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”.
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.
More on Budget 2024
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Image: 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.
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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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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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2:23
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.
Image: 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.
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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2:41
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.
An elderly British couple who were detained by the Taliban earlier this year have been freed.
Barbie Reynolds, 76, and her husband Peter, 80, were detained by the Taliban’s interior ministry on 1 February as they travelled to their home in Bamyan province, central Afghanistan.
In March, they were moved to a maximum security prison in Kabul where they had been held without charge since.
They were safely released from detention on Friday and flown to Doha following mediation led by Qatar.
Image: Peter Reynolds was visited by Qatari diplomats last month
Sky Correspondent Cordelia Lynch was at Kabul Airport as the freed couple arrived and departed.
Mr Reynolds told her: “We are just very thankful.”
His wife added: “We’ve been treated very well. We’re looking forward to seeing our children.
“We are looking forward to returning to Afghanistan if we can. We are Afghan citizens.”
Asked by Lynch if they had a message for family and friends, Mrs Reynolds replied: “My message is God is good, as they say in Afghanistan.”
Image: Peter and Barbie Reynolds after their release
Image: Qatari and British diplomats with Barbie and Peter Reynolds on the flight to Doha
Prime Minister Sir Keir Starmer welcomed the news in a statement thanking Qatar.
“I welcome the release of Peter and Barbara Reynolds from detention in Afghanistan, and I know this long-awaited news will come as a huge relief to them and their family,” he said.
“I want to pay tribute to the vital role played by Qatar, including The Amir, His Highness Sheikh Tamim bin Hamad al Thani, in securing their freedom.”
Richard Lindsay, the UK’s special envoy to Afghanistan, told Lynch it remained “unclear” on what grounds the couple had been detained.
He said they were “very relieved to be going home and delighted to be reunited with their family”.
Asked about the state of their health, he said: “I am not a doctor, but they are very happy.”
He added the British government’s travel advice to the country was clear. “We advise British nationals not to travel to Afghanistan. That remains the case and will remain the case,” he said.
Abdul Qahar Balkhi, a spokesperson at the Taliban government’s foreign ministry, said in a statement posted on X that the couple “violated Afghan law” and were released from prison after a court hearing.
He did not say what law the couple were alleged to have broken.
Image: Pic: Sarah Entwistle
Image: Pic: Reynolds family
Qatar, the energy-rich nation on the Arabian Peninsula that mediated talks between the US and the Taliban before the American withdrawal, helped in releasing the Reynolds.
Mirdef Ali Al-Qashouti, acting charge d’affaires at the Qatar Embassy in Kabul, told Lynch that Qatari officials ensured the couple were kept in “comfortable” conditions during talks.
He told Lynch the Reynolds’ release was because of “continuous efforts by my government to keep our policy in helping releasing hostages and our mediation and diplomacy”.
“Throughout their eight months in detention – during which they were largely held separately – the Qatari embassy in Kabul provided them with critical support, including access to their doctor, delivery of medication, and regular communication with their family,” a Qatari official told Reuters news agency.
Hamish Falconer, minister for the Middle East, Afghanistan and Pakistan, said in a statement: “The UK has worked intensively since their detention and has supported the family throughout.
“Qatar played an essential role in this case, for which I am hugely grateful.”
The couple have lived in Afghanistan for 18 years and run an organisation called Rebuild, which provides education and training programmes.
They have been together since the 1960s and married in the Afghan capital in 1970.
Their son, Jonathan, told Sky News in April his parents had “never heard one accusation or one charge”.
He said the British government had offered to evacuate them when the Taliban took over, to which they replied: “Why would we leave these people in their darkest hour?”
Mr and Mrs Reynolds are now on their way home, where they will be reunited with their family.
Donald Trump has told Sir Keir Starmer he should use the military to stop migrants crossing the Channel.
The US president made the suggestion while stood alongside the prime minister for a typically wide-ranging news conference on Thursday afternoon, bringing his state visit to Britain to an end.
Speaking at Chequers, Sir Keir‘s country retreat, Mr Trump warned illegal migration is “going to destroy […] countries from within” and said “it doesn’t matter if you call out the military” to deal with small boats.
He talked up his own record of stopping people crossing the US-Mexico border.
Sir Keir instead pointed to his government’s migrant return deal with France, with the first deportation of a man who arrived via small boat taking place on Thursday morning.
Further flights are scheduled to take place this week and next, starting Friday, while exchange arrivals to Britain via the legal route agreed with the French are due in the coming days.
It’s the “biggest disappointment” of his presidency that he hasn’t managed to end the war, Mr Trump admitted.
He said he thought it would be the “easiest” to solve because of his relationship with Mr Putin.
Sir Keir said the Russian president has “shown his true face”, and more “pressure” is required to make him stop.
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4:11
Rigby to Trump: Was Putin’s Alaska invite a mistake?
Trump reignites war of words with Khan
While disappointed with Mr Putin, Mr Trump spared his harshest rhetoric for Sir Keir’s friend Sadiq Khan.
Speaking on Air Force One on his way back to the US, where he touched down in the early hours of Friday, he said he asked for the London mayor to be banned from attending the state banquet at Windsor Castle on Wednesday.
“I didn’t want him there,” the president said. “I asked that he not be there.”
He claimed Sir Sadiq had wanted to be at the event, adding: “I think the mayor of London Khan is among the worst mayors in the world, and we have some bad ones.”
Sky News understands the mayor didn’t seek or expect an invitation. A source close to Sir Sadiq said the capital is a “global success story” and “record numbers of Americans are choosing to make London their home”.
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1:57
Will both sides be happy with Trump’s state visit?
The Trump-Starmer news conference also covered the war in Gaza, the sacking of Lord Mandelson as Britain’s US ambassador, energy policy, and a newly signed UK-US tech deal.
