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The government has ruled out a U-turn on the costly tax-cutting mini-budget and the chancellor will not resign despite mounting pressure.

It comes after a day in which the Bank of England was forced to launch a temporary bond-buying programme as it took emergency action to prevent “material risk” to UK financial stability.

Bank’s ‘nearly unthinkable’ intervention – economy latest

Sky’s political editor Beth Rigby was told that the chancellor, Kwasi Kwarteng, would not be resigning and that there would be “no reversal of policy”.

A minister told deputy political editor Sam Coates it was “bulls***t” to say that today’s market movement was related to the mini-budget announcement.

And on The Take with Sophy Ridge, chief secretary to the Treasury Chris Philp denied that the government had any responsibility and said there would be no change of course.

Politics Hub: No mini-budget reversal and chancellor will not resign

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‘We’re not going to change course’

The Bank will buy as many long-dated government bonds as needed between now and 14 October in a bid to stabilise financial markets in the wake of the mayhem that followed the government’s mini-budget last Friday.

In addition to the plunge in the value of the pound, it has also seen investors demand a greater rate of return for UK government bonds – essentially IOUs.

That is because the level of borrowing required to fund the government giveaway, including tax cuts and energy aid for households and businesses, shocked the market which immediately questioned the sustainability of the public finances.

City minister Andrew Griffith told Sky’s economics editor Ed Conway: “Every major economy is dealing with exactly the same issues.”

“They [the bank] have made a targeted and timely intervention in the market. That’s their decision, but they’ve done so working very closely with the chancellor.”

The Bank’s action comes after the International Monetary Fund added its voice to criticism of the growth plan.

Read more:
Ed Conway on the Bank’s extraordinary response
Liz Truss is a ‘danger to the economy’, Starmer says
Government departments asked for ‘efficiency savings’

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Govt sticking to ‘mini budget’ despite turmoil

What the Bank’s action is aimed at doing is tackling the consequences of rising bond yields, in this instance a liquidity crunch facing pension funds.

The pound fell back in response but bond yields did ease back from multi-year highs.

WHY THE BANK OF ENGLAND HAS ACTED


 Ian King

Ian King

Business presenter

@iankingsky

There are some very, very specific reasons why the Bank of England is intervening in this particular asset class in long-dated gilts – that’s gilts of a 20 to 30 year duration.

It affects traditional pension funds where a retiree is guaranteed a certain payout at their retirement based on their final salary when they retire.

Now, a lot of these funds use long-dated gilts as part of their investments and what has been happening over recent days is a lot of the investment funds have been asking pension funds to post more collateral – to put up cash.

It has been reported in The Times that actually these cash calls have been running into tens of billions of pounds since the beginning of the week because of this spike in long-dated gilt yields.

That is why the Bank of England is specifically targeting that with this gilt intervention.

It is aimed at seeing off a crisis that’s potentially starting to emerge in pension funds.

The Bank said in a statement: “Were dysfunction in this (long-dated bond) market to continue or worsen, there would be a material risk to UK financial stability.

“This would lead to an unwarranted tightening of financing conditions and a reduction of the flow of credit to the real economy.”

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Senior Tory blames mini-budget for turmoil

‘Significant’ interest rate rise likely ahead

The programme marked the Bank’s first policy intervention as it battles to bring down inflation and ease the cost of living crisis. Its chief economist signalled on Tuesday that a “significant” rise in Bank rate was also likely ahead.

The government’s growth plan is only seen as adding inflationary pressure to the economy, leaving it at loggerheads with the Bank’s mandate.

The Bank said the bond purchases, which would be fully covered by the Treasury in the event of any losses, would be sold back once market conditions had stabilised.

The announcement certainly had an immediate effect on the market.

Data showed that 30-year bond yields fell back to 4.3%, having risen to levels above 5% not seen since 2002 earlier in the day. There were similar falls for 20-year yields.

Those for 10-year bonds also fell back below 4% from 4.6%.

Stock markets, which had endured widespread falls Europe-wide amid recession fears, erased some of their losses.

The FTSE 100 had been almost 2% down but was just 0.8% lower on the day just before 1pm.

The pound, however, was a cent and a half down versus the dollar shortly after the announcement, to stand at $1.0578, and a cent lower against the euro. It later moved back towards $1.07 as market surprise at the intervention eased.

