Chancellor warns of hard choices ahead, calls for fiscal discipline

Chancellor Rachel Reeves urged fiscal responsibility on Monday, warning that there was "nothing progressive" in mounting government debt.

In a seemingly warmly-received conference speech, Reeves outlined recent achievements, including introducing free breakfast clubs at schools, pay rises for NHS workers and interest rate cuts.

But she also warned against mounting borrowing costs, noting there was "nothing progressive, nothing Labour, about a government using one in £10 of public money it spends on financing debt interest".

In particular, she singled out people "who peddle the idea that we can abandon economic responsibility. They’re wrong, dangerously so".

Reeves remains committed to her self-imposed fiscal rules, which include not borrowing to fund day-to-day public spending and to get government debt falling, both by the end of this Parliament.

But a number of MPs on the left of the party are urging government to spend more, despite mounting borrowing costs, including scrapping the two child benefit cap.

Manchester mayor Andy Burnham - who is positioning himself as an alternative party leader to Keir Starmer - has also said Labour has to "get beyond…being in hock to the bond markets".

Reeves is due to present her Budget at the end of November and is battling a number of headwinds.

She said at the Labour party conference: "In the months ahead, we will face further tests, with the choices to come made all the harder by harsh global headwinds and the long-term damage done to our economy, which is becoming ever clearer."

As well as sluggish economic growth, interest rates remain high by historic standards, at 4%, as the Bank of England continues to battle sticky inflation. Government spending, meanwhile, is soaring.

The government had hoped to overhaul the UK’s massive welfare bill alongside halting universal winter fuel payments, but backtracked following a backlash from MPs on its own benches.

It is therefore increasingly accepted that taxes will have to rise in the Budget, despite manifesto pledges to the contrary.

Asked on Monday morning ahead of the speech about potential tax rises, Reeves looked to rule out income tax or VAT rises in an interview with the BBC.

But she did hint that some rises would be necessary, noting: "I think everyone can see the world has changed, and we’re not immune to that change."