Rachel Reeves will not break her promise to borrow money only for investment, even as gilt yields rose to their highest levels since the financial crisis, her deputy has said.
Darren Jones, the Treasury chief secretary, told MPs the chancellor would not borrow to pay for day-to-day spending despite rising UK borrowing costs that threaten to make it much harder for her to meet her fiscal rules.
He was answering an urgent question in the Commons about the recent market turmoil, which has sent UK borrowing costs higher, the pound lower and prompted calls for Reeves to cancel her long-planned trip to China.
Jones told the Commons: “There should be no doubt about the government’s commitment to economic stability and sound public finances, this is why meeting the fiscal rules is non-negotiable.”
He added: “[The Conservatives] stacked up the country’s credit card, they’ve left this party to deal with it, and we are going to deal with it. That is why these fiscal rules are non-negotiable.”
Jones was speaking as concern about UK and global growth rates sent the interest rate for a 10-year government bond further above the highs set in the aftermath of Liz Truss’s “mini-budget” in 2022. The pound has also been hit in the sell-off, dropping to a 14-month low against the dollar on Thursday morning.
However, it rose back to half a cent down after Jones’s comments, while the interest rates on bonds also reversed the day’s gains.
Nevertheless, experts say recent rises in the cost of debt could wipe out all the headroom Reeves has left herself against her main fiscal rule, which would require her to make spending cuts or more tax rises later this year.
Jones’s Commons appearance came hours after the Treasury issued a rare statement designed to reassure the markets, insisting Reeves had an “iron grip” on the public finances.
Jones said the UK was encountering the same economic headwinds as other countries, with many experts warning about the likely impact of new trade tariffs from the incoming US president, Donald Trump.
“It is normal for the price of yields and gilts to vary when there are wider movements in global financial markets, including in response to economic data,” he said. “In recent months moves in financial markets have been largely driven by data and global geopolitical events which is to be expected as markets adjust to new information.”
However, the Conservatives blame Labour for saddling the economy with higher debt and higher taxes as set out by Reeves in last year’s budget.
Mel Stride, the shadow chancellor, said: “The chancellor hyped up taxes, increased borrowing by an average of £32bn a year across the forecast, and conveniently adjusted her fiscal rules to allow her to do it. Higher debt and lower growth are understandably now causing real concerns among the public, amongst businesses and in the markets.”
The Tories and the Liberal Democrats are now calling for Reeves not to travel to China on Thursday, where she is due to spend several days drumming up international investment alongside Andrew Bailey, the governor of the Bank of England.
Jones said she would not cancel the trip, adding: “The chancellor is going on her trip to China, which has been well documented for many weeks, [and is] an important visit in terms of trends and investment in here, in the economy, here in the UK.”
