Rachel Reeves has been warned that she and Labour have abandoned their principles by seeking deals with China in a desperate attempt to save Britain’s faltering economy.
The chancellor doubled down on her controversial trip to Beijing as concerns grow that she will return home next week to a full-blown economic crisis.
But her visit was condemned by Sir Iain Duncan Smith, the former Tory leader and prominent China critic, who likened it to “dealing with Nazi Germany in the 1930s”, and by former Hong Kong governor Christopher Patten who called it “delusional”.
As she arrived in China on Saturday, Ms Reeves said she is willing to have “uncomfortable conversations” with its Communist rulers – and defended the trip as a “significant milestone” in Britain’s ties with the country.
At the opening of the 11th UK-China Economic and Financial Dialogue, where Ms Reeves was greeted by vice-premier He Lifeng, she said the global situation was “more complex and more challenging” than at the last summit in 2019, adding: “It is precisely in such times that practical, pragmatic cooperation between the world’s major economies is most needed.”
The Treasury added that Ms Reeves would explicitly raise the case of British national and pro-democracy activist Jimmy Lai, who has been detained in Hong Kong since 2020, as well as allegations of the use of forced labour in Xinjiang and the Chinese government’s sanctions against UK parliamentarians.
But Sir Iain, who has been sanctioned by the Chinese Communist Party (CCP), feared Ms Reeves is returning to the now-discredited David Cameron policy of keen business ties with Beijing, which Whitehall officials dubbed “operation kowtow”.
Speaking exclusively to The Independent, Sir Iain said: “China is laughing at us. They think Britain is soft and weak.”
“This is a return to ‘operation kowtow’. It really is quite awful and dreadful. Just as the EU and the USA are cutting their ties with China, she is rushing over to prostrate herself before president Xi Jinping in the hope he will rescue her because she has trashed the economy.”
He noted that major firms such as Apple have moved factories from China to India, while the US has sanctioned CCP officials for breaking the terms of the deal on freedoms in Hong Kong.
And he alleged that energy secretary Ed Miliband’s push to buy solar panels from China is effectively supporting their use of Uyghur slave labour and concentration camps.
Sir Iain went on: “This is as bad as dealing with Nazi Germany in the 1930s. You have to wonder what has happened to this great country. What Starmer and Reeves are doing is absolutely pathetic.”
Lord Patten, who negotiated the Hong Kong deal with China and was the territory’s final governor, accused Labour is “abandoning its principles”.
He described Ms Reeves’s approach as “delusional” and said that her attempts to raise human rights concerns were “by the way” and “not serious”.
He said Britain has failed to secure consular access to Mr Lai, while others are being denied access to the Chinese pension scheme.
He said: “There’s a terrible sense in which delusion creeps into every aspect and the sooner, the better that we actually behave towards China, with the same balance, and reason, and evidence-based policies as we try to apply to other countries.”
Meanwhile, it is reported the chancellor is planning on slashing billions from disability benefits and postponing the rise in defence spending to 2.5 per cent of GDP until the 2030s in a bid to stay within her borrowing limits.
Turmoil in the gilt markets has left a huge question mark over her economic plans, with the Conservatives accusing the chancellor of having “fled to China” rather than explaining how she will fix the economy.
The visit is part of Labour’s push for greater engagement with Beijing, after a freezing of relations under recent prime ministers.
But it also comes amid speculation that Ms Reeves is going to be forced to break her “golden rule” on borrowing limits, and follows a report revealed in The Independent showing a new cost of living crisis could be around the corner as the price of imports on food, electrical items and other key goods is set to rise by up to 20 per cent.
The value of the pound also slid last week as investors held their breath on the state of the UK economy.
Significantly, however, Ms Reeves is accompanied on her trip by Bank of England governor Andrew Bailey and Financial Conduct Authority chief executive Nikhil Rathi. China has purchased significant amounts of UK national debt, which gives it leverage and makes it an important partner in potentially tackling a financial crisis.
At her meeting with Mr He, the chancellor said: “I believe that increasing trade and investment with an economically important partner like China is crucial for achieving my number one mission in government – economic growth.
“Improving market access is essential for enhancing our bilateral trade, reducing barriers to trade and creating a level playing field for businesses will benefit not only our economies but also consumers and citizens in our countries.”
Increased investment between Britain and China is “important to prevent economic links weakening our national security and economic resilience”, she added.
She announced agreements worth £600m to the UK economy over the next five years, adding that “re-engagement” with China “already sets us on course to deliver up to £1bn of value for the UK economy”. This includes deals on financial services, agri-food and cultural exports, along with other areas.
However, there are serious concerns about the measures Ms Reeves may need to take in the short and medium term to stabilise the economic situation. The Daily Telegraph reported that billions in benefits for people with disabilities could be slashed in a move which could spark a rebellion among Labour MPs. They are already unhappy about winter fuel payments being withdrawn from 10 million pensioners and a refusal to end the two-child benefit cap.
The cost of disability benefits is forecast to rise from £22bn to £35bn by 2029, a 60 per cent increase which is seen as unsustainable, and Ms Reeves is understood to have told Treasury officials that “tough” decisions need to be made to keep the bill down with her vision of Labour being “the party of work”.
Meanwhile, her restraints could put the UK on another collision course with the Trump administration with the push to increase defence spending to 2.5 per cent of GDP shelved until the 2030s. The president-elect has called on Nato allies to increase spending to 5 per cent of GDP but Labour is set to struggle to achieve even half that amount during his term in office.
Paul Johnson, outgoing director of the Institute for Fiscal Studies, warned that in financial terms it would be “staggeringly hard” to achieve the 2.5 per cent target in the next five years, and described Ms Reeves breaking her borrowing limits as “pretty scary for the markets” which were already “concerned about the UK position”.
Shadow chancellor, Mel Stride said: “Rachel Reeves has got her priorities badly wrong. Whilst she’s absented herself on the far side of the world her economic decisions here are pivoting us back towards the 1970s, with borrowing costs soaring, stagnant inflation and growth crumbling.”
Liberal Democrat Treasury spokesperson Daisy Cooper MP said: “The chancellor must come back now to urgently address the ongoing crisis in the markets and announce a serious plan for growth.”
