PA Media
Chancellor Rachel Reeves is visiting China in a bid to strengthen trade and economic ties, as she faces pressure on government borrowing costs which are at their highest level in years.
The three-day visit was criticized by some conservatives who say she should have canceled the trip to prioritize solving economic problems at home.
Government borrowing costs have reached their highest levels in several years, meaning they are eating up more tax revenue, leaving less money to spend on other things.
Economists warn that this could mean spending cuts affecting public services or tax increases that could affect citizens’ wages or businesses’ ability to grow.
The Chancellor will travel to China with senior financial officials, including the governor of the Bank of England and the chairman of HSBC.
There she will meet Chinese Deputy Prime Minister He Lifeng in Beijing before flying to Shanghai to speak with British companies operating in China.
The government is seeking to restart an annual economic dialogue with China that has not taken place since the pandemic.
Relations have been strained in recent years due to growing concerns over the actions of China’s communist leaders, allegations of Chinese hacking and spying, and the imprisonment of pro-democracy figures in Hong Kong.
The Conservatives criticized the chancellor for going ahead with the planned trip rather than staying in the UK to deal with the cost of government borrowing and the fall in the value of sterling.
Shadow chancellor Mel Stride accused Reeves of being “missing” and said she should have stayed in the UK.
But Treasury Chief Secretary Darren Jones, replacing Reeves in the House of Commons on Thursday, said the trip was “important” for British trade and there was “no need for government intervention.” emergency”.
Former chancellor Philip Hammond also told World at One on Thursday that he “would not personally recommend that the chancellor cancel her trip to China. That can wait until she returns next week.”
Governments typically spend more in taxes than they collect and so borrow money to cover the deficit, usually by selling bonds to investors.
Interest rates – called yields – on government bonds have been rising since around August, a rise that has also affected government bonds in the United States and other countries.
The yield on a 10-year bond has reached its highest level since 2008, while the yield on a 30-year bond is at its highest since 1998, meaning it is costing the government more to borrow over the long term.
Reeves previously pledged to only make major tax and spending announcements once a year during the fall budget.
But if higher borrowing costs persist, it is possible that spending will be reduced before then or, at least, that spending will increase less than would otherwise occur.
Any further spending cuts could be announced in the chancellor’s planned budget statement on March 26, ahead of a spending review which has already asked departments to find efficiency savings equivalent to 5% of their budgets.