The single European currency was also suffering against a resurgent US currency.

Bank going ‘toe-to-toe’ with the market

The Bank said it would also postpone its efforts to unwind the sale of bonds it acquired through quantitative easing during the financial and COVID crises.

The Bank had planned to reduce its £838bn of gilt holdings by £80bn over the next year.

Neil Wilson, chief markets analyst at Markets.com, said the move followed evidence of “severe liquidity stress”.

This would have been particularly evident for pension funds who have faced demands for additional cash to cover off rising yields.

“We’re now seeing the Bank go toe-to-toe with the market and this might not lead to any decrease in volatility.”

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The Wargame: Inside the decades-long saga that’s left UK shockingly unprepared for war

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The Wargame: Inside the decades-long saga that's left UK shockingly unprepared for war

The UK is “really unprepared” to fight a war and has been living on a “mirage” of military strength that was shocking to discover, interviews with almost every defence secretary since the end of the Cold War have revealed.

With Sir Keir Starmer under pressure to accelerate plans to reverse the decline, two new episodes of Sky News and Tortoise’s podcast series The Wargame uncover what happened behind the scenes as Britain switched funding away from warfare and into peacetime priorities such as health and welfare after the Soviet Union collapsed.

👉Search for The Wargame on your podcast app👈

This decades-long saga, spanning multiple Labour, Conservative and coalition governments, includes heated rows between the Ministry of Defence (MoD) and the Treasury, threats to resign, and dire warnings of weakness.

It also exposes a failure by the military and civil service to spend Britain’s still-significant defence budget effectively, further compounding the erosion of fighting power.

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The Wargame: Behind the scenes

‘Russia knew’ about UK’s weaknesses

Now, with the threat from Russia returning, there is a concern the UK has been left to bluff about its ability to respond, rather than pivot decisively back to a war footing.

“We’ve been living on a sort of mirage for so long,” says Sir Ben Wallace, a Conservative defence secretary from 2019 until 2023.

“As long as Trooping the Colour was happening, and the Red Arrows flew, and prime ministers could pose at NATO, everything was fine.

“But it wasn’t fine. And the people who knew it wasn’t fine were actually the Americans, but also the Russians.”

Not enough troops, medics, or ammo

Lord George Robertson, a Labour defence secretary from 1997 to 1999 and the lead author of a major defence review this year, says when he most recently “lifted the bonnet” to look at the state of the Army, Royal Navy and Royal Air Force, he found “we were really unprepared”.

“We don’t have enough ammunition, we don’t have enough logistics, we don’t have enough trained soldiers, the training is not right, and we don’t have enough medics to take the casualties that would be involved in a full-scale war.”

Asked if the situation was worse than he had imagined, Lord Robertson says: “Much worse.”

Robertson meets the PM after last year's election. Pic: Reuters
Image:
Robertson meets the PM after last year’s election. Pic: Reuters

‘I was shocked,’ says ex-defence secretary

Sir Gavin Williamson, a former Conservative defence secretary, says he too had been “quite shocked as to how thin things were” when he was in charge at the MoD between 2017 and 2019.

“There was this sort of sense of: ‘Oh, the MoD is always good for a billion [pounds] from Treasury – you can always take a billion out of the MoD and nothing will really change.’

“And maybe that had been the case in the past, but the cupboards were really bare.

“You were just taking the cupboards.”

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Ben Wallace on role as PM in ‘The Wargame’

But Lord Philip Hammond, a Conservative defence secretary from 2011 to 2014 and chancellor from 2016 until 2019, appears less sympathetic to the cries for increased cash.

“Gavin Williamson came in [to the Ministry of Defence], the military polished up their bleeding stumps as best they could and convinced him that the UK’s defence capability was about to collapse,” he says.

“He came scuttling across the road to Downing Street to say, I need billions of pounds more money… To be honest, I didn’t think that he had sufficiently interrogated the military begging bowls that had been presented to him.”

Hammond at a 2014 NATO meeting. Pic: Reuters
Image:
Hammond at a 2014 NATO meeting. Pic: Reuters

What to expect from The Wargame’s return

Episodes one to five of The Wargame simulate a Russian attack on the UK and imagine what might happen, with former politicians and military chiefs back in the hot seat.

The drama reveals how vulnerable the country has really become to an attack on the home front.

