Rachel Reeves has told the Conservatives to “get real” as she blamed global economic volatility for the recent sharp rise in UK borrowing rates, which has triggered calls for her resignation and left her contemplating further public sector cuts.
The chancellor appeared in front of MPs on Tuesday for the first time since travelling to China and after several days of bond market turmoil that have taken the government’s borrowing rates to their highest levels in decades.
Reeves is facing one of the most difficult periods in her six months in office, with investors dumping UK bonds and the pound amid concerns about low growth in Britain and abroad. The government sold £1bn worth of new bonds on Tuesday on the most expensive terms since 2004.
Reeves told the Commons that the recent moves in UK bond markets tracked those seen in other countries. Addressing demands from her Conservative counterpart, Mel Stride, to step down, Reeves replied: “The shadow chancellor is simply not serious.”
Experts said the recent increase in UK borrowing costs had all but wiped out the headroom Reeves had against her fiscal targets, leaving her looking for further tax rises or spending cuts to make up the shortfall.
Treasury sources said that if confronted with that choice, Reeves would choose another round of cuts, even with unprotected departments already being asked to make average reductions of 1.3% every year after 2026. The chancellor insisted on Tuesday she would never miss her targets, saying: “We remain committed to those fiscal rules, and we will meet them at all times.”
Campaigners urged the chancellor to refrain from cutting disability benefits after ministers said the welfare budget would be a target for changes. The government inherited a public consultation on changing personal independence payments (Pips) made to working-age people to cover additional health-related costs.
Rachael Maskell, the Labour MP for York Central, said lots of MPs were very concerned about the prospective cuts to the welfare budget and mooted reforms to Pips.
“We know the amount of money people on benefits receive is recognised by organisations like the Joseph Rowntree Foundation as being insufficient,” she said. “They have produced a list of guaranteed essentials and the current level of provision does not meet that.
“I’m worried when I hear comments saying we shouldn’t support so many people with mental health issues,” she added, citing Tony Blair’s intervention earlier this week. The former Labour prime minister said the government was “spending vastly more on mental health now than we did a few years ago” because people were increasingly “self-diagnosing”.
“We have got to put that safety net in place and I’m worried that those people who are very impoverished will be squeezed further,” Maskell said.
Iain Porter, a senior policy adviser at the Joseph Rowntree Foundation, said: “The chancellor has created a hole for herself, but fixing that should not be on the backs of some of the most vulnerable people in society. Trying to fix the fact that the chancellor has boxed herself in by making even bigger cuts is wrong.”
David Southgate, a policy manager at the disability equality charity Scope, said that “cutting disability benefits would have disastrous consequences for disabled people” and that “benefits like Pip are a lifeline to help pay for vital equipment, support at home, or enough heating to stay well”. Scope said its helpline and social media channels were hearing increasingly from disabled people who were concerned about the proposals.
Keir Starmer has so far expressed his confidence in Reeves, saying on Monday morning she was right to be “ruthless” in sticking to her fiscal targets. Downing Street clarified that afternoon that the prime minister intended to keep her as chancellor until the end of the parliament after initially refusing to do so.
In response to a question from the Conservative MP Luke Evans in the Commons on Tuesday, Reeves said: “There has been global volatility in markets. I don’t really believe that it is reasonable to suggest that the reason why bond yields in the United States, in Germany and France have risen is because of decisions made by this government. I think the honourable member opposite should just get real.”
Financial markets were calmer on Tuesday, soothed by a report that said Donald Trump may take a more restrained approach to raising tariffs than feared.
UK government borrowing costs increased slightly. The interest rate on 10-year UK bonds rose by two basis points (or 0.02 percentage points) to 4.89%, near the 16-year highs set last week. Thirty-year bond yields rose three basis points, near to their highest level since 1998.
The UK received solid demand at an auction of new 30-year inflation-linked bonds, but sold the debt at the most expensive terms since July 2004, highlighting the impact of the bond market turmoil on the public finances.
