Sir Keir Starmer and Rachel Reeves have scrapped plans to break their manifesto pledge and raise income tax rates in a massive U-turn less than two weeks from the budget.

The decision, first reported in the Financial Times, comes after a bruising few days which has brought about a change of heart in Downing Street.

I understand Downing Street has backed down amid fears about the backlash from disgruntled MPs and voters.

The Treasury and Number 10 declined to comment.

The decision is a massive about-turn. In a news conference last week, the chancellor appeared to pave the way for manifesto-breaking tax rises in the budget on 26 November.

She spoke of difficult choices and insisted she could neither increase borrowing nor cut spending in order to stabilise the economy, telling the public “everyone has to play their part”.

The decision to backtrack was communicated to the Office for Budget Responsibility on Wednesday in a submission of “major measures”, according to the Financial Times.

Tory shadow business secretary Andrew Griffith said: “We’ve had the longest ever run-up to a budget, damaging the economy with uncertainty, and yet – with just days to go – it is clear there is chaos in No 10 and No 11.”

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The UK’s economic slowdown gathered further momentum during the third quarter of the year with growth of just 0.1%, according to an early official estimate that makes horrific reading for the chancellor.

The Office for National Statistics (ONS) reported a surprise contraction for economic output during September of -0.1% – with some of the downwards pressure being applied by the cyber attack disruption to production at Jaguar Land Rover.

The figures for July-September followed on the back of a 0.3% growth performance over the previous three months and the 0.7% expansion achieved between January and March.

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The encouraging start to 2025 was soon followed by the worst of Donald Trump’s trade war salvoes and the implementation of budget measures that placed employers on the hook for £25bn of extra taxes.

Economists have blamed those factors since for pushing up inflation and harming investment and employment.

ONS director of economic statistics, Liz McKeown, said: “Growth slowed further in the third quarter of the year with both services and construction weaker than in the previous period. There was also a further contraction in production.

“Across the quarter as a whole, manufacturing drove the weakness in production. There was a particularly marked fall in car production in September, reflecting the impact of a cyber incident, as well as a decline in the often-erratic pharmaceutical industry.

“Services were the main contributor to growth in the latest quarter, with business rental and leasing, live events and retail performing well, partially offset by falls in R&D [research and development] and hair and beauty salons.”

When measured by per head of population- a preferred measure of living standards – zero growth was registered during the third quarter.

The weaker-than-expected figures will add fuel to expectations that the Bank of England can cut interest rates at its December meeting after November’s hold.

The vast majority of financial market participants now expect a reduction to 3.75% from 4% on 18 December.

Data earlier this week showed the UK’s unemployment rate at 5% – up from 4.1% when Labour came to power with a number one priority of growing the economy.

Since then, the government’s handling of the economy has centred on its stewardship of the public finances.

The chancellor was accused by business groups of harming private sector investment and employment through hikes to minimum wage levels and employer national insurance contributions.

The Bank has backed the assertion that hiring and staff retention has been hit as a result of those extra costs.

There is also evidence that rising employment costs have been passed on to consumers and contributed to the UK’s stubbornly high rate of inflation of 3.8% – a figure that is now expected to ease considerably in the coming months.

Rachel Reeves has blamed other factors – such as Brexit and the US trade war – for weighing on the economy, leaving her facing a similar black hole to the one she says she inherited from the Conservatives.

Her second budget is due on 26 November.

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She said of the latest economic data: “We had the fastest-growing economy in the G7 in the first half of the year, but there’s more to do to build an economy that works for working people.

“At my budget later this month, I will take the fair decisions to build a strong economy that helps us to continue to cut waiting lists, cut the national debt and cut the cost of living.”

Shadow chancellor Sir Mel Stride responded: “Today’s ONS figures show the economy shrank in the latest month, under a Prime Minister and Chancellor who are in office but not in power.”

The Scottish government and For Women Scotland’s long-running legal battle over the definition of a woman is yet to come to a close.

For Women Scotland (FWS) won the case in April when the country’s highest court ruled “woman” and “sex” in the Equality Act 2010 refers to “a biological woman and biological sex”.

The Scottish government was ordered to pay a portion of the campaign group’s legal costs.

FWS told Sky News the bill of costs for the Supreme Court element of the case was more than £270,000, however various parts have reportedly been disputed by the Scottish government.

That has now been submitted to the court for determination and a decision is awaited.

The Outer and Inner House element of the case at the Court of Session in Edinburgh was said to be more than £150,000.

Trina Budge, co-director of FWS, said the group is also due an uplift – a small percentage of the final expenses awarded.

Ms Budge claimed Scottish ministers are yet to enter into any negotiations on settlement and a date has been set in January for a hearing before the Auditor of the Court of Session to confirm the amount the government will have to pay.

Ms Budge said: “The delay always suits the paying party but I think it’s quite unusual to decline to enter into any discussions at all.

“It’s highly likely this is a deliberate tactic in the hope of starving us of funds to prevent us continuing our latest case on the lawfulness of housing male prisoners on the female estate.

“However, it should come as no surprise to the government that we have massive support and we will, of course, be continuing regardless of any sharp practices.”

It is understood the bill of costs for the Supreme Court case was lodged by FWS in August, while the expenses linked to the Court of Session action was submitted in September.

Figures revealed by a recent Freedom of Information (FOI) request show the Scottish government has spent at least £374,000 on the case.

Final costs are yet to be confirmed but will be published once complete.

A Scottish government spokesperson said: “There is an established process to be undertaken to agree the final costs for a legal case and these will be calculated and published in due course.”

In August, FWS lodged fresh action at the Court of Session.

The group claimed Holyrood’s guidance on transgender pupils in schools and the Scottish Prison Service’s (SPS) policy on the management of transgender people in custody were both in “clear breach of the law” and “inconsistent” with the Supreme Court judgment.

The following month, the Scottish government issued updated guidance which said schools across the nation must provide separate toilets for boys and girls on the basis of biological sex.

If possible, schools can also provide gender neutral toilets for transgender students.

However, court proceedings continue over transgender prisoners.

Current SPS guidance allows for a transgender woman to be admitted into the female estate if the inmate does not meet the violence against women and girls criteria, and there is no other basis “to suppose” they could pose an “unacceptable risk of harm” to those also housed there.

First Minister John Swinney and Justice Secretary Angela Constance have both dodged questions on the case, citing it would be inappropriate to comment on live court proceedings.

On Tuesday, Ms Constance was accused by former Scottish Tory leader Douglas Ross of “misleading” Holyrood, saying she could give full answers under contempt of court legislation.

Scottish Tory MSP Tess White, the party’s equalities spokesperson, added she was “spine-chillingly concerned” of a repeat of the Isla Bryson case.

Bryson, a transgender woman born Adam Graham, was initially sent to a women-only prison despite being convicted of raping two women.

The offender was later transferred to the male estate following a public outcry.

Speaking to Sky News, Ms White said: “John Swinney was quick to waste taxpayers’ money fighting a case which confirmed what the vast majority of the public knew beforehand: a woman is an adult human female.”

The MSP for North East Scotland urged the SNP administration to “pay up and finally respect the clear judgment from the Supreme Court”.

A Scottish government spokesperson said: “It is the Scottish government’s long-held position that it is inappropriate for Scottish ministers to comment on live litigation.

“In all cases, we have an obligation to uphold the independence of the judiciary. We do not want the government to ever be seen as interfering in the work of the independent courts.”