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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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‘Significant’ number of countries to provide troops to Ukraine peacekeeping force

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'Significant' number of countries to provide troops to Ukraine peacekeeping force

A “significant number” of countries will provide troops to a Ukraine peacekeeping force, Sir Keir Starmer’s spokesman said.

On Saturday, leaders from 26 Western countries – plus two EU leaders and NATO’s secretary general – gathered for a virtual call of the “coalition of the willing”, hosted by Sir Keir after Volodymyr Zelenskyy accepted a 30-day interim ceasefire agreement.

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The prime minister said military chiefs would meet this Thursday to discuss the next “operational phase” in protecting Ukraine as part of a peacekeeping force – if a deal can be agreed with Russia.

Speaking on Monday, Sir Keir’s spokesman said they now expect “more than 30” countries to be involved in the coalition – but did not reveal which other countries had joined since Saturday.

He added: “The contribution capabilities will vary, but this will be a significant force, with a significant number of countries providing troops and a larger group contributing in other ways.”

The spokesman did not say which countries agreed to be part of a peacekeeping force, which Sir Keir and French leader Emmanuel Macron have confirmed the UK and France will be part of.

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What could a peacekeeping force actually do?

Could troops end up fighting?

Russia has repeatedly said it would not accept soldiers from NATO countries being stationed in Ukraine.

Asked if British troops fired on by Russia in Ukraine would be allowed to fire back, the spokesman said: “It’s worth remembering that Russia didn’t ask Ukraine when it deployed troops.

“We’ve got operational planning meetings that they are going through.”

The spokesman also said he did not know if the US – notably absent from the coalition – will be joining the military chiefs’ meeting on Thursday, but said the UK is having “regular discussions with our American counterparts”.

Both the UK and France are pushing for the US to provide security guarantees to prevent Russia from reneging on any peace deal with Ukraine.

Read more:
Who’s in the coalition of the willing?

Follow live updates from the Ukraine war

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Which nations will join peacekeeping efforts?

Trump and Putin to hold talks

Last week, Russian President Vladimir Putin said he supports the truce brokered by the US in Saudi Arabia, but “lots of questions” remain over the proposals.

Donald Trump said on Sunday night he will speak to Mr Putin on Tuesday about ending the war and negotiators have already discussed “dividing up certain assets”, including land and power plants.

He said a “lot of work” had been done over the weekend on a peace deal.

The leaders involved in Saturday’s call were from: Australia, Belgium, Bulgaria, Canada, Czech Republic, Denmark, Finland, France, Germany, Greece, Iceland, Italy, Latvia, Lithuania, Luxembourg, Netherlands, New Zealand, Norway, Poland, Portugal, Romania, Spain, Sweden, Turkey, Ukraine, and the UK.

NATO Secretary General Mark Rutte, EU Commission President Ursula von der Leyen and EU Council President Antonio Costa also joined.

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A Labour Party in Tory clothing? Why Starmer’s backbenchers are deeply uncomfortable

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A Labour Party in Tory clothing? Why Starmer's backbenchers are deeply uncomfortable

Since taking office nine months ago Sir Keir Starmer has weathered party rows about winter fuel payments, the two child benefit cap, WASPI women, airport expansion and cuts to international aid.

All of these decisions have been justified in the name of balancing the books – filling that notorious £22bn black hole, sticking to the fiscal rules, and in the pursuit of growth as the government’s number one priority.

But welfare reform feels like a far more existential row.

Health Secretary Wes Streeting argued on Sunday Morning With Trevor Phillips that the current system is “unsustainable”.

Ministers have been making the point for weeks that the health benefits bill for working-age people has ballooned by £20bn since the pandemic and is set to grow by another £18bn over the next five years, to £70bn.

But the detail of where those cuts could fall is proving highly divisive.

One proposal reportedly under consideration has been to freeze personal independence payments (PIPs) next year, rather than uprating them in line with inflation.

Charities have warned this would be a catastrophic real-terms cut to 3.6 million people.

Concerned left-wing backbenchers are calling on the government to tax the rich, not take from the most vulnerable.

The Sunday Times and Observer have now reported that Work and Pensions Secretary Liz Kendall has dropped the idea in response to the backlash.

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Streeting defends PM’s comments on ‘flabby’ public sector

Read more:
Streeting denies Labour ‘changing into Tories’
Planned PIP freeze set to be scrapped – reports
What cuts could be announced?