The two new episodes seek to find out why.

The story of the UK’s hollowed-out defences starts in a different era when an Iron Curtain divided Europe, Ronald Reagan was president of the US, and an Iron Lady was in power in Britain.

Sir Malcolm Rifkind, who went on to serve as defence secretary between 1992 and 1995 under John Major, recalls his time as minister for state at the Foreign Office in 1984.

In December of that year, then prime minister Margaret Thatcher agreed to host a relatively unknown member of the Soviet Communist Party Politburo called Mikhail Gorbachev, who subsequently became the last leader of the Soviet Union.

Sir Malcolm remembers how Mrs Thatcher emerged from the meeting to say: “I think Mr Gorbachev is a man with whom we can do business.”

Gorbachev was hosted at Chequers in 1984. Pic: Reuters
Image:
Gorbachev was hosted at Chequers in 1984. Pic: Reuters

It was an opinion she shared with her close ally, the US president.

Sir Malcolm says: “Reagan would have said, ‘I’m not going to speak to some unknown communist in the Politburo’. But if the Iron Lady, who Reagan thought very highly of, says he’s worth talking to, he must be worth it. We’d better get in touch with this guy. Which they did.

“And I’m oversimplifying it, but that led to the Cold War ending without a shot being fired.”

Read more from Sky News:
Courts in ‘calamitous’ state
Reeves faces rural Labour rebellion

In the years that followed, the UK and  much of the rest of Europe reaped a so-called peace dividend, cutting defence budgets, shrinking militaries and reducing wider readiness for war.

Into this different era stepped Tony Blair as Labour’s first post-Cold War prime minister, with Lord Robertson as his defence secretary.

Robertson and Blair in 1998. Pic: Reuters
Image:
Robertson and Blair in 1998. Pic: Reuters

Lord Robertson reveals the threat he and his ministerial team secretly made to protect their budget from then chancellor Gordon Brown amid a sweeping review of defence, which was meant to be shaped by foreign policy, not financial envelopes.

“I don’t think I’ve ever said this in public before, but John Reid, who was the minister for the Armed Forces, and John Speller, who was one of the junior ministers in the department, the three of us went to see Tony Blair late at night – he was wearing a tracksuit, we always remember – and we said that if the money was taken out of our budget, the budget that was based on the foreign policy baseline, then we would have to resign,” Lord Robertson says.

“We obviously didn’t resign – but we kept the money.”

The podcast hears from three other Labour defence secretaries: Geoff Hoon, Lord John Hutton and the current incumbent, John Healey.

John Healey, the current defence secretary. Pic: PA
Image:
John Healey, the current defence secretary. Pic: PA

For the Conservatives, as well as Rifkind, Hammond, Williamson and Wallace, there are interviews with Liam Fox, Sir Michael Fallon, Dame Penny Mordaunt and Sir Grant Shapps.

In addition, military commanders have their say, with recollections from Field Marshal Lord David Richards, who was chief of the defence staff from 2010 until 2013, General Sir Nick Carter, who led the armed forces from 2018 until 2021, and Vice Admiral Sir Nick Hine, who was second in charge of the navy from 2019 until 2022.

‘We cut too far’

At one point, Sir Grant, who held a variety of cabinet roles, including defence secretary, is asked whether he regrets the decisions the Conservative government took when in power.

He says: “Yes, I think it did cut defence too far. I mean, I’ll just be completely black and white about it.”

Lord Robertson says Labour too shares some responsibility: “Everyone took the peace dividend right through.”

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‘Death, prison or the loss of your sanity’: A decade of county lines leaves its scars on children

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'Death, prison or the loss of your sanity': A decade of county lines leaves its scars on children

A decade on from when authorities identified the emergence of “county lines” drug dealing, children exploited by the trade are now often either dead, in prison or have been sectioned with mental health problems caused by the trauma.

Sky News has spoken to parents and former child runners who say the long-term impact is devastating, as new figures show the problem shows no sign of abating.

In the last 12 months, police referred 3,200 vulnerable people, mostly children, to support services – in the latest crackdown on child exploitation within country lines gangs. Some 1,200 gang members were arrested in the same period.

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‘Death, prison or loss of your sanity’

“Lucy” was a drug runner featured in a Sky News film in 2018 on the exploitation of children used as drug runners.

