Stick to spending limits, PM and chancellor tell ministers in joint memo

Chancellor John Healey and Prime Minister Andy Burnham have written a joint letter to cabinet ministers telling them they must stick within their existing spending limits while funding new pledges.

After taking office, Burnham announced a host of new cost-of-living policies, including scrapping of VAT from domestic electricity bills, reduced business rates for pubs, and capping bus fares in England.

Burnham and Healey are determined to stick within the fiscal rules set out by their predecessors Sir Keir Starmer and Rachel Reeves, treasury sources have told the BBC.

Healey's first Budget will be on 28 October and will be "built on fiscal discipline", the chancellor said.

Healey said the budget would "meet our fiscal rules" and "give businesses and families some of the stability they need to plan for the future".

A report in the Times says the joint letter told ministers they must "within the budgets they have already got" even while "pay[ing] for new things they want to do this year and next".

While the ongoing war in Iran is pushing up inflation and borrowing costs, senior Treasury sources confirmed the government is determined to stay "well within the fiscal rules" inherited from Sir Keir Starmer and his chancellor Rachel Reeves.

But Burnham has said his government will stick to Labour's fiscal rules on spending and borrowing as well as the party's 2024 manifesto pledges not to increase income tax, VAT or national insurance contributions.

He also said he will honour the fiscal rules imposed by Reeves, which include a pledge to balance day-to-day spending with tax revenues by the end of the decade.

An influential think tank said earlier this week that the prime minister only has a small margin of error to do this, and that Healey may have to cut spending or raise taxes to meet Burnham's policy priorities such as such as extra defence spending and better social care.

Healey was Defence Secretary under Keir Starmer, but resigned after a row over defence spending commitments - saying he was "certain" that Britain should lift its spending to 3% by 2030.

Questioned about funding on Thursday, Burnham's Defence Secretary Wes Streeting repeatedly refused to commit to that target.