Rachel Reeves insists Budget is ‘non-negotiable’ as she defends China visit amid market turmoil back home
11 January 2025, 11:26 | Updated: 11 January 2025, 11:58
Rachel Reeves has insisted she won't budge on her “non-negotiable” fiscal rules laid out in the October budget while staunchly defending her China visit, which has come amid market turbulence back in Britain.
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The Chancellor is in China this week as she attempts to forge closer economic ties the Asian powerhouse in a the trip that has sparked significant backlash back in the UK.
Speaking on Saturday morning in a visit to Beijing's flagship store of British bike maker Brompton, she refused to alter the economic plans laid out in her October budget as she scrambles to achieve economic stability in the UK.
She said: "Growth is the number one mission of this government.
"The fiscal rules laid out in the budget are non-negotiable. Economic stability is the bedrock for economic growth and prosperity."
It comes after a drop in the pound this week, with an increase in government borrowing costs that has fuelled speculation of more spending cuts or tax rises.
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Reeves has defended her visit to the nation as chaos unfolds back home, claiming closer China ties can bring a huge boost to the British economy.
She unveiled an agreement with China worth £600 million over the next five years and claimed the new relationship will bring a £1 billion boost to the British economy.
She said during a press conference on Saturday: “Today marks a significant milestone in the UK-China relationship, with the first economic and financial dialogue between our countries for nearly six years.
“It is a signal of this new UK Government’s commitment to fostering a stable, long-term partnership and of the importance that I place on realising the economic potential of co-operation between the UK and China.”
The new arrangements will bring a significant boost to the British economy, she said.
Ms Reeves told reporters: "The total value of what we have agreed today is worth £600 million over the next five years for the UK economy.
Reeves added that the an agreement on agrifood was reached that would also "boost UK trade with China".
She also welcomed China's plans to launch its first overseas sovereign green bond in London this year, and said she looked forward to holding further meetings with her Chinese counterparts in London.
Reeves later discussed Hong Kong and Russia's invasion of Ukraine during her meeting with the Chinese vice-premier.
In a statement following the meeting, the Chancellor said: "We discussed that there will need to be areas where we disagree and it is important that we can have open and frank exchange on these issues.
"That includes concerns on national and economic security, market access and impacts of subsidies and industrial policy to ensure a level playing field exists."
She added: "It also includes Russia's illegal war in Ukraine, which has far-reaching implications, and Hong Kong, where we have concerns on rights and freedoms but where we also have shared interests."
While ramping up trade and investment with China was “crucial” for growing the economy, Reeves stressed it must not weaken national security.
She said: “I believe that increasing trade and investment with an economically important partner like China is crucial for achieving my number one mission in Government – economic growth.
“Improving market access is essential for enhancing our bilateral trade, reducing barriers to trade and creating a level playing field for businesses will benefit not only our economies but also consumers and citizens in our countries.”
This comes after chancellor has faced widespread criticism in recent days over her decision to go ahead with a pre-planned visit to Beijing this weekend.
The start of her week-long trip to Beijing and Shanghai began with a meeting between China’s finance minister Lan Fo’an.
Reeves was joined by the governor of the Bank of England, the chief executive of the Financial Conduct Authority, alongside a host of financial service leaders.
It comes as many raised concerns over the UK's "flatlining" economy.
Reeves is the most senior British government official to visit China since Theresa May held talks with President Xi Jinping seven years ago.
"We must and will continue to engage with international partners on trade and investment to grow our economy, while ensuring that our security and values are not compromised," she wrote in The Times on Friday.
On Thursday, UK borrowing costs hit a 27-year high - a milestone that saw many liken the economic turbulence to that seen under Liz Truss.
"In a world in flux, I believe there can be no greater need for this approach than on our economy," Reeves wrote in her column.
"We cannot ignore the fact that China is the second-largest economy worldwide and our fourth-largest trading partner, with exports supporting close to half a million jobs in the UK."
"British culture in China — film, fashion, music and sport — has a foothold in supporting the UK economy and our reputation.
"China’s economy is expected to provide the largest driver of global growth this decade, from which there are significant opportunities that can benefit Britain.
"Choosing not to engage with China is therefore no choice at all."
Explaining that the UK must "engage confidently with China", she said that now is not the time to be coy, highlighting the need to voice trade concerns directly, "including market access and wider market-distorting practices".
The chancellor's trip come amid speculation that she's prepared to impose more severe spending cuts on departments if necessary.
Investors are bracing for further increases in borrowing costs on Friday, as the United States is set to publish crucial employment data.
It's reported the chancellor has also asked ministers to draw up alternative plans for securing growth and "cease anti-growth measures" as she attempts to meet the Government's aim of improving living standards across the country.
Downing Street insisted it was "still the Chancellor's intention to have one big fiscal statement a year, not two" - as it swatted away suggestions of an emergency "mini-Budget" on March 26.
It comes as cross-bench peer Lord Jim O'Neill told LBC there needs to be a halt to the use of "emotive language" around the current borrowing figures.
"I think it needs to be put into some perspective about what's happening in the world as a whole," he told Ian Dale.
"The pound has not fallen since the budget, other than against the same strengthening dollar that has strengthened against everything else.
"The pound against the euro is the same today as it was on budget day... the pound has hardly moved against the Yen, so the commonality is that everything has weakened against the dollar.
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"People need to get this in perspective... I'd say 80 per cent of the move in bond yields has been because of the US. Since it became clear that Donald Trump was going to win...US bond yields have hit the highest level in nine months.
"And because of the role of the US bond market and the US financial markets in the world, it affects everything else around the world.
"The other 20 per cent is because the other markets are not sure both about the commitment by the government to this latest policy and some of the important details."
On Thursday, shadow chancellor Mel Stride criticised the chancellor's decision to go ahead with the trip, questioning whether she will be forced to increase taxes further or cut public services should her fiscal headroom evaporate.
He said Ms Reeves should "now cancel her travel and focus on this country instead".
In the House of Commons, Reform UK deputy leader Richard Tice said Ms Reeves should "return from her ridiculous trip" given that the pound is "almost collapsing".
Tory former Treasury minister Dame Harriett Baldwin added: "Is the reason that the (Government) front bench is so empty today, the Chancellor has fled to China, that she has realised that her Budget means that she now is the arsonist?"
Any further spending cuts could be announced ahead of a spending review that has already required Government departments to find efficiency savings worth 5% of their budgets.
Treasury minister Darren Jones, who was sent by the Government to reply to an urgent question directed at the Chancellor, said the trip is "important" for UK trade and would continue.
The exchanges in the House of Commons came against the backdrop of Government borrowing costs continuing to surge, which has put more pressure on Labour over its fiscal plans.
