The Treasury is on the defensive today amid concern over a rise in the cost of government borrowing. Meanwhile, the foreign secretary has issued a bleak assessment about the state of the world – as he outlined a new sanctions regime targeting people smugglers.
Thursday 9 January 2025 13:27, UK
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Mick Lynch’s decision to quit as chief of the RMT rail union is a “significant moment”.
That’s the view of business and economics correspondent Paul Kelso, who says it’s a big deal not just for the union movement, “but more broadly across the political and industrial climate”.
Lynch came to “signifiant prominence” during the rail strikes of 2022, “when the network was repeatedly brought to a standstill”.
He was also very prominent, Paul recalls, when P&O summarily sacked all its British seafarers and replaced them – “a moment when his views chimed with the entire political climate”.
“A thorn in the side of previous governments,” he leaves his post with many things he’s campaigned on now being delivered by Labour.
Chiefly the railways being taken back into public ownership, and pay increases for staff.
Rail strikes were a thorn in the side of the previous Tory governments, as union bosses sought to force them into pay rises and improved conditions for their members.
Few had as much media attention as RMT boss Mick Lynch – who you’ll probably recognise…
‘Time for change’
But it’s now been announced the 63-year-old is retiring after more than three years as general secretary.
He’d been a member since 1993, when he worked at Eurostar.
“Now it is the time for change,” he said.
“This union has been through a lot of struggles in recent years, and I believe that’s only made it stronger despite all the odds.”
Mr Lynch said it was time for a “new generation of workers to take up the fight for its members and for a fairer society”.
The Politics Hub has had one eye on the economy and one eye on foreign policy this morning.
Here are the main things you need to know:
French President Emmanuel Macron is in the UK today for talks with the prime minister, and we’re hoping to bring you some updates on that sometime later this evening.
Politics Hub With Sophy Ridge is also live from 7pm.
Stay with us for more updates and analysis through the afternoon.
With UK government borrowing costs rising, both the Tories and the Liberal Democrats are calling on Chancellor Rachel Reeves to cancel her trip to China to address the state of the economy.
Shadow chancellor Mel Stride said in a statement that Ms Reeves is “missing in action”, having sent her deputy to respond to an urgent question on the public finances in the Commons this morning.
He added: “The chancellor should now cancel her travel and focus on this country instead.”
Lib Dem leader Sir Ed Davey agrees, and says she should ditch the rise in national insurance for employers and raise taxes on the profits of “big banks, social media giants, and online gambling firms”.
But Downing Street has rejected the calls, saying she is travelling to “to boost and reset the [bilateral] relationship on trade and investment”.
As we’ve been reporting, the Treasury has been under pressure this morning over an increase in government borrowing costs.
The Tories weren’t able to drag Rachel Reeves to the Commons to field questions about the state of the economy – she instead sent her deputy, Darren Jones – but we’ve been able to commandeer our business and economics correspondent Paul Kelso for some insight.
What’s the problem?
The reason an increase in the cost of borrowing for government (in this case filling a gap from income in taxes, given Labour’s reluctance to tax working people to cover its spending plans) can cause alarm is the danger borrowing costs are pushed up for the rest of us.
“Most notably in mortgage rates,” explains Paul, which is exactly what happened following the Liz Truss mini-budget of 2022.
And what’s happening right now, Paul says, is the increase in costs of borrowing for the government now “exceeds even the rates the government was having to pay to borrow back then”.
“It is not a crisis of the same proportion by any stretch of the imagination,” he stresses, “but is a challenge for the chancellor.”
Watch: Ed Conway talks through the numbers
Why’s this happening?
Rachel Reeves set out some big public spending plans in her budget but set borrowing rules “intended to send a message to the markets”.
That message was that while the government would borrow, there was a ceiling – headroom, as it’s called.
Paul says “the problem established by this increase in borrowing costs is it increases the cost of government servicing debt”.
It therefore reduces the headroom.
What’s the Treasury doing?
The message for now is “nothing to see here”, essentially.
Darren Jones had to respond to the Tories due to them being granted an urgent question, but he insisted financial markets are “always evolving” and there’s nothing happening to cause alarm.
In practical terms, Paul says the message to the markets is that if push comes to shove, the government will either cut spending or hike taxes – and he reckons it’ll likely be the former.
Should we be concerned?
While the UK isn’t an outlier (borrowing costs have increased for Germany and, more significantly, the US), there are “some specific concerns about the resilience of the UK economy”.
Those are based on doubts the chancellor can really grow the economy while hiking taxes on businesses, which they have warned will see more people out of work or with less money in their pay packets.
