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Rachel Reeves is looking to fill a £40bn black hole in the country’s finances, Sky News understands.

According to people close to the budget, the gap in funding identified by the chancellor is more than twice what was previously thought.

Politics latest: Stark warning issued over national insurance rise

Ms Reeves has previously said the Conservatives left the new government with a £22bn shortfall, requiring “tough decisions” like axing the winter fuel payment.

This has led to speculation Labour may introduce measures such as a national insurance increase for employers to raise more cash.

The Treasury does not comment on budget speculation.

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What will the budget include?

According to the Financial Times, the £40bn figure represents the funding the chancellor needs to protect key government departments from real terms spending cuts, cover the impact of the £22bn overspend from the last administration and build up a fiscal buffer for the rest of parliament.

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The paper said she was eyeing big tax rises to patch up the NHS in particular.

However, the government has left itself with little wiggle room after ruling out a rise in national insurance, income tax and VAT in its manifesto.

Ministers have since said that this meant not “increasing tax on working people” – leaving the door open for the employer element of national insurance to go up.

Read more from Sky News:
Labour is desperate for hope – the budget will be biggest test yet
What are Labour’s fiscal rules and could Reeves change them?

Budget talk all spin – and we should be used to it


Jon Craig - Chief political correspondent

Jon Craig

Chief political correspondent

@joncraig

The “black hole” just got deeper. Or so the chancellor claims.

After telling us for weeks that the funding gap was £22bn, Rachel Reeves says it’s almost double that: £40bn. Fact? Or political propaganda?

She’s told the cabinet the £22bn “black hole inheritance” from the Tories needed to be filled “just to keep public services standing still”.

And Sir Keir Starmer told ministers – at a “political cabinet” with no civil servants present – that the budget would see “tough decisions so we can invest in the future”.

In other words, if the chancellor is to avoid big spending cuts in front line services like health and education, there’ll have to be more unpopular tax rises.

The timing of this apparent deepening of the “black hole” is highly significant. It comes as Labour faces accusations of breaking its manifesto pledge not to increase national insurance.

The new £40bn figure has emerged just hours before Sir Keir faces Rishi Sunak at prime minister’s questions and a potentially embarrassing onslaught over the national insurance tax hike.

A conspiracy theorist might even suggest the new £40bn claim was a cynical attempt by Downing Street to divert attention from the row over the PM meeting Taylor Swift and the star’s blue-light escort.

Shadow chancellor Jeremy Hunt has already claimed the £22bn figure is a lie. But then George Osborne accused Labour of leaving a £12bn black hole when he became chancellor in 2010.

It’s all spin, of course. We should be used to it by now. Reeves also told the cabinet the government can’t turn around 14 years of decline in one year or one budget.

Yet at the same time she said the budget would “protect working people, fix the NHS and rebuild Britain”. That’s an ambitious boast, if the “black hole” really is £40bn.

A one percentage point increase in the Class 1 rate could raise £8.45bn over the 2025 to 2026 tax year, and a two percentage point hike could raise £16.9bn, according to data compiled by HMRC and EY.

Meanwhile, introducing national insurance on employer pension contributions could raise around £17bn per year if taxed at the same 13.8% rate, according to the Institute for Fiscal Studies (IFS).

Experts have cautioned that any increase in employer national insurance would mean higher costs for businesses, which could impact their staff and customers.

Paul Johnson, director of the IFS, told Sky News on Tuesday night that the tax rise could lead to less pay rises and fewer jobs.

The influential thinktank estimates Ms Reeves may need to raise up to £25bn from tax increases if she wants to keep spending rising with national income, and honour Labour’s pledge not to return Britain to austerity.

As well as tax rises, there is also speculation Ms Reeves could change her fiscal rules to enable more borrowing.

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

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Woman’s body found in car boot in east London – as murder investigation launched by two police forces

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Woman's body found in car boot in east London - as murder investigation launched by two police forces

A murder investigation has been launched after a woman’s body was found in the boot of a car in east London.

Detectives said a murder inquiry has been launched into the “suspicious” discovery in Ilford.

The woman, who has not been named but is from Corby in Northamptonshire, may have been the victim of a “targeted incident”, police say.

“Fast track” enquiries were made after the force was contacted by a member of the public with concerns about the welfare of the woman.

This led to the discovery of a body inside a car boot.

Northamptonshire Police said: “The investigation is ongoing and there will be continued police activity over the weekend in various locations, including Corby and Ilford.

“Although we believe that this was a targeted incident and there is no wider risk to members of the public, extra patrols will be taking place in Corby in the coming days for reassurance purposes.”

Detectives from the East Midlands Special Operations Unit major crime team and the Metropolitan Police are working on the case, to try and establish the circumstances that led to the woman’s death.

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Police investigating criminal offence after Daily Telegraph columnist ‘dumbfounded’ by social media post probe

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Police investigating criminal offence after Daily Telegraph columnist 'dumbfounded' by social media post probe

Essex Police say they are investigating an alleged criminal offence of inciting racial hatred, after Daily Telegraph columnist Allison Pearson said she was “dumbfounded and upset” when officers knocked on her door last Sunday.

