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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.

More on Budget 2024

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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Home secretary admits illegal immigration numbers still ‘too high’ under Labour – but says Farage can ‘sod off’

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Home secretary admits illegal immigration numbers still 'too high' under Labour - but says Farage can 'sod off'

The home secretary has admitted the UK’s illegal immigrant numbers are “too high” – but said Nigel Farage can “sod off” after he claimed she sounded like a Reform supporter.

Shabana Mahmood, speaking just after announcing a major policy change on migration, said she was “horrified” by the 27% increase of irregular arrivals in the year to June.

Speaking to Sky News’ political editor Beth Rigby, the home secretary said: “I acknowledge the numbers are too high, and they’ve gone up, and I want to bring them down.

“I’m impatient to bring those numbers down.”

She refused to “set arbitrary numbers” on how much she wanted to bring illegal migration down to.

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Beth Rigby: The two big problems with Labour’s asylum plan

Earlier on Monday, Ms Mahmood announced a new direction in Labour’s plan to crack down on asylum seekers.

The “restoring order and control” plan includes:

• The removal of more families with children – either voluntarily through cash incentives up to £3,000, or by force;
• Quadrupling the time successful asylum seekers must wait to claim permanent residency in the UK, from five years to 20;
• Removing the legal obligation to provide financial support to asylum seekers, so those with the right to work but choose not to will receive no support;
• Setting up a new appeals body to significantly speed up the time it takes to decide whether to refuse an asylum application;
• Reforming how the European Convention on Human Rights (ECHR) is interpreted in immigration cases;
• Banning visas for countries refusing to accept deportees;
• And the establishment of new safe and legal refugee routes.

Read more: Everything you need to know about Labour’s plans

Shabana Mahmood has two really big problems

The home secretary wants to make it less attractive for illegal migrants to try to get to the UK by making it much harder to get permanent residence here, by overhauling human rights laws to make it harder for illegal migrants to stay, and by suspending UK visas to some countries who refuse to take back illegal migrants.

That’s the plan, but there are two really big problems.

The first one is the Labour Party.

Labour knows it has to try to win back voters turning to Reform, but also risks a backlash from those with more liberal values who believe Mahmood is abandoning what Labour stands for to them.

That’s the politics. But on the policy, they just have to deliver and so much is at stake.

There’s no doubt Keir Starmer’s Number 10 is in real trouble.

There’s now open chatter about whether he should lead Labour into the next general election and whether his chancellor really is the person to deliver on the economy as she faces into that very difficult budget.

With the government in the doldrums, there is a lot riding on this policy and this politician.

Beth was speaking after her interview with Shabana Mahmood, watch her full analysis in the video above.

Reform UK leader Nigel Farage said the plan was much like something his party would put forward, and said Ms Mahmood sounded like a Reform supporter.

The home secretary responded with her usual frankness, telling Rigby: “Nigel Farage can sod off. I’m not interested in anything he’s got to say.

“He’s making mischief. So I’m not going to let him live forever in my head.”

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Home secretary announces details on asylum reform

You might need our support, says Badenoch

Her plans have also been tentatively welcomed by the Conservatives, with Kemi Badenoch suggesting the home secretary work with her in case of a rebellion by Labour MPs.

The backing of Tory MPs could “come in handy”, Ms Badenoch said.

The government’s attempts to cut the welfare bill earlier this year were thwarted by its own backbenchers, and the proposals announced on Monday have already attracted backlash from some on the left of the Labour Party.

Nadia Whittome MP called Ms Mahmood’s plans “dystopian” and “shameful”, while Richard Burgon MP said she should change course now rather than be forced into a U-turn later.

Read more:
How the UK and Denmark’s immigration policies compare

Nigel Farage said the home secretary was sounding like a Reform supporter
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Nigel Farage said the home secretary was sounding like a Reform supporter

Mahmood’s warning to Labour MPs

But Ms Mahmood has warned her colleagues that disrupting her bid to reform the asylum system – thus hoping to bring down the number of small boat crossings – risks “dark forces” coming to prominence.

Speaking in the House of Commons on Monday evening, Ms Mahmood said: “If we fail to deal with this crisis, we will draw more people down a path that starts with anger and ends in hatred.”

She later told Beth Rigby that Reform wanted to “rip up” indefinite leave to remain altogether, which she called “immoral” and “deeply shameful”.

The home secretary, who is a practising Muslim, was born in Birmingham to her Pakistani parents.

Earlier, in the House of Commons, she said she sees the division that migration and the asylum system are creating across the country. She told MPs she regularly endures racial slurs.

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New campaign backs introduction of Graduated Driving Licences

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New campaign backs introduction of Graduated Driving Licences

MPs and bereaved families have launched a new campaign urging the government to re-think its position on introducing Graduated Driving Licences.

The event, in Parliament, came at the start of Road Safety Week and ahead of the government’s highly anticipated new road safety strategy, the first in a decade, which could be published next month.

Kim Leadbeater MP told the gathering that the idea for tougher rules for new drivers “transcends party politics” and could leave to “saving people’s lives”.

Five young adults died in a crash in Ireland on Saturday night. Pic: PA
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Five young adults died in a crash in Ireland on Saturday night. Pic: PA

Organisations, including fire services, police and crime commissioners, motoring organisations as well as road safety charities, are behind a new website, “Protect Young Drivers: Time for Change”, which documents the case for introducing stronger measures.

Graduated Driving Licences (GDLs) is a system designed to give new drivers a staggered approach to gaining full privileges on the road, such as driving at night or with a full car of passengers.

The system has been successful in countries including Canada and Australia at reducing the number of young people killed or seriously injured.

“I feel as a bereaved parent we are very easily dismissed”

More on Roads

Last year 22% of fatalities on Britain’s roads involved a young person behind the wheel.

Data released by the Department for Transport also shows that male drivers aged 17-24 are four times more likely to be killed or seriously injured than all drivers aged over 25.

At the start of the launch a one minute silence was held to remember victims of road traffic accidents – including five young adults who died in a crash in Ireland on Saturday night.

Chris Taylor, who lost his 18-year-old daughter Rebecca in a road traffic collision in 2008, said the grief doesn’t go away.

“I feel as a bereaved parent we are very easily dismissed,” he said. “We’ve got an opportunity. Together we are a movement that can create real change.”

The Department for Transport has previously told Sky News it is not considering GDLs.

“Every death on our roads is a tragedy and our thoughts are with everyone who has lost a loved one in this way,” said a spokesperson.

“Whilst we are not considering Graduated Driving Licences, we absolutely recognise that young people are disproportionately victims of tragic incidents on our roads and continue to tackle this through our THINK! campaign.

“We are considering other measures to address this problem and protect young drivers, as part of our upcoming strategy for road safety – the first in over a decade.”

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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.”

More on Labour

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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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