Labour MPs warn Reeves against spending cuts in response to borrowing costs

has been warned by Labour MPs against seeking spending cuts if the UK’s borrowing costs continue to soar this week.

Labour backbenchers said the Government could not “cut [its] way out of a crisis” and that it was a “fiction” that public services did not need “better funding through taxation”.

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, Stella Creasy, the MP for Walthamstow who chairs the Labour Movement for Europe pressure group, warned against spending cuts, suggesting it would be preferable to raise taxes.

She said that rather than cutting spending the Government should accelerate its “reset” with the EU in a “race for growth”.

“These are unforgiving times, as the market movements this week have shown,” she said. “Now under the heavy artillery of some negative press, the greater danger is to allow political caution to make it harder to achieve change or seek further spending cuts to manage it.”

She went on: “As others continue to make silly, unachievable promises to balance the books, improve outcomes and simultaneously cut costs, we need to talk more openly about the fiction that better services do not need better funding through taxation.

“That is a fantasy the public didn’t buy before the election – and should not be promised again.”

Rachael Maskell, Labour’s MP for York Central, also said that any changes to fiscal policy as a consequence of the bond turmoil should come on the tax side.

She said: “You can’t cut your way out of a crisis.”

Maskell urged the Government against squeezing welfare, saying there was “insufficiency in the benefits that people are getting”, with recipients not even able to pay for essentials.

“If there are to be cuts, this means that people will struggle even further,” she said.

If “in-year” fiscal changes are needed, “it has to be about how we can generate more revenue,” she said.

“Those with the broadest shoulders should be contributing more… we need to understand that tax is a good thing, because a more equal society is a better society for everyone.”

On Sunday, the Science Secretary Peter Kyle played down the significance of the increase in borrowing costs.

“If you put the market movements when it comes to gilts for example alongside other international countries, in particular America, you see very similar trends,” he said.

However, the shadow Chancellor, Mel Stride, said that Britain was now paying “about £12bn a year more on servicing our national debt as a result of these market moves”.

Stride said the increase in borrowing costs was “much, much worse” for the UK than other countries, and showed that financial markets were “beginning to lose confidence in this Government’s economic plan”.

Criticising Reeves’ decision to fly to China, he added: “The Chancellor should be here, at her station, reassuring markets and trying to give some sense that the Government gets the depth of the problem.”

In her article, Creasy said that Europe had a greater potential to boost British growth than China. “Nobody who cares about evidence thinks all economic opportunity lies in dealing with America or China alone,” she said. “We can fight many things in life, but geography is not one.”

She said that “turning up the dial” on a “reset” with the EU would give “jittery Britain” the “confidence boost” it needs.

But to achieve a “game-changing” deal, she said Starmer’s Government had to drop existing “red lines”, which include not returning to the single market or customs union, and ruling out a “youth mobility” scheme which would allow easier migration for the under-thirties.

“Better access to the single market and reducing customs barriers would reduce paperwork and costs that are the bane of so many British businesses,” she said.

“There is nothing to be gained for the UK from turning youth mobility into a symbol of something that must be opposed. Indeed, when you consider the merits of such a scheme, it should be embraced.”

Maskell echoed the call for the Government to step up efforts to secure a new deal with the EU.

“We know that [Brexit] has had such a significant economic penalty, and we need to move forward in that relationship,” she said.

The Treasury was contacted for comment.