Aged 13, she was set up to be robbed by her own gang during a trip from London to Southampton, then stabbed as punishment, and debt-bonded so she would run drugs for free. At the same age she was also made pregnant by one of the gang members.

Now in her early 20s she says the experience traumatised her, and she was sectioned with severe mental health problems.

She says: “My paranoia just overtook me. I was so paranoid all the time, like having to lock the doors, checking the windows, checking behind me walking in the street, not being able to breathe really, just constantly on edge.

“I was afraid of them finding me, or getting attacked again, or them making me work and feeling like a slave.”

Lucy currently lives in a refuge, in hiding from a violent man.

Amanda Stephens' son, Olly, was set up and robbed by his own gang
Image:
Amanda Stephens’ son, Olly, was set up and robbed by his own gang

‘That’s the cruelty of it all’

Amanda Stephens’ son, Olly, had a similar experience to Lucy when he was 13. Olly was set up and robbed by his own gang on a trip to London from Reading.

Amanda says: “It wasn’t until he spoke quite honestly with the social worker, he said, Olly, you were set up. Olly thought they were his friends and that’s the cruelty of it all.”

Read more from Sky News:
Courts in ‘calamitous’ state
Reeves faces rural Labour rebellion

Olly was autistic and vulnerable to influence. Amanda noticed his group of friends changed when he moved to secondary school and his locator on his phone sometimes placed him further away from home than he should be, but he refused to say what was going on.

“We lost control completely of him as our child.”

Olly did warn his father that some children wanted to stab him – and tragically, despite his parents’ efforts to keep him safe, in January 2021, Olly was lured to a field by a 14-year-old girl, where he was stabbed to death by two boys aged 13 and 14.

Pic: iStock
Image:
Pic: iStock

Vulnerable people ‘exploited’

It was August 2015 when a report by the National Crime Agency said the Home Office had “identified a growing body of intelligence… that vulnerable young people are being exploited in order to facilitate the running of street level dealing”.

It added: “‘County Lines’ is a national issue involving the use of mobile phone ‘lines’ by groups to extend their drug dealing business into new locations outside of their home areas.”

This led to a wave of knife crime among young people, and a new law recognising the exploitation of children under the Modern Slavery Act in 2015.

Mother says her son was ‘radicalised’

One parent, “Laura”, told Sky News she felt like her son had been “radicalised” into drug dealing and acted like he was “on remote control”, once jumping out of her car on the school run after one gang member sent him a text.

Like Lucy, Laura’s son ended up being sectioned in his late teens and needing ongoing mental health support.

Sarah says the long-term impact on her son has been devastating.
Image:
Sarah says the long-term impact on her son has been devastating.

Every gift came at a price

Sarah, who doesn’t want us to use her surname, says her son’s involvement in county lines began when he was offered a McDonald’s aged 12, in return for running an errand.

She says every gift came at a price: “So, they would give him the trainers, give him a bike, the coat, and everything they gave him were actually in their benefit, because if he was warm, he wasn’t coming home. If he could get around faster, he could drop more. They would act like it was a gift, but, actually, you had to pay it off in bits.”

Sarah says, 10 years on, the long-term impact has been devastating.

“Currently, he’s serving a custodial sentence for possession with intent to sell. Mentally I think he’s traumatised. Physically, he has scars from knife injuries, fractures. A face that I will never recognise, because people have broken that a couple of times.”

The play CODE by Justice In Motion was inspired by a Sky News report
Image:
The play CODE by Justice In Motion was inspired by a Sky News report

‘The consequences are death, prison, or the loss of your sanity’

A Sky News report in 2018 called Behind County Lines, which included Lucy’s story, was part of the inspiration for a play called CODE by Justice In Motion, which tours schools and town centres.

Both Amanda and Sarah believe every child and parent should watch the production, which tells a story similar to Lucy’s of a child groomed into joining a county lines gang.

Rapper Still Shadey
Image:
Rapper Still Shadey

Lead actor and rapper Still Shadey, who grew up in south London, had friends exploited by county lines gangs. He says: “The outcomes are clear. The consequences are death, prison, or the loss of your sanity.”

The problem has had less publicity recently but continues to be a major focus for police with 2,300 “deal lines” closed by operations in the 12 months since July 2024, the highest annual figures since the government’s County Lines Programme began in 2019.

