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Chancellor Rachel Reeves will deliver her first budget at the end of October, providing the first chance for her to change the fiscal rules.

Upon entering government in July, the government said the Conservatives left it with a £22bn black hole, so the chancellor is expected to use the 30 October budget to raise some of that.

Ms Reeves said in November, when asked if she would consider changing the debt target, she was “not going to fiddle the figures or make something to get different results”.

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However, she is being urged to alter the rules to let the government access £57bn, according to the Institute for Public Policy Research (IPPR) thinktank.

And during Prime Minister’s Questions on 9 October, Sir Keir Starmer refused to answer if he agreed with the chancellor’s November statement, prompting some to speculate the government may change the fiscal rules.

Sky News looks at what a fiscal rule is, what the Labour government’s rules are and how they could change.

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Sir Keir Starmer congratulated Rachel Reeves after she addressed the Labour Party conference in Liverpool. Pic: PA
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Sir Keir Starmer and Rachel Reeves at the Labour conference. Pic: PA

What are fiscal rules?

A fiscal rule is a limit or restriction governments put in place to constrain how much they can borrow to fund public spending.

They can be set by an independent body but since 1997 UK governments have set their own constraints.

Rules apply to the fiscal deficit – the gap between public expenditure and tax revenues in a year – the public debt – the total amount borrowed to finance past deficits – or public spending relative to GDP.

In 2010, the Office for Budget Responsibility (OBR) was set up to remove the Treasury’s ultimate control over the forecasts that underpin fiscal policy.

The Economics Observatory said the OBR’s creation means fiscal rules should be seen as an “expression of a government’s objectives, not something that dictates those objectives”.

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What are the current fiscal rules?

The Labour Party’s manifesto laid out the new government’s fiscal rules, describing them as “non-negotiable”. They are:

1) The current budget must move into balance so day-to-day costs are met by revenues

2) Debt must be falling as a percentage of GDP by the fifth year of the forecast – this was carried over from the Conservative government.

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Will Rachel Reeves U-turn on her budget promise?

How could the fiscal rules change?

The rules themselves are not expected to change.

However, the chancellor could change how debt is calculated, which could in turn change how much debt the UK officially has and give Ms Reeves room to borrow more.

Ms Reeves told the Labour conference “borrowing for investment” is the only plausible solution to the UK’s productivity crisis.

By changing her definition of debt, she could find up to £50bn in additional headroom.

However, the Institute for Fiscal Studies (IFS) has warned against borrowing that much money.

Paul Johnson, director of the IFS, said Labour’s pledge not to increase income tax, national insurance or VAT, coupled with a promise to balance the current budget, means she will not be able to free up additional resources for day-to-day spending.

Ed Conway speaks to Bank of England governor Andrew Bailey after he announced interest rates would be cut
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Bank of England governor Andrew Bailey introduced quantitative tightening in 2022

Quantitative Easing

An idea the chancellor is said to be weighing up is excluding the £20bn to £50bn annual losses being incurred by the Bank of England winding down its quantitative easing (QE) bond-buying programme.

Since the 2008 financial crisis, the Bank of England has repeatedly used QE to stimulate the economy and meet the 2% inflation target – creating £875bn of new money in 13 years.

During QE, the Bank buys bonds (debt security issued by the government) to push up their prices and bring down long-term interest rates on savings and loans.

Read more:
How fiscal rules are impeding long-term investments – and what Rachel Reeves can do about it

Abolishing national insurance ‘could take several parliaments’

Since November 2022, the Bank has been carrying out quantitative tightening, where it does not buy other bonds when bonds it holds mature, or by actively selling bonds to investors, or a combination of the two.

The aim is not to affect interest rates or inflation but to ensure it is possible QE can happen again in the future, if needed.

In February, the cross-party Treasury committee raised concerns quantitative tightening could have losses of between £50bn and £130bn and said it could have “huge implications” for public spending over the next decade.

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What will the budget include?

Exclude new institutions

There are suggestions the chancellor could move GB Energy and the National Wealth Fund, both created by Labour, off the government’s books.

Andy King, a former senior official at the OBR, estimates that could unlock a further £15bn for borrowing.

Exclude projects

Another option would be to exclude certain projects from the debt calculation.