Wes Streeting denied reports of a cabinet row over the plan, insisting the final package of measures hasn’t yet been published and he and his cabinet colleagues haven’t seen it.

Not the final version perhaps – but given all backbench Labour MPs who were summoned to meetings with the Number 10 policy teams for briefings this week, that response is perhaps more than a little disingenuous.

In his interview with Sir Trevor Phillips, he went on to make the broader case for PIP reform – highlighting the thousand people who sign up to the benefit every day and arguing that the system needs to be “sustainable”, to “deliver for those that need it most” and “provide the right kind of support for the different types of need that exist”.

To me this signals the government are preparing to unveil a tighter set of PIP eligibility criteria, with a refocus on supporting those with the greatest needs.

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Liz Bates: Will there be a backlash over benefits?

Changes to incapacity benefit to better incentivise working – for those who can – are also clearly on the cards.

The health secretary has been hitting out at the “overdiagnosis” of mental health conditions, arguing that “going out to work is better for your mental and physical health, than being spent and being stuck at home”, and promising benefit reforms that will help support people back to work rather than “trapped in the benefits system”.

Turning Tory?

Starmer said this week the current welfare system couldn’t be defended on economic or moral grounds.

The Conservatives don’t disagree.

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Conservatives: Scrapping NHS England is ‘right thing’

Before the election, they proposed £12bn in cuts to the welfare bill, with a focus on getting people on long-term sickness back to work.

This morning, shadow education secretary Laura Trott claimed Labour denied that welfare cuts were needed during the election campaign and had wasted time in failing to include benefits reform in the King’s Speech.

“They’re coming to this chaotically, too late and without a plan,” she said.

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Notwithstanding the obvious critique that the Tories had 14 years to get a grip on the situation – what’s most striking here is that, yet again, the Labour government seems to be borrowing Conservative clothes.

When challenged by Sir Trevor this morning, Streeting denied they were turning Tory – claiming the case for welfare reform and supporting people into work is a Labour argument.

But, from increasing defence spending and cutting the aid budget to scrapping NHS England, there’s a definite pattern emerging.

If you didn’t know a Labour administration was in charge, you might have assumed these were the policies of a Conservative government.

It’s a strategy which makes many of his own backbenchers deeply uncomfortable.

But it’s doing a good job of neutering the Tory opposition.

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Sky News and Politico join forces again with new Politics At Sam And Anne’s podcast

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Sky News and Politico join forces again with new Politics At Sam And Anne's podcast

The new Sky News and Politico podcast Politics At Sam And Anne’s launches today, with Anne McElvoy replacing Jack Blanchard as Sam Coates’s co-host.

The political podcast will be available from 7.30am Monday to Thursday and will see Coates, Sky News’ deputy political editor, and McElvoy, Politico’s executive editor, unpack everything there is to know about the day ahead in Westminster.

Each instalment of the award-winning podcast will give audiences the latest insight into British politics in no more than 20 minutes.

The podcast originally launched in September 2023 with Jack Blanchard – Politico’s former UK editor, and now author of Politico’s DC Playbook.

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McElvoy’s arrival comes after a successful year for the podcast as it was recently recognised at the inaugural Political Podcast Awards and credited for its “must-know political insight”.

Coates, who won Presenter of the Year at the 2025 Political Podcast Awards, said: “Having Anne on board as my new full-time co-host is hugely exciting.

“With her phenomenal multi-decade background in domestic and international affairs, Anne is best in class at dissecting how events around the world are shaping Westminster.

“By combining Politico’s incredible depth and Sky’s ability to cut through the noise, we are well placed to continue providing unrivalled analysis and the latest scoops to our informed Westminster audience.”

McElvoy said: “Sam’s boundless energy, deep cross-party knowledge and a shared delight in informed conversation on the topics and characters shaping politics make even our early morning recordings fun.

“Our mission remains delivering the unmissable first podcast of the day for and about Westminster. We will explore the news moments that matter, offer our own insights and spontaneous exchanges and preview events that shape our political world.”

David Rhodes, executive chairman of Sky News, said the podcast was “the go-to source for people who work in Westminster and beyond”.

He said: “It provides an unparalleled service, giving a community of highly engaged listeners the full story, first each morning on what’s happening in politics.”

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