‘Disgusting and cowardly’

Crime and policing minister Sarah Jones said: “The exploitation of children and vulnerable people in this way is disgusting and cowardly. County lines gangs are also driving knife crime in our communities, and I want criminals to know that we will not let them get away with it. We will be relentless in going after these gangs.”

The government has already announced new offences as part of the Crime and Policing Bill, including “criminal exploitation of children”, which seek to increase convictions against exploiters and deter gangs from enlisting children. It will carry a maximum penalty of 10 years in prison.

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Rachel Reeves hit by Labour rural rebellion over inheritance tax on farmers

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Rachel Reeves hit by Labour rural rebellion over inheritance tax on farmers

Chancellor Rachel Reeves has suffered another budget blow with a rebellion by rural Labour MPs over inheritance tax on farmers.

Speaking during the final day of the Commons debate on the budget, Labour backbenchers demanded a U-turn on the controversial proposals.

Plans to introduce a 20% tax on farm estates worth more than £1m from April have drawn protesters to London in their tens of thousands, with many fearing huge tax bills that would force small farms to sell up for good.

Farmers have staged numerous protests against the tax in Westminster. Pic: PA
Image:
Farmers have staged numerous protests against the tax in Westminster. Pic: PA

MPs voted on the so-called “family farms tax” just after 8pm on Tuesday, with dozens of Labour MPs appearing to have abstained, and one backbencher – borders MP Markus Campbell-Savours – voting against, alongside Conservative members.

In the vote, the fifth out of seven at the end of the budget debate, Labour’s vote slumped from 371 in the first vote on tax changes, down by 44 votes to 327.

‘Time to stand up for farmers’

The mini-mutiny followed a plea to Labour MPs from the National Farmers Union to abstain.

“To Labour MPs: We ask you to abstain on Budget Resolution 50,” the NFU urged.

“With your help, we can show the government there is still time to get it right on the family farm tax. A policy with such cruel human costs demands change. Now is the time to stand up for the farmers you represent.”

After the vote, NFU president Tom Bradshaw said: “The MPs who have shown their support are the rural representatives of the Labour Party. They represent the working people of the countryside and have spoken up on behalf of their constituents.

“It is vital that the chancellor and prime minister listen to the clear message they have delivered this evening. The next step in the fight against the family farm tax is removing the impact of this unjust and unfair policy on the most vulnerable members of our community.”

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Farmers defy police ban in budget day protest in Westminster.

The government comfortably won the vote by 327-182, a majority of 145. But the mini-mutiny served notice to the chancellor and Sir Keir Starmer that newly elected Labour MPs from the shires are prepared to rebel.

Speaking in the debate earlier, Mr Campbell-Savours said: “There remain deep concerns about the proposed changes to agricultural property relief (APR).

“Changes which leave many, not least elderly farmers, yet to make arrangements to transfer assets, devastated at the impact on their family farms.”

Samantha Niblett, Labour MP for South Derbyshire abstained after telling MPs: “I do plead with the government to look again at APR inheritance tax.

“Most farmers are not wealthy land barons, they live hand to mouth on tiny, sometimes non-existent profit margins. Many were explicitly advised not to hand over their farm to children, (but) now face enormous, unexpected tax bills.

“We must acknowledge a difficult truth: we have lost the trust of our farmers, and they deserve our utmost respect, our honesty and our unwavering support.”

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UK ‘criminally’ unprepared to feed itself in crisis, says farmers’ union.

Labour MPs from rural constituencies who did not vote included Tonia Antoniazzi (Gower), Julia Buckley (Shrewsbury), Torquil Crichton (Western Isles), Jonathan Davies (Mid Derbyshire), Maya Ellis (Ribble Valley), and Anna Gelderd (South East Cornwall), Ben Goldsborough (South Norfolk), Alison Hume (Scarborough and Whitby), Terry Jermy (South West Norfolk), Jayne Kirkham (Truro and Falmouth), Noah Law (St Austell and Newquay), Perran Moon, (Camborne and Redruth), Samantha Niblett (South Derbyshire), Jenny Riddell-Carpenter (Suffolk Coastal), Henry Tufnell (Mid and South Pembrokeshire), John Whitby (Derbyshire Dales) and Steve Witherden (Montgomeryshire and Glyndwr).

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