Government officials have said they are working on a plan to publish estimates for how much new capital projects could stimulate growth and how much money they would generate directly for the Treasury.

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Labour MPs fear wipe out at next local election – as chancellor’s career is ‘toast’

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Labour MPs fear wipe out at next local election - as chancellor's career is 'toast'

Many Labour MPs have been left shellshocked after the chaotic political self-sabotage of the past week.

Bafflement, anger, disappointment, and sheer frustration are all on relatively open display at the circular firing squad which seems to have surrounded the prime minister.

The botched effort to flush out backroom plotters and force Wes Streeting to declare his loyalty ahead of the budget has instead led even previously loyal Starmerites to predict the PM could be forced out of office before the local elections in May.

“We have so many councillors coming up for election across the country,” one says, “and at the moment it looks like they’re going to be wiped out. That’s our base – we just can’t afford to lose them. I like Keir [Starmer] but there’s only a limited window left to turn things around. There’s a real question of urgency.”

Another criticised a “boys club” at No 10 who they claimed have “undermined” the prime minister and “forgotten they’re meant to be serving the British people.”

There’s clearly widespread muttering about what to do next – and even a degree of enviousness at the lack of a regicidal 1922 committee mechanism, as enjoyed by the Tories.

“Leadership speculation is destabilising,” one said. “But there’s really no obvious strategy. Andy Burnham isn’t even an MP. You’d need a stalking horse candidate and we don’t have one. There’s no 1922. It’s very messy.”

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Starmer’s faithfuls are ‘losing faith’

Others are gunning for the chancellor after months of careful pitch-rolling for manifesto-breaching tax rises in the budget were ripped up overnight.

“Her career is toast,” one told me. “Rachel has just lost all credibility. She screwed up on the manifesto. She screwed up on the last two fiscal events, costing the party huge amounts of support and leaving the economy stagnating.

“Having now walked everyone up the mountain of tax rises and made us vote to support them on the opposition day debate two days ago, she’s now worried her job is at risk and has bottled it.

“Talk to any major business or investor and they are holding off investing in the UK until it is clear what the UK’s tax policy is going to be, putting us in a situation where the chancellor is going to have to go through this all over again in six months – which just means no real economic growth for another six months.”

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Why is the economy flatlining?

Read more:
Starmer and Reeves ditch plans to raise income tax
Former chancellor Osborne is shock contender to head HSBC

After less than 18 months in office, the government is stuck in a political morass largely of its own making.

Treasury sources have belatedly argued that the chancellor’s pre-budget change of heart on income tax is down to better-than-expected economic forecasts from the Office for Budget Responsibility.

That should be a cause of celebration. The question is whether she and the PM are now too damaged to make that case to the country – and rescue their benighted prospects.

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Man charged with murder of 17-year-old girl

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Man charged with murder of 17-year-old girl

A teenager has been charged with murder and attempted murder following the death of a 17-year-old girl, police have said.

Armed police were called to Cefn Fforest in Blackwood, Wales, at around 7.15am on Thursday after being told two people were seriously injured.

Lainie Williams was pronounced dead at the scene, while a second, a 38-year-old woman, who also sustained injuries, has been discharged from hospital.

Gwent Police said 18-year-old Cameron Cheng, a British national from Newbridge, Caerphilly, has also been charged with possession of a bladed article in a public place.

He is remanded to appear before Newport Magistrates’ Court on 17 November.

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Assistant Chief Constable Vicki Townsend said: “We understand that there has been a great deal of interest in this investigation.

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“It is vital that people consider how their language, especially comments made online, could affect our ability to bring anyone found to have committed a criminal offence to justice.

“Even though we’ve reached this significant development in the investigation, our enquiries continue so it is likely that residents will continue to see officers in the area.

“So if anyone has any information, please speak to our officers or contact us in the usual way.”

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Home secretary vows to end UK’s ‘golden ticket’ for asylum seekers – as Denmark-based reforms to be unveiled

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Home secretary vows to end UK's 'golden ticket' for asylum seekers - as Denmark-based reforms to be unveiled

The home secretary is set to unveil sweeping measures to tackle illegal migration, vowing to end the UK’s ‘golden ticket’ for asylum seekers.

