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Treasury turmoil as minister quits and Reeves braces for possible mini-Budget

Tulip Siddiq resigned despite being cleared of breaking ministerial rules, while the Chancellor faced MPs for the first time since an outbreak of market unrest

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As the Chancellor, right, acknowledged ‘global market uncertainty’ in the Commons today, her City minister, left, resigned to avoid becoming ‘a disttraction’ following corruption allegations
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The Treasury has been plunged in to chaos as a minister quit while Rachel Reeves refused to rule out holding an emergency Budget in the spring.

Tulip Siddiq stood down as City minister after a probe into her links to Bangladesh’s former government found she should have been “more alert to the potential reputational risks”.

Although the Prime Minister’s independent adviser on ministerial interests did not conclude that Siddiq had broken the rules, she said she was resigning to avoid being “a distraction”.

Meanwhile the Chancellor appeared to leave open the possibility of a “mini-Budget” in late March if needed to bring the public finances back into balance, following days of market turbulence.

Allies of Reeves said she was planning to double down on plans to ramp up Britain’s economic growth, while urging ministers to control public spending and avoid the need for further tax rises.

Siddiq’s resignation came after she was accused of corruption by the new government in Bangladesh, which has replaced one led for 16 years by Siddiq’s aunt, Sheikh Hasina.

Siddiq has denied all wrongdoing, but further controversy arose after it emerged that she previously lived in a house paid for by a political ally of her aunt.

Despite being cleared of breaking the Ministerial Code, Siddiq told Sir Keir Starmer: “It is clear that continuing in my role as Economic Secretary to the Treasury is likely to be a distraction from the work of Government.”

In his response, the Prime Minister suggested that she could return to his Government in future. Emma Reynolds has been promoted from pensions minister to replace Siddiq, with economic policy expert Torsten Bell – elected a Labour MP last year – taking Reynolds’ place.

Speaking to the House of Commons for the first time since turbulence broke out in the bond markets last week, the Chancellor acknowledged “global market uncertainty” but added: “The economic headwinds that we face are a reminder that we should, indeed, we must go further and faster in our plan to kick-start economic growth.”

Some economists have raised fears that when the Office for Budget Responsibility (OBR) issues its next update on the public finances, on 26 March, it may conclude that Reeves is on track to break her self-imposed limits on Government borrowing.

Asked by an MP whether she could rule out making changes to tax or spending at that point, the Chancellor replied: “We have committed to having just one Budget a year to provide businesses with the certainty they need to invest, so we will have an update from the Office for Budget Responsibility in March.

“I also give the commitment that, as I have already said, the fiscal rules mean we will balance day-to-day spending with tax receipts, and we will get debt down as a share of GDP within the forecast period. We will continue at all times to meet those fiscal rules.”

The i Paper reported last week that City insiders increasingly believe a “mini-Budget” in March will be needed to bring the state’s finances under control.

Experts generally say global factors such as the impending arrival of Donald Trump in the White House and his potentially inflationary policies are the main driving factor behind the soaring cost of borrowing.

However, they also acknowledge that Reeves’s decisions to change her fiscal rules to allow more borrowing for investment in infrastructure and place higher taxes on businesses have also affected the markets and dampened growth.

Reeves also inherited what the Institute for Fiscal Studies previously described as a “decade and a half of historically poor growth”.

She also left herself a thin £9.9bn head room in the Budget, which is at risk of being wiped out by the high cost of borrowing.

If it is wiped out she would be forced to find extra money to meet her fiscal rule of not borrowing for day-to-day expenses.

Her only two options would be to raise taxes, which she has ruled out, or cut spending.

Susannah Streeter, head of money and markets at Hargreaves Lansdown, said: “The need for a fiscal event in March remains a strong possibility especially if government borrowing costs stay elevated, with Rachel Reeves’s headroom for spending already severely limited.”

A Downing Street spokesman insisted that the Budget in the autumn would remain the only “major” fiscal intervention this year but did not rule out a smaller adjustment in the spring. The spokesman also denied that the Treasury was in crisis.

Whitehall officials are understood not to have received any initial projections from the OBR ahead of the March verdict, and have not made plans for additional cuts in light of the market unrest.

But the future of the new Sizewell C nuclear reactor project has once again been called in to question after reports emerged that the cost to build the new power station has doubled since 2020 to close to £40bn.

The Financial Times reported that the scheme had soared as a result of inflated construction costs and ongoing delays to the project. The Treasury is expected to set out whether it will proceed with the project in June’s Spending Review.

Ahead of the OBR’s statement and the Spending Review, Reeves is pushing a message within the Government that it is necessary to speed-up efforts to introduce pro-growth policies.

In a sign of how economic regulators have been drafted in to the Chancellor’s plans, the Competition and Markets Authority’s draft annual plan published on Monday made 111 mentions of “growth” – 10 times as many as last year.

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