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.
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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.
A power outage caused major travel disruption on London’s Tube network on Monday, stretching into rush hour.
The Elizabeth, Bakerloo, Jubilee and Northern lines were among the routes either suspended or delayed, with several stations closed and passengers forced to evacuate.
A spokesman for Transport for London (TfL) said there was an outage in southwest London for “a matter of minutes” and “everything shut down”.
National Grid confirmed a fault on its transmission network, which was resolved in “seconds”, but led to a “voltage dip” that affected some supplies.
The London Fire Brigade said the fault caused a fire at an electrical substation in Maida Vale, and it’s understood firefighters destroyed three metres of high-voltage cabling.
Image: The scene in Piccadilly Circus as passengers were evacuated
That came just weeks after a fire at the same substation, which saw elderly and vulnerable residents among those moved from their homes.
But today’s fire – between Cunningham Place and Aberdeen Place – is understood to have involved different equipment to the parts in the 29 April incident.
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TfL’s chief operating officer Claire Mann apologised for the disruption, adding: “Due to a brief interruption of the power supply to our network, several lines lost power for a short period earlier this afternoon.”
Passengers told Sky News of the disruption’s impact on their plans, with one claiming he would have had to spend £140 for a replacement ticket after missing his train.
He said he will miss a business meeting on Tuesday morning in Plymouth as a result.
Another said she walked to five different stations on Monday, only to find each was closed when she arrived.
“Supermax” jails could be built to house the most dangerous offenders following a spate of alleged attacks on staff, the prisons minister has said.
James Timpson told the Politics Hub with Sophy Ridge that “we shouldn’t rule anything out” when asked if the most dangerous criminals should be placed in top security prisons.
It comes after Southport triple killer Axel Rudakubana allegedly threw boiling water from a kettle at an officer at HMP Belmarsh on Thursday. Police are now investigating.
Speaking from HMP Preston for a special programme of the Politics Hub, Mr Timpson told Sophy Ridge: “We inherited a complete mess in the prison system.
“Violence is up, assaults on staff is up. But for me, we shouldn’t rule anything out.”
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He added: “What we need to do is to speak to our staff. They’re the experts at dealing with these offenders day in, day out. “
Mr Timpson – who was the chief executive of Timpson Group before he was appointed prisons minister last year – said the violence in prisons was “too high”.
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1:06
Are we sending too many people to prison?
He continued: “The number of people when you have prisons are so full, and the people in there are not going to education or into purposeful activity.
“You get more violence and that is totally unacceptable. Our staff turn up to work to help turn people.
“They want to turn people’s lives around. They didn’t turn up to work to get assaulted. It’s totally unacceptable.”
Reflecting on the crisis facing the UK prison system ahead of the government’s sentencing review, Mr Timpson said a major problem was the high rate of reoffending, saying “80% of offending is reoffending”.
He said people were leaving places like HMP Preston “addicted to drugs, nowhere to live, mental health problems – and that’s why they keep coming back”.
Asked whether every prison had a drugs issue, he replied: “100%.”
“If we want to keep the public safe, we need to do a lot more of the work in here and in the community. But also we need to build more prisons.”
Put to him that making more use of community sentences – thought to be one of the recommendations in the government’s sentencing review – might be considered a “cushy option” compared to a custodial sentence, Mr Timpson said: “There are some people in this prison tonight who would prefer to be in prison than do a community sentence – but that’s not everybody.
“Community sentences need to be tough punishments outside of prison, not just to help them address their offending behaviour, but also the victims need to see punishments being done too and for me, technology has a big part to play in the future.”
Nigel Farage has told Sky News he would allow some essential migration in areas with skill shortages but that numbers would be capped.
The Reform UK leader said he would announce the cap “in four years’ time” after he was pressed repeatedly by Sky’s deputy political editor Sam Coates about his manifesto pledge to freeze “non-essential” immigration.
It was put to Mr Farage that despite his criticism of the government’s migration crackdown, allowing essential migration in his own plans is quite a big caveat given the UK’s skills shortages.
However the Clacton MP said he would allow people to plug the gaps on “time dependent work permits” rather than on longer-term visas.
He said: “Let’s take engineering, for argument’s sake. We don’t train enough engineers, we just don’t. It’s crazy.
“We’ve been pushing young people to doing social sciences degrees or whatever it is.
“So you’re an engineering company, you need somebody to come in on skills. If they come in, on a time dependent work permit, if all the right health assurances and levies have been paid and if at the end of that period of time, you leave or you’re forced to leave, then it works.”
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28:27
‘We need to reduce immigration’
Reform’s manifesto, which they call a “contract”, says that “essential skills, mainly around healthcare, must be the only exception” to migration.
Pressed on how wide his exemption would be, Mr Farage said he hopes enough nurses and doctors will be trained “not to need anybody from overseas within the space of a few years”.
He said that work permits should be separate to immigration, adding: “If you get a job for an American TV station and you stay 48 hours longer than your work permit, they will smash your front door down, put you in handcuffs and deport you.
“We allow all of these routes, whether it’s coming into work, whether it’s coming as a student, we have allowed all of these to become routes for long-term migration.”
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1:51
Sky’s Sam Coates questions PM on migration
Asked if he would put a cap on his essential skills exemption, he said: “We will. I can’t tell you the numbers right now, I don’t have all the figures. What I can tell you is anyone that comes in will not be allowed to stay long-term. That’s the difference.”
Pressed if that was a commitment to a cap under a Reform UK government, he suggested he would set out further detail ahead of the next election, telling Coates: “Ask me in four years’ time, all right?”
Mr Farage was speaking after the government published an immigration white paper which pledged to ban overseas care workers as part of a package of measures to bring down net migration.
The former Brexit Party leader claimed the proposals were a “knee jerk reaction” to his party’s success at the local elections and accused the prime minister of not having the vigour to “follow them through”.
However he said he supports the “principle” of banning foreign care workers and conceded he might back some of the measures if they are put to a vote in parliament.
He said: “If it was stuff that did actually bind the government, there might be amendments on this that you would support. But I’m not convinced.”