Sister wants £20 limit "per household"

It's a limit not a target. Either go along with it and spend £10 on everyone including her or spend £20 and ignore the limit.

This. If she queries it, just say "No, I got it for £20."

I also agree with this. When I was single I’d buy separate gifts for my brothers and their partners and for my Mum and step-dad but wouldn’t receive as many gifts back. I’d have a gift from “mum and step-dad”, a gift from “brother and partner” etc. Of course everyone says you don’t gift to receive but if you’re short on cash and buy gifts as you feel you have to, it does sting a little to have spent relatively more than most and end up receiving the least!

This. Sounds like your mum deserves a nice Christmas

Present buying is annoying if you are a single person.
Potentially your sister has to buy 4 presents (both parents, you, your DH) and she'll only get 2 presents back (one from each household). I know gift giving is not meant to be reciprocal, but you do end up spending more than anyone else in this arrangement.

I'd suggest the best option in your situation is for you to tell your sister that you want to spend more on your parents so suggest that you don't buy for each other/get token gift and put the difference into nicer gifts for your mum and dad.

She’s only requested it, you don’t have to agree to it. The fact she can’t afford more isn’t your problem. Don’t be dictated to. Is she going to start telling you that you can’t go out to eat just because she can’t afford to 🙄 😆

Say "Oops! I thought you meant per person per day. For the 12 Days of Christmas".

I think as the person with less money she has been very sensible in proposing this option, basically saying I can only afford to spend x amount on each person so would also only like to receive gifts of this value myself. However I can understand you wanting to spend more on your parents.

Could you propose to do secret Santa? We have a large family of mostly adults and do this every year with a £50 budget for each participant. It means people get a decent gift (and not lots of bits of tat) but no one has to spend beyond their means or feel worried that they’re not able to gift to the same value they’ve received as everyone is stuck to the same budget!

Not another one! Do you provide receipts with every present? Who are these people who go and investigate how much their present cost? Obviously, don't buy your parents a Ferrari but is there really much difference between a £20 and £40 present for people to even notice?

I wonder if she is just skint and doesn't want to be embarrassed by bigger gifts? Or she may feel pressure to 'compete' with what you get your parents? Why don't you just talk to her about it. If you want to get something expensive for your parents, can you make it a joint gift from you and your sister?

Were your parents part of this conversation too, and have they agreed? Maybe give your mum or dad a ring and see what they privately think.

Edited to remove a longer and more convoluted post - I think the simpler suggestions from PPs are better.

Just tell her you have thought about it and you have changed your mind!

Your relationship with your parents is nothing to do with your sister. It's up to you what you spend on them and between you and them. DSis can agree a limit between you and her and separately between her and her parents if she wants to but unless you go down the family secret Santa route for everyone she needs to stay in her lane.

Could you suggest not doing a present exchange as siblings this year? Or could you confirm that this was between her household and yours?

I don't think she gets to say what you spend on your parents.

I would agree to the limit for you and your sister's households but not for your parents.
If you think your parents, too, would appreciate the limit then that will leave you spending more on them than they on you.
If that happens you will need to be sensitive.
Will they be embarrassed?
Possibly they have no idea of what you spend on them and they will be happy and none the wiser.

‘Oh sorry I didn’t realise you meant Mum and Dad are included in this too, sorry but I have already purchased their presents for this year’

I would assume she means per household in terms of the giver, not the gift. So she intends to spend £20 on her mum, £20 on dad, £20 on you etc and is asking that other gifts exchanged are of a similar magnitude and that your parents don't "cheat the system" by giving gifts worth £40 and saying that's £20 from mum and £20 from dad.

I would suggest to her that you don’t give each other presents to save buying unnecessarily.

Don't tell white lies or give extra gifts in secret.

Spend what you want on your parents.

You could email confirming that you'll stick with £20 for your presents to one another.

If you keep up the pretence then she will continue doing it. Stop it in its tracks.

Or let her off the hook by suggesting the two of you skip the exchange this year.

Your sister won't (or doesn't need to) know what you spend on your parents presents.

Do what you like but keep within sisters budget for her present.

Biscuits ) consumables sounds like a perfect idea, useful, appreciated, enjoyed and well within budget.

Id strongly suggest being graceful and either doing a seperate private present or sharing a gift as it's more tactful but if you really dont want to and would rather it be obvious on christmas day that you can spend more than her, then I'd text her something like "shit, this is really awkward but I've just remembered that ove ordered X for mum and dad. Hiw do you want to handle? Could do it as a joint gift?" And leave ball in her court.

Why can't she spend what she can and you spend what you want? My sister at times has earned far less than me, and at times more. We don't limit what we spend. In fact if either of us is feeling the pinch the other might give an extra gift, like a facial or something. What you give other people (family) is totally your own choice. Surely as adults she's not going to think her parents will judge her?

I think stick to the budget for Christmas and then give your parents a little "new year's treat".

It really depends on your relationship with your sister. You could say you agreed between yourselves, and give additional presents discretely to your parents?