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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.

More on Budget

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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David Cameron opens up about son’s death and ‘black clouds’ of grief

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David Cameron opens up about son's death and 'black clouds' of grief

Former prime minister David Cameron has opened up about the death of his six-year-old son Ivan in 2009 – and described the “chaos” of caring for him while balancing a life in politics.

Speaking to Sky’s Kay Burley, the former Tory leader, 58, said the loss of Ivan – who had Ohtahara’s syndrome – was “completely transformational”.

Lord Cameron said: “Bringing up children is hard enough but if you have a child who is having seizures every day, is having to be fed through a tube and needs to be cared for all night as well as all day, who’s going in and out of hospital.

“I can still remember the chaos… of you’re in hospital, then you’re back home, then you’re back again. I had just become an MP [when Ivan was born]. I remember turning up for debates in the House of Commons completely exhausted because I’ve been in St Mary’s Paddington [hospital] all night.

“I remember this great blessing of having your first child. In spite of all the difficulties he had with the seizures and cerebral palsy and everything – you still remember this beautiful, smiling boy that you would rest on your lap and look after and love.

“The extraordinary thing about grief is to start with, there’s nothing but black clouds. But after a while, happy memories do break through.”

Ivan Cameron died in 2009 Pic: Reuters
Image:
Ivan Cameron died in 2009 Pic: Reuters

Lord Cameron unquestionably a safe pair of hands

Striding determinedly towards me, hand outstretched to offer a firm eye-contact handshake, Lord Cameron cuts a powerful image as he arrives for our interview.

I first met him as a friendly, fresh-faced MP when he was put forward by the government in the 2005 election campaign to hold the party line on myriad topics. He was calm, friendly and self-assured. When he left, I had turned to the cameraman and said: “I bet you £20 he’s a future PM.”

A warm smile spread across Lord Cameron’s face as I shared the recollection with him.

That faded into watery-eyed steel as we talked about the desperate loss of his son Ivan who died when he was just six-years-old. We touched on many other emotions too – considered politician when discussing Israel; polite stonewalling for who he wants to win the Tory leadership election; a useful lack of recall on whether he really did tell Boris Johnson “I will f*** you up, forever” over his stance on Brexit and a cheeky to-and-fro about SwiftGate.

He may no longer be in frontline politics but Lord Cameron is unquestionably a safe pair of hands in the unpredictable world of politics.

Politics latest: Sunak tries to wrong-foot Starmer

Lord Cameron, who resigned as prime minister after the 2016 Brexit referendum before returning for a stint as foreign secretary under Rishi Sunak, has recently started working with a joint US-UK venture that aims to develop 40 new treatments for rare diseases in the next decade.

The partnership between the University of Oxford and the Harrington Discovery Institute in Cleveland, Ohio sets out to bring together academia, pharmaceutical companies, philanthropy and venture capital, Lord Cameron has said. He will be the chair of the centre’s advisory council.

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He told Sky News he believes Ivan’s life “could be very different” if he was born today, saying he and his wife Samantha “didn’t really get an answer” on Ivan’s condition.

“Back then, the first genome was being sequenced, the whole code of the human being – it took seven years and cost $2bn,” he said.

“Today, you can sequence a genome in an afternoon and it will cost you a few hundred dollars so we can see the full DNA, the genetic, biological makeup of a human being.

“That might not provide you with an answer but in some cases it will.

“There are thousands of different rare diseases, but about 80% seem to have a genetic base.

“There have been children born with those sorts of symptoms [that Ivan had] who’ve been identified through genomic medicine, who’ve had treatments, and that has improved their condition.

“There would be a very good chance that if Ivan was born today, and we immediately sequenced the genome, you could spot what was wrong, [and] that you might be able to take steps.”

Read more:
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Lord Cameron also said he felt “lucky” that he and his wife “took the risk” of having more children after Ivan. They share two daughters and another son – Nancy, Florence and Arthur.

“At the time there was no genomics and genetic counselling back then,” he said.

“[It] was, ‘well, maybe it’s genetic, maybe it’s not’. Could be one in four, could be one in 1,000 – who knows?

“I’m lucky we took the risk. We have three happy, healthy children.”

The former prime minister also opened up about assisted dying, which MPs are set to vote on after a bill was introduced in parliament.

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What is assisted dying?

He says he’s “got an open mind” and is “thinking about” the issue.

