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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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British fighter jets defend Polish skies after Russian drone incursion

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British fighter jets defend Polish skies after Russian drone incursion

Two British fighter jets have flown their first defence mission over Poland after a Russian drone incursion into the country’s skies.

The flight was part of NATO‘s operation “Eastern Sentry”, launched to bolster Europe’s eastern flank after Poland shot down Russian drones earlier this month.

A Russian drone was intercepted flying over Romania days later, while three Russian jets entered Estonian airspace without permission for 12 minutes on Friday.

One of three Russian MiG-31 fighter jets in images shared by Sweden's armed forces. Pic: Swedish Armed Forces
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One of three Russian MiG-31 fighter jets in images shared by Sweden’s armed forces. Pic: Swedish Armed Forces

The three incursions into NATO airspace fuelled concerns about the potential expansion of Russia‘s three-year war in Ukraine and have been seen as an attempt by Moscow to test the military alliance’s response.

The incident over Poland prompted its prime minister, Donald Tusk, to warn that his country was the closest to “open conflict” it had been since the Second World War, while the UK announced it would provide Warsaw with extra air cover.

Two RAF Typhoons, supported by an RAF Voyager air-to-air refuelling plane, took off from RAF Coningsby, in Lincolnshire, on Friday night to defend Poland’s skies before returning safely early on Saturday morning.

A Gerbera drone landed in a field in the Olesno region of Poland
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A Gerbera drone landed in a field in the Olesno region of Poland

Defence Secretary John Healey said the mission sends a clear signal that “NATO airspace will be defended”.

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“I’m proud of the outstanding British pilots and air crew who took part in this successful operation to defend our allies from reckless Russian aggression.”

He said the mission was “especially poignant” coming as the UK marks the 85th anniversary of the Battle of Britain – when Polish pilots came to the aid of the UK – this weekend.

The head of the RAF, Air Chief Marshal Harv Smyth, said: “This sortie marks the RAF’s first operational mission on Eastern Sentry, reinforcing the UK’s steadfast commitment to NATO and its allies.

“We remain agile, integrated, and ready to project airpower at range.”

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Starmer to announce formal recognition of Palestine as a state

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Starmer to announce formal recognition of Palestine as a state

The UK will formally recognise Palestine as a state, it is understood.

Sir Keir Starmer is expected to make the announcement on Sunday after he said in July that the government would make the move unless Israel met certain conditions.

The prime minister had called on Benjamin Netanyahu’s government to take substantive steps to end the “appalling situation in Gaza“, agree to a ceasefire, commit to a long-term sustainable peace, allow the UN to restart the supply of aid, and not annex the West Bank.

The Israeli foreign ministry furiously rejected his statement, with Mr Netanyahu claiming that “Starmer rewards Hamas‘s monstrous terrorism and punishes its victims”.

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Could recognition of Palestine change the West Bank?

Ilay David, brother of Hamas hostage Evyatar David, who was seen emaciated in a video last month, said giving recognition was “like saying to Hamas: ‘It is OK, you can keep starving the hostages, you can keep using them as human shields.’

“This kind of recognition gives Hamas power to be stubborn in negotiations. That is the last thing we need right now.”

There has been no ceasefire, and the situation in Gaza has deteriorated, with a declaration of a famine in Gaza City and the expansion of Israeli military operations.

Israel has launched a major ground offensive to seize all of Gaza City and destroy Hamas in an operation which has prompted widespread condemnation, with UK Foreign Secretary Yvette Cooper calling it “utterly reckless and appalling”.

More on Gaza

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What changed in UK’s Gaza policy?

Earlier this month, a UN commission of inquiry concluded that Israel has committed genocide against Palestinians in Gaza. Israel said the claim was “distorted and false”.

The UK will join 147 of the 193 members of the UN who recognise Palestine ahead of the UN General Assembly in New York on Monday.

Other nations, including France, Australia and Canada, have said they plan to take the same step at the UN gathering as part of a broad international effort to put pressure on Israel.

During a joint news conference with the prime minister at Chequers on Thursday, Donald Trump said he disagreed with recognition, and US politicians have urged the UK and other allies to reverse their stance.

Sir Keir Starmer is expected to deliver the announcement on Sunday. Pic: PA
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Sir Keir Starmer is expected to deliver the announcement on Sunday. Pic: PA

Sky News understands that Israel is considering options in response to the UK’s decision, but the strength of that reaction is still under consideration.

Read more:
Palestinian minister says UK recognition of state would be ‘courageous step’
What does recognising a Palestinian state mean?
Gaza could be ‘real estate bonanza’, Israeli minister says

Family members of some of the 48 hostages still in captivity, after Hamas and other militant groups stormed into Israel on 7 October 2023, have written an open letter to Sir Keir, condemning the move.