Ms Pearson revealed she was told she was being investigated over a year-old deleted post online.

She said she wasn’t informed which post had been reported, but suggested it could have been related to the 7 October attacks in Israel or pro-Palestine marches.

She claimed the officers told her she was being investigated for a NCHI (a none crime hate incident) an incident involving an act which is perceived to be motivated by hostility or prejudice towards persons with a particular characteristic, but is not illegal.

NCHI reports have long been controversial, with many citing free speech concerns, and Ms Pearson’s account of the police visit has led to widespread support from Conservatives and online commentators, including Tory leader Kemi Badenoch.

But an Essex Police spokesperson has told Sky News its investigation was never for an NCHI, and that the matter was always being treated as an investigation into an alleged criminal offence of inciting racial hatred.

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Speaking on her Planet Normal podcast on Wednesday, Ms Pearson said she found the visit “chilling”.

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“I was dumbfounded, upset, it’s not very nice,” she said. “I was in my dressing gown on the step of the house, these two coppers were there just outside the door.

“There were people gathering for the Remembrance Day parade so there were people watching from the other side of the road.

“Whatever I did or didn’t tweet, if somebody found it offensive, that to me is still not a reason for two policemen to come to my house on a Sunday morning.

“You know, they don’t do that for burglars, do they? We know policing is under-resourced and they are unable to attend often quite serious crimes.

“This was the most extraordinary overreach and state intrusion into my private life and I don’t think I did anything wrong and I think their response was outrageous.”

Read more:
Ex-Tory MP feels ‘enormous guilt’ over Westminster scandal
Farage issues message to his ‘haters’

In a statement, Essex Police said: “Officers attended an address in Essex and invited a woman to come to a voluntary interview.

“They said it related to an investigation into an alleged offence of inciting racial hatred, linked to a post on social media.

“For clarity: a complaint of a possible criminal offence was made to the police and this is why we called; to arrange an interview.

“Everyone was polite and professional throughout the brief conversation.”

They said an officer told Ms Pearson: “It’s gone down as an incident or offence of potentially inciting racial hatred online. That would be the offence.”

Essex Police say they have complained to the Independent Press Standards Organisation (IPSO) over what they call “false reporting” regarding the ongoing investigation.

What is a non-crime hate incident?

Non-crime hate incidents (NCHIs) are defined by the government as an incident involving an act which is perceived to be motivated by hostility or prejudice towards persons with a particular characteristic.

Those characteristics can include race, religion, disability, sexual orientation and transgender identity.

These incidents do not amount to a criminal offence, but they are reported to police and recorded in case they escalate into more serious harm or indicate heightened community tensions.

It can be reported to police by anyone, whether they are directly affected by the alleged NCHI or not.

Not all incidents reported to police are recorded as NCHIs.

They need to meet this threshold, according to the government: “A single distinct event or occurrence which disturbs an individual’s, group’s or community’s quality of life or causes them concern.”

Furthermore, the personal data of the person reported should only be included in the reports if the incident in question presents a “real risk of significant harm” to individuals or groups with a particular characteristic and/or a real risk that a future criminal offence may take place against them.

The origins of NCHI recordings stem from the murder of Stephen Lawrence in 1993, who was murdered by a gang of racist attackers in southeast London as he ran to catch a bus.

An inquiry into his death in 1999 called for the creation of “a comprehensive system of reporting and recording of all racist incidents and crimes”.

The first guidance on NCHI was published in 2005, but there have been updates over the years in response to scrutiny over protecting free speech.

The latest guidance was published in June 2023, when an updated code of practice set out a “common sense and proportionate approach that should be adopted by the police”.

The guidance, introduced under the Conservative government, clarified “that debate, humour, satire and personally-held views which are lawfully expressed are not, by themselves, grounds for the recording of an NCHI” and that an NCHI should not be recorded if police deem a report to be “trivial” or “irrational”.

In an interview with The Telegraph published yesterday, Kemi Badenoch said police visiting a journalist over a social media post was “absolutely wrong” and that “we need to look at the laws around non-crime hate incidents”.

“There has been a long-running problem with people not taking free speech seriously,” she said.

She challenged the prime minister to review the laws, saying: “Keir Starmer says he is someone who believes in these things. Now he needs to actually show that he does believe it. All we’ve seen from him is the opposite.”

Ms Badenoch added: “We need to stop this behaviour of people wasting police time on trivial incidents because they don’t like something, as if they’re in a nursery.

“It’s like children reporting each other. And I think that in certain cases, the police do it because they’re afraid that if they don’t do it, they will also be accused of not taking these issues seriously.”

Essex Police said the officers went to the address to invite Ms Pearson to attend a voluntary interview as part of their investigation, which was passed to them by another force.

“The report relates to a social media post which was subsequently removed,” the statement read.

“An investigation is now being carried out under Section 17 of the Public Order Act.”

