Rachel Reeves has said she will “take action” to meet her fiscal rules following turbulence on the gilt markets.
Increases in the Government’s borrowing costs have sparked concern that the Chancellor will be unable to meet her debt and spending targets, requiring either tax rises or deeper spending cuts when she delivers a fiscal statement at the end of March.
Speaking to reporters in Beijing, where she is seeking to rebuild economic ties with China, the Chancellor declined to give a “running commentary” on the markets but insisted her fiscal rules were “non-negotiable”.
She added: “We will take action to ensure that we meet those fiscal rules”.
That action is reported to include deeper spending cuts than the 5% efficiency savings already pencilled in for the spending review due to be published later this year, while cuts to the welfare bill are also said to be under consideration.
The Chancellor has previously ruled out further tax rises after hiking taxes by £40 billion at the Budget in October.
The turbulence on the gilt markets, where yields reached their highest level since 2008 earlier in the week, has overshadowed the Chancellor’s trip, with opposition parties arguing she should have remained in the UK to address problems on the markets.
The visit, during which she met Chinese vice-president Han Zheng and vice-premier He Lifeng, is the first high-level economic meeting between Britain and China since 2019.
It follows Sir Keir Starmer’s own meeting with Chinese president Xi Jinping at the G20 late last year as Labour has pursued a thaw in relations with China following the more frosty tone set by the previous government.
At meetings on Saturday, Ms Reeves hailed the trip as a “significant milestone” in Labour’s re-engagement with China, saying she had agreed deals worth £600 million to the UK economy over the next five years.
Speaking after her meeting with Mr He, the Chancellor said: “The outcomes we have agreed today represent pragmatic co-operation in action.
“They represent common ground being found on areas like financial services, trade, investment and the climate.”
She added that “re-engagement” with China “already sets us on course to deliver up to £1 billion of value for the UK economy”.
The agreements reached on Saturday include deals on financial services, agri-food and cultural exports, along with other areas.
But she also emphasised that economic ties must not weaken national security, and said the two countries had “an obligation to be frank with each other where we disagree”.
As well as resetting relations with Beijing, the new Government has promised to “challenge” China where necessary, amid long-standing human rights concerns about the treatment of Uighur Muslims, constraints on freedoms in Hong Kong and its support for Russia’s war in Ukraine.
