Rachel Reeves, the UK Chancellor, is about to embark on a three-day trip to China to build on economic and trading relationships, even as the UK faces increasing pressure over rising government borrowing costs. The journey has not been well received by some Conservatives, particularly in light of the government’s borrowing requirements rising to their highest levels in many years, resulting in less taxpayer revenue to spend on other areas. Economists are sceptical that this could lead to spending cuts or tax increases that would negatively impact public services or salaries and businesses’ capacity to expand.
Reeves will be travelling with key financial representatives, including HSBC’s chair and the governor of the Bank of England. In Beijing, Reeves will meet with China’s Vice Premier He Lifeng, after which she will fly to Shanghai to speak with British businesses. The Chancellor is hoping to restore the UK’s yearly economic dialogue with China, which has not occurred due to the pandemic, but the relationship has been strained over the years due to concerns over the activities of China’s Communist leaders, as well as allegations of Chinese espionage and hacking, and the jailing of pro-democracy activists in Hong Kong.
Critics have chastised Reeves for continuing with her planned journey instead of addressing the cost of government borrowing and the decrease in the pound’s value in the UK. Shadow Chancellor Mel Stride has claimed that Reeves is “missing in action” and should remain in the UK. However, Darren Jones, Chief Secretary to the Treasury, stated that the trip is “important” for UK trade and that there is “no need for an emergency intervention.”
Since governments usually spend more than they make in taxes, they borrow money to fill the shortfall, typically by selling bonds to investors. Interest rates on government bonds, known as yields, have been increasing since approximately August, affecting government bonds in the United States and other nations. The 10-year bond yield has surged to its highest point since 2008, while the 30-year bond yield is currently at its highest since 1998, signifying that it is more expensive for the government to borrow over an extended period. Reeves has previously committed to making significant declarations regarding taxation and expenditure only once a year at the autumn budget. However, if large borrowing expenses continue to grow, there is a possibility of spending cuts before that date or, at the very least, that spending increases will be lower than previously planned. Any further spending cuts could be announced in the Chancellor’s planned fiscal statement on 26 March, ahead of a spending review that asked government departments to make efficiency savings worth 5% of their budgets
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