Essex Police also said they made attempts to contact Ms Pearson before the visit.

Other prominent Conservative voices such as Boris Johnson, Liz Truss and Chris Philp have also leapt to Ms Pearson’s defence online, as has X owner Elon Musk, who quoted a post about the incident and said: “This needs to stop.”

Police commentator Graham Wettone told Sky News the police are “duty bound to investigate allegations of crime”.

“They’ve had an allegation of crime made there,” he said. “They will investigate it. If at the end of this they decide that no criminal offence has been committed – and we’re not at that stage yet – then it can still be recorded as a none crime hate incident.”

The police, he said, are duty bound to keep a record of none crime hate incidents.

“Parliament said they want the police to do this, to investigate and record incidents like this. So they are doing exactly what parliament and society asked them to do, and they are getting criticism for doing what people want.”

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Sir Keir Starmer vows to defend budget decisions ‘all day long’ as farmers slam ‘disrespectful’ PM

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Sir Keir Starmer vows to defend budget decisions 'all day long' as farmers slam 'disrespectful' PM

Sir Keir Starmer has said he will defend the decisions made in the budget “all day long” amid anger from farmers over inheritance tax changes.

Chancellor Rachel Reeves announced last month in her key speech that from April 2026, farms worth more than £1m will face an inheritance tax rate of 20%, rather than the standard 40% applied to other land and property.

The announcement has sparked anger among farmers who argue this will mean higher food prices, lower food production and having to sell off land to pay for the tax.

Sir Keir Starmer

Sir Keir defended the budget as he gave his first speech as prime minister at the Welsh Labour conference in Llandudno, North Wales, where farmers have been holding a tractor protest outside.

Sir Keir admitted: “We’ve taken some extremely tough decisions on tax.”

He said: “I will defend facing up to the harsh light of fiscal reality. I will defend the tough decisions that were necessary to stabilise our economy.

“And I will defend protecting the payslips of working people, fixing the foundations of our economy, and investing in the future of Britain and the future of Wales. Finally, turning the page on austerity once and for all.”

He also said the budget allocation for Wales was a “record figure” – some £21bn for next year – an extra £1.7bn through the Barnett Formula, as he hailed a “path of change” with Labour governments in Wales and Westminster.

And he confirmed a £160m investment zone in Wrexham and Flintshire will be going live in 2025.

‘PM should have addressed the protesters’

Among the hundreds of farmers demonstrating was Gareth Wyn Jones, who told Sky News it was “disrespectful” that the prime minister did not mention farmers in his speech.

He said “so many people have come here to air their frustrations. He (Starmer) had an opportunity to address the crowd. Even if he was booed he should have been man enough to come out and talk to the people”.

He said farmers planned to deliver Sir Keir a letter which begins with “don’t bite the hand that feeds you”.

Farmers' tractor protest outside the Welsh Labour conference in Llandudno, North Wales
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Farmers’ tractor protest outside the Welsh Labour conference in Llandudno, North Wales

Mr Wyn Jones told Sky News the government was “destroying” an industry that was already struggling.

“They’re destroying an industry that’s already on its knees and struggling, absolutely struggling, mentally, emotionally and physically. We need government support not more hindrance so we can produce food to feed the nation.”

He said inheritance tax changes will result in farmers increasing the price of food: “The poorer people in society aren’t going to be able to afford good, healthy, nutritious British food, so we have to push this to government for them to understand that enough is enough, the farmers can’t take any more of what they’re throwing at us.”

Mr Wyn Jones disputed the government’s estimation that only 500 farming estates in the UK will be affected by the inheritance tax changes.

“Look, a lot of farmers in this country are in their 70s and 80s, they haven’t handed their farms down because that’s the way it’s always been, they’ve always known there was never going to be inheritance tax.”

On Friday, Sir Keir addressed farmers’ concerns, saying: “I know some farmers are anxious about the inheritance tax rules that we brought in two weeks ago.

“What I would say about that is, once you add the £1m for the farmland to the £1m that is exempt for your spouse, for most couples with a farm wanting to hand on to their children, it’s £3m before anybody pays a penny in inheritance tax.”

Read more:
Ex-Labour adviser suggests doing to farms ‘what Thatcher did to coal mines’
Farmers ‘could block ports and disrupt food supply’

Welsh farmer Gareth Wyn Jones
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Welsh farmer Gareth Wyn Jones

Ministers said the move will not affect small farms and is aimed at targeting wealthy landowners who buy up farmland to avoid paying inheritance tax.

But analysis this week said a typical family farm would have to put 159% of annual profits into paying the new inheritance tax every year for a decade and could have to sell 20% of their land.

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The Country and Land Business Association (CLA), which represents owners of rural land, property and businesses in England and Wales, found a typical 200-acre farm owned by one person with an expected profit of £27,300 would face a £435,000 inheritance tax bill.

The plan says families can spread the inheritance tax payments over 10 years, but the CLA found this would require an average farm to allocate 159% of its profits each year for a decade.

To pay that, successors could be forced to sell 20% of their land, the analysis found.

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