence and cut national insurance contributions by the same amount — a move that would have breached her party’s 2024 election manifesto. Then, after talks with Prime Minister Keir Starmer in the face of a backlash from cabinet ministers and Labour Party backbenchers, who warned that such a “betrayal of trust” would cost them the next general election, she retreated. Officially, Labour Party sources said the change of strategy was due to a better-than-expected pre-budget forecast from the Office for Budget Responsibility (OBR), which put the gap between planned government spending and Reeves’s fiscal rules at £20 billion. It was a boost that stemmed from a smaller government debt forecast due to gilt market movements during the 10-day window the OBR used for its projection. However, that’s only part of the story. Raw party politics also played a crucial part in this shift. And as the chancellor’s intended budget strategy has unraveled under an unprecedented public spotlight, it has exposed all the chaos at the top of the government. It’s absolutely no coincidence that Reeves’ volte-face happened just as Downing Street launched a clumsy attempt to head off a leadership challenge that was aimed at ousting Starmer after next week’s budget is revealed. A budget that breached the Labour manifesto would have made such a challenge much more likely, as many of the party’s MPs — including scores of “newbies” elected for the first time last year — fear they would lose their seats if it was ditched. And the retreat now means the prime minister will likely be able to avoid an attempted coup. That is, at least until after next May’s elections to the Scottish and Welsh parliaments and local English authorities. Meanwhile, among the options Reeves is now likely considering instead of raising tax rates is cutting income tax thresholds — less politically damaging, as thresholds weren’t covered by the manifesto promise. But even that isn’t so simple: If Reeves raised the £12,570 personal allowance at which the 20 percent basic rate starts, it would be regressive and hit many of the “working people” Labour has vowed to protect. Therefore, a cut in the £50,271 threshold, where the 40 percent rate kicks in, seems more likely. However, even that would hit those considered middle income. It would be less contentious to just lower the threshold for the 45 percent rate, which starts at the £125,140 mark. But cutting any threshold would still be controversial, and likely branded as a “stealth tax” by both Reform UK and the Conservatives. Plus, Reeves is actually expected to prolong the freeze on income tax thresholds and allowances introduced by former Chancellor Rishi Sunak, which is due to end in 2028, as a two-year extension would raise between £8 billion and £10 billion. Another potential downside to the U-turn is that Reeves may now make more enemies among those who stand to lose, resulting in a less certain revenue stream from raising several other taxes in a “bits and pieces” approach rather than a “go big” budget the markets would prefer. There is also a risk that these alternative measures would harm growth in a way that raising income taxes would not. Such measures may include a higher tax on the most expensive properties and a rise in capital gains tax. Meanwhile, plans to impose higher taxes on limited liability partnerships and to bring in an “exit tax” for wealthy individuals who leave Britain now appear to be on the back burner. If Reeves raised the £12,570 personal allowance at which the 20 percent basic rate starts, it would be regressive and hit many of the “working people” Labour has vowed to protect. | Tolga Akmen/EPA And yet, the chancellor doesn’t want to just fill the £20 billion hole, she also wants to increase the slender £9.9 billion headroom against her fiscal rules to at least £15 billion — and possibly to the £20 billion that’s sought by the markets. Then, to top it all off, came the attempt to stifle a potential leadership challenge, as the prime minister made an attempt to deter Health Secretary Wes Streeting from mounting a coup by publicly accusing him of plotting — a move that backfired as, in the words of one insider, Starmer’s allies “overshot the runway” by singling Streeting out. The official line is that Number 10’s briefings to the media were intended to make clear the prime minister would fight any attempt to depose him. But all this has only weakened Starmer and strengthened Streeting, who looked statesmanlike in his response. Overall, some ministers and Labour backbenchers have expressed relief at the abrupt shift on income tax. Though many didn’t disguise their dismay at what has been described as “a shambolic week” for both Starmer and Reeves. Indeed, with all that’s transpired, Reeves’ final package next week may prove to be less politically toxic than expected. But after such a disastrous run-up, her task of restoring order and “selling” a budget is looking much harder.