“I haven’t supported it before on the basis that I’ve always worried about vulnerable people being put under pressure,” he said.

“Once you have some form of assisted dying, what’s the pressure put on people by relatives? I’ve always had that worry and concern.”

But his mind was changed “over the years of watching this debate and listening to the passionate arguments that people have put forward, having also known people with things like motor neurone disease and seen the deterioration and know how awful the end can be”.

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In a wide-ranging interview, he also dismissed claims in Boris Johnson‘s new book that Lord Cameron would “f*** him up” if he supported the Leave campaign in the 2016 Brexit referendum, saying: “That’s not my recollection.

“Any recollection I have is that I had a proper discussion and argument – heated at times.”

Lord Cameron also reflected on a plan to sanction two Israeli ministers while he was foreign secretary, saying it did not go ahead because the work had not been completed and that he was advised it was “a political act in the wrong direction”.

But he added the plan was “a better option than what [Labour] have done in terms of the partial arms embargo on Israel”.

“We do back Israel’s right to self-defence. We just had two missile attacks from Iran into Israel,” he said.

“We’re trying to help prevent that from happening using our own planes and the military. It seems to me utterly bizarre to be banning some arms exports from Israel.”

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Forcount ‘Ponzi scheme’ promoter sentenced to 20 years in prison

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Forcount ‘Ponzi scheme’ promoter sentenced to 20 years in prison

According to US prosecutors, Juan Tacuri, and his co-conspirators, defrauded investors of $8.4 million in an apparent Ponzi Scheme.

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Cabinet ministers write to Starmer in urgent attempt to soften spending cuts in budget

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Cabinet ministers write to Starmer in urgent attempt to soften spending cuts in budget

Cabinet ministers are writing to the prime minister in an urgent attempt to soften some of the spending cuts being demanded ahead of the budget. 

The main measures for the budget have to be decided by the end of Wednesday and sent to the Office for Budget Responsibility before the Treasury shuts up for the evening.

Sky News can confirm letters from cabinet ministers complaining about the budget have gone over the head of Chancellor Rachel Reeves to Sir Keir Starmer and Number 10.

Politics latest: Cabinet members deeply concerned over scale of cuts

Some of these letters are believed to have gone in over the last couple of days.

After today, only small changes can ordinarily be made to the budget, typically around involving items of tens or hundreds of millions rather than billions. The existence of the letters was first reported by Bloomberg.

Some cabinet ministers are deeply concerned about the scale of the cuts being demanded in some areas to fund pay rises and spending increases elsewhere.

It is understood that Number 10 has received complaints from four government departments: the Ministry of Housing, Communities and Local Government, the Department for Transport, the Department for Environment, Food and Rural Affairs, and the Ministry of Justice.

Not all of these complaints were made through the medium of a letter.

It is understood the call for an intervention by Number 10 has helped soften a small portion of the cuts for some cabinet ministers’ departments.

But largely the shape of the budget, which is for the most part wrapped up tonight, has remained unchanged – and so have the nerves about how it will land in two weeks.

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Could chancellor ‘find’ more money?

At the weekend, Sky News revealed one cabinet minister said: “The briefing doesn’t match the reality. It’s pain this year, and pain next year. We’re simply going to be digging a hole which we end up filling in later in the year.”

Ms Reeves will loosen the borrowing rules in the budget in order to give herself more room for spending, along with raising up to £40bn in tax rises and welfare cuts in order to relieve pressure on budgets.

But the cost of significant public sector pay rises, which are still going to have to be found from within departmental budgets, mean cuts this year and next are still being demanded by the Treasury.

Read more:
What could chancellor announce in budget?

Budget will be Labour’s biggest test yet
What are Labour’s fiscal rules and could Reeves change them?

Some ministers believe the cuts are unsustainable, while some have pointed to the first round of spending reductions announced before the summer – including the winter fuel allowance changes – as evidence more input from Number 10 is needed ahead of the budget and spending review on 30 October.

One government source told Sky News: “The whole of Number 10 is focused on the budget at the moment and there isn’t much bandwidth for anything else.”

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Government figures insist that letters voicing concern are routinely sent at this point in a spending review process and that this is all normal.

Both Sir Keir and Ms Reeves are out of the country next week, the week before the budget. However, only smaller changes can typically be made after today to the shape of it.

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