Rachel Reeves did her best to keep today’s China visit statement on topic. The Chancellor wanted to talk about ‘cooperation’, ‘competing where our interests differ,’ her efforts to break down market barriers and the £600 million she secured in investment. But other MPs had other ideas.
‘I know the Chancellor has been away,’ said the Shadow Chancellor Mel Stride. ‘So let me update her on the mess she left behind.’ So began the battle between the Chancellor – to stay on topic – and her opposition to bring up the long list of economic woes that have come to the forefront this week: not just the substantial rise in borrowing costs, but the no-growth, confidence-bust economy that has spurred on whispers of a possible recession or ‘stagflation’, that would see growth remain flat, inflation rise again, and unemployment to tick up, too.
A few of the numbers stung. On the £600 million secured from China, which Labour is championing as a big win, Strive pointed out that this £120 million a year paled in comparison to the additional £12 billion worth of borrowing costs that is thought to have been added to the government’s tab, thanks to gilts rising to levels surpassing the height of the mini-Budget drama. Daisy Cooper, Treasury spokesman for the Liberal Democrats, also landed a somewhat surprising blow, when she pointed out that this £600 million accounted for just 27.5 hours of NHS spending over the course of the Parliament. Reeves tried to avoid getting too drawn on her Budget or rising borrowing costs, pointing instead to ‘£600 million pounds of tangible benefits for British businesses trading overseas.’
Who won the battle? While the constant reminders of jittery bond markets and stagnant growth were not comfortable for the Chancellor, Reeves entered the chamber confidently – and she left with confidence too. She did not hesitate to mention Liz Truss on multiple occasions, still happy to claim that she ‘crashed the economy’, despite both leaders suffering from a rise in borrowing costs, thanks in large part to their substantial spending plans. Reeves seemed to be making a calculation: even now, Tory MPs are unlikely to make any robust defence of that mini-Budget or push back too strongly on the claim that it did damage to the economy. It was the right calculation from Reeves.
This meant it was very difficult to completely land a blow on the Chancellor, who robustly came back on the points put to her by opposition parties. What was noticeable, however, was the answers she dodged: mainly questions asked by her own party.
In a bid to support the Chancellor, there were plenty of questions asked by Labour MPs that were set up to defend Reeves’s record. But it was clear Reeves wasn’t going to be pulled into making any kind of spending promise she could not keep. Praising the Chancellor for her approach to the public finances, chair of the Treasury Select Committee Dame Meg Hillier mentioned that, unlike the Tories, Labour had managed to avoid austerity. In response, Reeves simply reiterated her fiscal rules and insisted ‘we remain committed to those fiscal rules.’
The Chancellor did not look like she was going anywhere
This was not the only occasion Reeves avoided spending questions. Asked directly about cuts, the Chancellor said she was ‘not going to write five year’s worth of Budgets,’ while also reiterating that she was ‘absolutely committed to meeting those fiscal rules.’
This is not simply about avoiding any concrete commitments – it signals some difficult decisions are coming. For any serious attempt to get these borrowing costs back down to manageable levels (especially considering the international pressures, like Donald Trump’s threat of tariffs, pushing these costs up), Reeves is going to have to signal strongly to markets that she is capable of fiscal prudence. That next test in the Spending Review, which the Prime Minister, in the wake of this week’s economic news, has insisted will be ‘ruthless’.
This is likely to cause more turmoil with the Labour party than anywhere else. But it is also going to be necessary to put an end to market turbulence, as it turns out investors are still not relaxed about Britain trying to borrow vastly more when the national debt hovers around 100 per cent of GDP.
‘To go or not to go, that is now a question,’ said Stride, comparing Labour’s economic record so far to the great Shakespearean tragedy. That has been a question this week, but is probably a less pertinent question after today. The Chancellor did not look like she was going anywhere. Indeed, she was preparing for the next steps. But taking those steps won’t be easy. Political pain – especially inside the party – is only just beginning.
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