People granted asylum in the UK will only be allowed to stay in the country temporarily, in the changes expected to be unveiled on Monday by Shabana Mahmood.

Modelled on the Danish system, the aim is to make the UK less attractive for illegal immigrants and make it easier to deport them.

Planned changes mean that refugee status will become temporary and subject to regular review, with refugees removed as soon as their home countries are deemed safe.

The Home Office said the “golden ticket” deal has seen asylum claims surge in the UK, drawing people across Europe, through safe countries, onto dangerous small boats.

Under current UK rules, those granted refugee status have it for five years and can then apply for indefinite leave to remain and get on a route to citizenship.

As part of the changes, the statutory legal duty to provide asylum seeker support, including housing and weekly allowances, will be revoked.

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The government will seek to remove asylum support, including accommodation and handouts, to those who have a right to work and who can support themselves but choose not to or those who break UK law.

Home Secretary Shabana Mahmood. Pic: PA
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Home Secretary Shabana Mahmood. Pic: PA

‘Last chance for a decent politics’

A government source said Ms Mahmood believes her reforms are about “more than the electoral fortunes of her party”.

“This is the last chance for a decent, mainstream politics. If these moderate forces fail, she believes, something darker will follow,” they said.

“But this demands that moderates are willing to do things that will seem immoderate to some. She has reminded those who are reluctant to embrace her ambition for bold reform, with an ultimatum: ‘if you don’t like this, you won’t like what follows me.'”

Ms Mahmood said they were the most sweeping changes to the asylum system “in a generation”, as she vowed the government will “restore order and control to our borders”.

The home secretary also told The Sunday Times that “I can see – and I know my colleagues can – that illegal migration is tearing our country apart”.

Read more:
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Could Danish model save Labour’s bacon?

System being ‘gamed’

The source said Ms Mahmood believes the system is being “gamed by those travelling on boats or abusing legal visas”.

Some 39,075 people have arrived in the UK after making the journey across the Channel so far this year, according to the latest Home Office figures.

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The gangs smuggling people to the UK

That is an increase of 19% on the same point in 2024 and up 43% on 2023, but remains 5% lower than at the equivalent point in 2022, which remains the peak year for crossings.

What happened in Denmark?

The UK government points to Denmark remaining a signatory of the European Convention on Human Rights, while also cutting the number of asylum applications to the lowest number in 40 years and successfully removing 95% of rejected asylum seekers.

What are Denmark’s migration rules?

Denmark has adopted increasingly restrictive rules in order to deal with migration over the last few years.

In Denmark, most asylum or refugee statuses are temporary. Residency can be revoked once a country is deemed safe.

In order to achieve settlement, asylum seekers are required to be in full-time employment, and the length of time it takes to acquire those rights has been extended.

Denmark also has tougher rules on family reunification – both the sponsor and their partner are required to be at least 24 years old, which the Danish government says is designed to prevent forced marriages.

The sponsor must also not have claimed welfare for three years and must provide a financial guarantee for their partner. Both must also pass a Danish language test.

In 2018, Denmark introduced what it called a ghetto package, a controversial plan to radically alter some residential areas, including by demolishing social housing. Areas with over 1,000 residents were defined as ghettos if more than 50% were “immigrants and their descendants from non-Western countries”.

In 2021, the left of centre government passed a law that allowed refugees arriving on Danish soil to be moved to asylum centres in a partner country – and subsequently agreed with Rwanda to explore setting up a program, although that has been put on hold.

Shadow home secretary Chris Philp said the Labour government has “lost control” of the UK’s borders” with illegal channel crossings “surging to over 62,000 since the election”.

He said some of the new measures were welcome but “they stop well short of what is really required and some are just yet more gimmicks – like the previous ‘smash the gangs’ gimmick”.

Mr Philp added: “Only the Conservative borders plan will end illegal immigration – by leaving the ECHR, banning asylum claims for illegal immigrants, deporting all illegal arrivals within a week and establishing a Removals Force to deport 150,000 illegal immigrants each year.”

And Enver Solomon, chief executive of Refugee Council, said: “These sweeping changes will not deter people from making dangerous crossings, but they will unfairly prevent men, women and children from putting down roots and integrating into British life.”

Ms Mahmood will be appearing on Sunday Morning with Trevor Phillips from 8.30am on Sunday.

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