Chancellor Rachel Reeves has hinted at the possibility of an emergency budget in March as soaring government borrowing costs threaten Labour's spending plans. The Chancellor defended her recent trip to China amidst market turmoil, but faced criticism from the opposition and warnings from within her own party about the potential impact of spending cuts.
Rachel Reeves yesterday signaled an emergency budget as early as March, as soaring government borrowing costs threatened to derail Labour's spending plans. The Chancellor hinted at billions of pounds in emergency spending cuts within weeks, after skeptical financial markets pushed long-term borrowing costs to a 27-year high. In a statement to MPs, Reeves defended her controversial trip to China over the weekend, while markets turned against the government.
However, shadow chancellor Mel Stride argued the rise in borrowing costs following her 'disastrous' budget had created a £12 billion hole in the public finances. This, he said, was half the amount raised from her increase in employers' National Insurance and 100 times the £120 million in new investment she claims to have secured in China. 'We have seen it all before,' he told MPs. 'Socialist governments who think that they can tax and spend their way to prosperity; Labour governments who simply do not understand that if you tax the living daylights out of business, you will get stagnation. They do not understand because there is barely a shred of business experience on the government front bench.' Reeves said she hoped to stick to her pledge of one budget per year. But she did not rule out an emergency budget in March, when the Office for Budget Responsibility (OBR) publishes a new forecast, which is expected to show her on course to break her own 'fiscal rules'. She emphasized her 'absolute commitment' to these rules, designed to control borrowing, and stated she would meet them 'at all times'. A government source suggested this could involve 'corrective action' in March, such as emergency spending or welfare cuts, potentially reaching billions of pounds. Reeves hinted at billions of pounds in emergency spending cuts could be needed within weeks after skeptical financial markets pushed up long-term borrowing costs to the highest rate for 27 years. Labour's former shadow chancellor John McDonnell told the BBC that a round of spending cuts would be 'politically suicidal'. Asked about fresh spending cuts, Reeves told MPs she remained 'absolutely committed to meeting the fiscal rules'. She acknowledged the 'scale of challenges' but stressed that 'movements in international markets in the past week' were 'global in nature'. She added: 'In the UK, we must do what we can.' Reeves, who will travel to Davos next week for the World Economic Forum, said she would 'leave no stone unturned' in reviving Britain's economic growth, which has shrunk to zero since the budget. 'The economic headwinds we face are a reminder that we should - indeed, we must - go further and faster in our plan to kick-start economic growth,' she said. But Stride accused her of presenting 'the unedifying sight of an increasingly desperate politician scampering halfway around the world with a begging bowl'. He suggested Sir Keir Starmer should remove her, saying: 'To go, or not to go, that is now a question. The Prime Minister will be damned if he does, but he will surely be damned if he does not.' The Chancellor told Tory MPs to 'get real'. But she also faced warnings from her own side about the impact of imposing spending cuts after pledging to reverse austerity. Labour's former shadow chancellor John McDonnell told the BBC that a round of spending cuts would be 'politically suicidal'. Yesterday, the pound saw a sixth day of falls against the dollar and hit a four-month low against the euro. Government borrowing costs ticked up, with yields on ten-year gilts - small parcels of debt issued by the Treasury - rising close to 4.9 percent, not far off recent 17-year highs. Yields on 30-year gilts came close to 5.5 percent, nearing 27-year highs. And in a gilt auction by the Treasury, when the government sells debt to investors, it was forced to pay the most to borrow since 2004. This came as new figures from the Institute of Chartered Accountants in England and Wales (ICAEW) showed a 'dramatic' drop in business confidence to the lowest level in more than two years, as the economy stagnates and inflation remains too high
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