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Israel ramps up attacks on Gaza City

“Hamas has already celebrated the UK’s decision as a victory and reneged on a ceasefire deal,” they said.

“We write to you with a simple plea – do not take this step until our loved ones are home and in our arms.”

The UK government is understood to be looking at further sanctions on Hamas, and has demanded the group release all hostages, agree to an immediate ceasefire, accept it will have no role in governing Gaza, and commit to disarmament.

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Heathrow among major airports hit by delays after cyber attack

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Heathrow among major airports hit by delays after cyber attack

Heathrow was among a number of major airports across Europe hit by delays after a suspected cyber attack that targeted a service provider for check-in and boarding systems.

The “technical issue” affecting Collins Aerospace, which provides check-in and boarding services for various airlines, resulted in 14 flights being cancelled at Brussels Airport on Saturday, and several more being delayed at London Heathrow, Berlin, and Dublin, among others.

‘Very clever cyber attack’ cancels flights in Europe – latest

Passengers have reported being unable to check in online, instead queuing for hours for staff to deal with them manually at desks and departure gates, only to be told their flights are not taking off.

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Helen Steel, 49, left Dorset for Heathrow at 3am to travel home to Oslo, with her cat Thomas – but was “shouted at by staff” who told her she would not be able to fly until Sunday.

Describing the situation as an “absolute nightmare”, she said: “I’ve got an animal here, so I’m very concerned about his welfare.

“I’ve been shouted at twice and I broke down in tears because I was worried about him. None of us have had any information whatsoever. Whenever we ask ground staff, they shout at us.”

Ms Steel says she spent two hours in the queue on the phone to customer service and is now having to find a hotel to stay in overnight.

Sam arrived at Heathrow expecting to drop his girlfriend off for her flight to Rio de Janeiro – but was still at the airport seven hours later.

Sam has been at Heathrow for seven hours after his girlfriend's flight to Rio was cancelled
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Sam has been at Heathrow for seven hours after his girlfriend’s flight to Rio was cancelled

When they arrived, it was “chaos everywhere”, he told Sky News, with “nobody seeming to know what was going on”.

The couple say they were not told about the cyber attack by airport staff, finding out about it online instead.

After queuing for three hours, they made it to the front, only to be told the plane was not taking off, he adds.

“Her flight was at 8.40am and it was held back until 10.15am. At 10.10am they sent everyone away and told them to contact the airline. But there are no representatives for any airlines whatsoever. It’s been a bit of a farce.

“Nobody knew where they were going – and they were sending people left, right, and centre.

“She’s going tomorrow now, but we’ve got to find a hotel, and no one is here to give us any hotel vouchers. They just give you a piece of paper and say ‘you’ve got to pay for it yourself’.”

Passengers wait for news at Heathrow Terminal 4. Pic: PA
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Passengers wait for news at Heathrow Terminal 4. Pic: PA

‘Insane queues’ and ‘skeleton staff’

Passenger Tereza Pultarova waited around 10 hours at Heathrow after she arrived at 4.30am for her flight to Cape Town via Amsterdam.

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Tereza Pultarova had to wait 10 hours at Heathrow

“We were kind of stranded here because KLM wasn’t able to issue us boarding passes digitally, and requested us to collect them at the check-in desk,” she said.

“And then they told us that there is some sort of global issue with the system they’re using for check-in and boarding, and they have to do everything manually. So then they were checking in people at the rate of, like, one person per 10 minutes.

“I’m not exaggerating. It was just insane, the queue wasn’t moving. And then suddenly they said, ‘Oh, the flight will be departing, we’re closing the gate’.

Maria Casey was due to fly to Thailand with Etihad Airways – but had to wait three hours to drop off her luggage at Heathrow, with staff taking between five and 10 minutes to deal with each passenger.

Queues at Heathrow. Pic: PA
Image:
Queues at Heathrow. Pic: PA

“The queues are terrible,” she told Sky News. “It was an absolute skeleton staff. Out of six of the desks there were probably two people”.

A Heathrow spokesperson advised people to arrive no more than three hours early for a flight and apologised for any inconvenience.

It is understood British Airways at Terminal 5 remains unaffected and is operating as normal.

Collins Aerospace said it is working to resolve the issue as soon as possible.

“We have become aware of a cyber-related disruption to our Muse (Multi-User System Environment) software in select airports, the firm said in a statement.

“The impact is limited to electronic customer check-in and baggage drop and can be mitigated with manual check-in operations. We are actively working to resolve the issue and restore full functionality to our customers as quickly as possible.”

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