By Alix Culbertson, political journalist

The chancellor is reportedly considering changing her fiscal rules to allow more borrowing in the October 30 budget.

This goes against what she has previously said on the subject, but she faces growing pressure to mix things up to increase the Treasury’s purchasing power.

What are budget rules?

A fiscal rule is a limit or restriction put in place by governments to limit the amount they can borrow to finance public spending.

They can be set by an independent body, but since 1997, British governments have set their own constraints.

Rules apply to the budget deficit, the gap between public spending and tax revenues over the course of a year; 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 established to remove Treasury control over the forecasts that underpin budget policy.

What are the current budgetary rules?

Labour’s manifesto sets out the new government’s fiscal rules, calling them “non-negotiable”. They are:

• The current budget must be balanced so that daily costs are covered by revenues.
• Debt is to fall as a percentage of GDP by the fifth year of the forecast – this has been postponed from the Conservative government

How might fiscal rules change?

The rules themselves should not change.

However, the Chancellor could change the way debt is calculated, which could in turn change the UK’s official debt amount and give Ms Reeves the opportunity to borrow more.

Ms Reeves told the Labor conference that “borrowing to invest” was the only plausible solution to the UK’s productivity crisis.

By changing its definition of debt, it could find up to £50 billion of additional headroom.

Quantitative easing

One idea the chancellor would consider would be to exclude the £20 billion to £50 billion annual losses incurred by the Bank of England ending its quantitative easing (QE) bond-buying program.

Since the 2008 financial crisis, the Bank of England has repeatedly used QE to stimulate the economy and meet the 2% inflation target, creating £875 billion of new money in 13 years.

During QE, the bank buys bonds (government-issued debt securities) to raise their prices and lower long-term interest rates on savings and loans.

Since November 2022, the Bank has been quantitatively tightening, neither buying more bonds when the bonds it holds mature, nor actively selling bonds to investors, or both.

Exclude institutions and projects

There are suggestions the chancellor could take GB Energy and the National Wealth Fund, both set up by Labour, off the books.

Another option would be to exclude certain projects from the debt calculation.