It’s “not an economic crisis”, says Paul, but it is “a really challenging moment for the chancellor”.
She’s got a long flight to Beijing ahead of her today, and it’ll give her plenty to think about on the way.
Foreign Secretary David Lammy says he is reforming the Foreign Office to ensure it is “connecting its work better to two domestic priorities of the British people that cannot be solved without work abroad”.
Those are tackling illegal migration and economic growth.
On illegal migration, he says the Foreign Office strategy will involve “transactional, hard-headed diplomacy, and to agree with partners smart interventions along every stage of the people-smuggling pathway”.
In a message to his own party, Mr Lammy says: “There are those who have told me this isn’t a progressive issue – I’m afraid they’re wrong.
“There is nothing progressive about leaving the most vulnerable exploited, letting criminal gangs get rich and commit more crime on British streets.”
He accuses the Tories of having “lost control of our borders”, which he describes as their “greatest failure”.
He argues that “development work upstream” is crucial to ensuring people do not try to come to the UK.
Mr Lammy then announces that the UK will develop a new sanctions regime with the aim of targeting people smugglers and those involved in that illicit industry.
“This will help to prevent, combat, deter and disrupt irregular migration and the smuggling of migrants into the UK,” he says.
Foreign Secretary David Lammy opens his keynote speech by talking about the past, saying Britain must again “face the future” as the Labour government did after the Second World War.
“Secure borders” are at the heart of that, he says, sharply criticising how previous Tory governments handled the economy, saying they retreated from the world stage and allowed migration to get “out of control”.
Mr Lammy declares “the post-Cold War peace is well and truly over”, with conflicts around the world, famine “from Gaza to Sudan”, and “the most refugees and displaced people on record”.
The world “will not” get back to normal, the foreign secretary says, and asserts “Europe’s future security is on a knife-edge”.
‘Trump is right about Europe’s defence’
He says Labour have changed the UK’s foreign policy to work more closely with European neighbours on defence, strengthening our friendship with both US political parties and “joining them to defend Israel from Iranian attacks”, and progressing the defence partnership with Australia.
The foreign secretary says the UK and allies must return to long-term thinking to secure “strategic stability” in the chaotic world.
He declares “Donald Trump and JD Vance are simply right when they say that Europe needs to do more to defend its own continent”.
And he calls for “closer partnerships with the Global South”, saying “the world is larger than the North Atlantic and the Mediterranean”.
David Lammy is giving a speech on people smuggling and the government’s attempts to tackle it.
You can watch live in the stream below or at the top of this page.
In response to shadow chancellor Mel Stride (see previous post), Treasury minister Darren Jones defends the government’s handling of the economy and reiterates that their fiscal rules are “non-negotiable”.
He then goes on the attack, saying previous Tory governments had to borrow money for day-to-day spending “because of an absolute failure to get growth into the economy”.
Labour are “going to deal with it”, he insists, and says public services will have to “live within their means”.
‘These are make-believe words’
Stride asked the minister about the highly unusual “emergency statement” issued yesterday amid the rising cost of government borrowing.
But Mr Jones dismissed it out of hand, telling the House: “There was no emergency statement or emergency intervention. These are make-believe words being propagated by [Tory MPs].
“The Treasury responded to requests from journalists about [fiscal] headroom in the normal way.
“There is no need for any emergency intervention and there hasn’t been one,” he adds.
Shadow chancellor Mel Stride, who tabled the urgent question about the UK’s rising borrowing costs, rises to respond to Treasury minister Darren Jones’s defence of Labour’s handling of the economy (see previous post).
The first question he asks is: “Where is the chancellor?”
He tells the House it is “a bitter regret that at this difficult time with these serious issues that she herself is nowhere to be seen”.
Rachel Reeves is en route to Beijing later.
Mr Stride goes on to say that in the last 48 hours, borrowing costs have reached a 27-year-high, and he says “it is the chancellor’s decisions that have led us here”.
He says the economy is now “flatlining” despite Labour’s promises at the general election, with “higher debt and lower growth”, and surveys show business confidence is “evaporating”.
Will chancellor make ’emergency intervention’?
He asks the Treasury minister if the chancellor stands by her pledge not reduce taxes again, and if public spending cuts could be needed if the independent Office for Budget Responsibility finds that the “fiscal headroom has evaporated”.
The shadow chancellor also raises media reports that the chancellor will make an “emergency intervention to soothe markets” in a speech outside the House, and asks for confirmation that any such statement will be made in the Commons first.
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