Speaking about the situation in Gaza, Mr Trump said: “Simply I want all hostages to be released now.”
He said he disagreed with the UK’s plan to recognise a Palestinian state at the UN within days, should Israel not improve the humanitarian situation in Gaza.
Trump claims not to know Mandelson
Also asked by Beth Rigby if he has sympathy with Lord Mandelson, who was sacked by Sir Keir over past links to paedophile financier Jeffrey Epstein, the president simply said: “I don’t know him.”
That’s despite the president being pictured shaking hands with the Labour peer in the Oval Office after announcing a trade deal with the UK back in May.
There had been concerns that the Epstein issue could cast a shadow on the president’s second state visit to the UK, not least because Mr Trump was also close to Epstein, although they fell out before his conviction in 2009.
Image: Lord Mandelson pictured with President Trump in the Oval Office in May. Pic: Reuters
Image: Pic: AP
Energy policy
Mr Trump urged Sir Keir to exploit the UK’s North Sea oil and gas resources, dismissing wind power as a “very expensive joke”.
The UK government has ruled out new oil and gas licences in the North Sea, focusing on renewables and building nuclear power stations.
Despite their differences, Mr Trump said the bond between the US and Britain is like no other, and he described the prime minister as a “tough negotiator”.
The pair signed a technology prosperity deal, offering major investment by US tech firms in the UK, that will help to develop artificial intelligence (AI) capabilities.
Sir Keir also hailed the prospect of £150bn flowing into the UK from big US companies such as Palantir and Blackstone, part of a wider £250bn package that officials say will benefit both sides.
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1:27
Kimmel was ‘fired for bad ratings’, says US president
Jimmy Kimmel controversy
Meanwhile, Mr Trump also commented on US late-night chat show host Jimmy Kimmel, whose programme has been pulled from schedules after his remarks about the fatal shooting of conservative activist Charlie Kirk.
The president claimed the show, Jimmy Kimmel Live!, was suspended because he “is not a talented person” and had “very bad ratings”.
Two of the most important Labour-affiliated unions are set to nominate their choice for who should replace Angela Rayner as the party’s deputy leader.
Unison and GMB will pick their candidate on 25 September – two days ahead of the deadline for nominations for Labour affiliates and local party branches.
Bridget Phillipson, the education secretary, is seen as the government’s choice of candidate in the race, which has effectively turned into a de facto confidence vote on Sir Keir Starmer’s leadership.
She is up against Lucy Powell, who was sacked as Commons leader in the recent reshuffle and has become the candidate for MPs who are unhappy with the party’s direction after a difficult first year in government.
Ms Phillipson has already secured the backing of the two unions – Community and the Union of Shop, Distributive and Allied Workers.
Will unions want to say ‘sod you’ to PM?
There are question marks over who Unison, GMB and Unite will back in the race, triggered by Ms Rayner quitting as deputy leader, deputy prime minister and housing secretary over underpaid stamp duty on a second home.
While Ms Phillipson may be boosted by having the backing of Number 10, the level of discontent in the Labour Party and wider union movement is at such a level that Ms Powell’s “outsider” status may benefit her.
One union source told Sky News that while they felt Ms Phillipson was the “better candidate”, “the temptation to vote Lucy to give a ‘sod you’ to government is a lot”.
They added: “Number 10 need to start fearing the party. They’ve had it too easy.”
Another union insider said there was a “sense among union leaders that they wish this wasn’t happening”.
They questioned how important a role the unions would play in this contest due to the tight timetable, making it harder for them to mobilise behind a candidate.
“Most unions feel this is not a hugely impactful moment either way,” they said.
“Many of their members will be feeling quite grumpy at how things are going with the government, but at the same time, union leaders won’t want to get on the wrong side of Number 10 over something that is not going to make a meaningful difference in the long term.”
There are questions over the extent of Unite’s involvement and interest in the race.
Although the union is Labour’s biggest supporter, Sharon Graham, its general secretary, has sought to turn its focus away from internal party politics and on to industrial disputes.
On the first day of the Trades Union Congress in Brighton, she told Sky News she’d be “looking very much at their track record – have they backed workers? That’s what I’ll be looking for”.
Image: Sharon Graham said she’ll be looking at which candidate has backed workers
How will the race play out?
In order to proceed to the next stage of the contest, the two candidates must each secure nominations from at least 5% of constituency Labour parties, or at least three organisations affiliated that to the party. At least two of these must be trade unions which make up 5% of fully paid-up affiliated party members.
The deadline to secure the necessary support is Saturday 27 September.
The Labour Party’s annual conference begins the next day, where the candidates who have secured the required backing will be able to make their pitches directly to members in a final hustings.
Ms Phillipson, who has spoken of growing up in a working class area of Sunderland before going on to high office, said she was the person to take on Reform and secure a second term for Labour.
Speaking at a hustings event last week, she told members: “You can use this contest to look backward, to pass judgment on what has happened in the last year, or you can use it to shape positively what happens in the run-up to the next election.”
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0:30
Bridget Phillipson to stand for Labour deputy leader
‘Unforced errors’ cost government
Her message comes in contrast to that of Ms Powell, who has pitched herself as the “shop steward” of the parliamentary party willing to deliver criticism to the prime minister if necessary.
She said Labour’s mistakes in office over welfare and winter fuel payments had given the impression that it is “not on the side of ordinary people”.
In an interview with the BBC, Ms Powell praised the government’s “many achievements”, but added: “Some of the mistakes that we’ve made, or some of the unforced errors, have given a sense that we’re not on the side of ordinary people.”
Although Ms Powell secured fewer nominations from MPs than Ms Phillipson, recent polling by Survation suggests she is ahead with members on 47%, compared with 30% for her rival.