Shadow Chancellor Mel Stride is calling on the City watchdog to launch a full investigation into potential abuse of financial markets after Rachel Reeves’ claims of a ‘black hole’ in the public finances ahead of the Budget turned out to be false.
In a letter to Nikhil Rahti, chief executive of the Financial Conduct Authority (FCA) seen by the Mail on Sunday, Stride said it had become ‘increasingly clear’ that the Chancellor had given an ‘inaccurate picture of the economic and fiscal context’ driven by ‘political considerations.’
‘In the past three months, because of this and a variety of similar briefings, leaks and spin from HM Treasury, market speculation has been rife and the gilt markets volatile,’ Stride wrote.
He added: ‘Investors, businesses and ordinary families will have taken decisions based on briefings from HM Treasury and public statements by ministers which we now know to have been misleading.’
Stride noted that these had included ‘repeated disclosure of market sensitive details of budget decisions and the official forecasts.’
‘I am therefore requesting a full investigation by the FCA into possible market abuse by all those who would have had access to confidential information including at HM Treasury, and 10 Downing Street,’ he said.
Complaint: Mel Stride said it had become ‘increasingly clear’ that the Chancellor had given an ‘inaccurate picture of the economic and fiscal context’ driven by ‘political considerations’
A possible intervention by the FCA will pile more pressure on the beleaguered Chancellor as she faces mounting calls to step down over allegations she misled the public in the run-up to the Budget.
Reeves repeatedly referenced challenges to the nation’s finances caused by a downgrade of productivity forecasts by the fiscal watchdog, the Office for Budget Responsibility (OBR), and that taxes would have to rise as a result.
But on Friday the watchdog revealed the Chancellor had been told months ago there was no hole in the public finances.
It has sparked a growing war of words between the OBR and the Treasury which has put the future of both Reeves and the watchdog’s chairman, Richard Hughes, in doubt.
Stride’s letter follows reports on Friday that the FCA was investigating whether markets had been manipulated by the disastrous leak of economic forecasts compiled by the OBR.
The report, which is usually published after the Chancellor delivers the Budget, was accidentally released an hour before Reeves stood up to address the House of Commons on Wednesday.
OBR chairman Richard Hughes will publish the initial results of an inquiry into the leak tomorrow (Monday). He has offered to resign if he loses the confidence of Reeves.
The FCA will review the OBR’s findings to see if there was any potential manipulation after the early release of the forecast, Bloomberg reported. The FCA was approached for comment.
It comes as Hughes is set to face a fierce grilling over the leak by members of Parliament’s influential Treasury Select Committee on Tuesday, which is likely to add to the increasingly sulphurous mood among MPs over the incident.
‘It completely undermines an already catastrophic process. Where has the discipline gone among officials and advisors?’ one committee member asked The Mail on Sunday. ‘This has a meaningful impact on markets and investment and should not be dismissed lightly.’
Another said: ‘We will get to the bottom of it.’
Hughes said last week he was ‘personally mortified’ by the leak, which briefly caused chaos in currency and government debt markets.
The showdown with MPs comes after the bruised chairman hit back at Reeves over numerous ‘kite-flying’ leaks in the run-up to her Budget.
In a stinging letter to Treasury Select Committee chair Meg Hillier, Hughes said: ‘At no point before Budget day itself did the OBR leak anything to the media.’
Independent economist Julian Jessop said at least the OBR’s premature release of its analysis was ‘accidental’. In contrast, the Treasury and Downing Street had ‘deliberately engaged in selective leaks and briefing’ during the Budget process.
Meanwhile, a source close to a group of bond traders said the debacle had left Reeves’s credibility in tatters, adding: ‘The basic take is: Don’t believe it just because the Chancellor says it on the TV – not great for confidence in the UK.’
When asked if this meant the bond markets would never trust Reeves again, they replied: ‘Yes.’
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