Reeves says fiscal rules non negotiable during bid to boost ties with China

Rachel Reeves vowed to stand by her “non-negotiable” fiscal rules, as her mission to China was overshadowed by further turbulence in the gilt markets.

Visiting bicycle-maker Brompton’s flagship Beijing store on Saturday, the Chancellor declined to give a running commentary on the financial markets in the UK, but said the rules she set for herself in October were essential for economic stability.

She said: “The fiscal rules laid out in the Budget are non-negotiable. Economic stability is the bedrock for economic growth and prosperity.”

The rise in gilt yields to their highest level since 2008, effectively increasing the cost of government borrowing, sparked concern this week that the Chancellor would be unable to meet her rules on debt and spending without imposing deeper cuts than she had already planned.

The spending review, due later this year, is already expected to require departments to make efficiency savings worth 5% of their budgets.

But with more money being spent on servicing government debt, that figure could end up being even higher, given Ms Reeves has previously ruled out further tax rises, and the Telegraph has reported cuts to welfare are also being considered.

The alternative would be breaching her fiscal rules, a prospect that Paul Johnson of the Institute for Fiscal Studies described as “pretty scary for the markets” which were already “concerned about the UK position”.

The turmoil in the gilt markets has overshadowed Ms Reeves’s trip to Beijing, with the Conservatives accusing the Chancellor of having “fled to China” rather than explain how she will fix the economy.

The trip is part of the Labour Government’s push for greater engagement with Beijing, after a freezing of relations under previous Conservative prime ministers.

Accompanied by a delegation including Bank of England governor Andrew Bailey and Financial Conduct Authority chief executive Nikhil Rathi, Ms Reeves met Chinese vice-premier He Lifeng on Saturday for the first UK-China economic and financial dialogue since 2019.

Hailing the meeting as a “significant milestone” in UK-China relations, the Chancellor called for more trade and investment between the two countries against a “more complex and more challenging” geopolitical background.

She said: “We must seize this opportunity to set a course for a stable and mutually beneficial relationship with one another.”

Following the meeting, the Chancellor announced that agreements had been reached worth £600 million to the UK economy over the next five years, while “re-engagement” with China “already sets us on course to deliver up to £1 billion of value for the UK economy”.

This includes agreements 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.

When asked by reporters in Beijing if closer ties to China carried any risk for the UK, Ms Reeves said: “We need to make sure we have a pragmatic and good relationship with countries around the world. That is in our national interest.

“It’s what our allies around the world do and it’s what I will be pursuing as Chancellor, always acting in the national interest while looking to help British businesses export overseas.”

After the meeting with Mr He, the Chancellor said she had raised issues of national security, along with Russia’s invasion of Ukraine and concerns about human rights in Hong Kong.

She said: “Not every conversation will be easy. However, it is essential and in the UK’s national interest that as two major economies the UK and China commit to building a stable, pragmatic bilateral relationship.”

The Treasury said Ms Reeves had explicitly raised the case of British national and pro-democracy activist Jimmy Lai, who has been detained in Hong Kong since 2020, as well as allegations of the use of forced labour in Xinjiang and the Chinese government’s sanctions against UK parliamentarians.

After her meetings in Beijing, Ms Reeves is expected to travel to Shanghai.

Published: 11/01/2025 by Radio NewsHub