The government and the Crown Prosecution Service (CPS) are facing questions after a key witness to a now-collapsed spy case said in statements that China was carrying out "large scale espionage" against the UK.

Deputy National Security Adviser Matthew Collins also said China "presents the biggest state-based threat to the country's economic security".

The PM ordered the publication of Mr Collins's witness statements in a bid to clear up a row about why the case against two alleged spies collapsed.

The CPS dropped the case after deciding the evidence did not show China was a threat to national security.

But the statements are clear that the Chinese are carrying out spying operations against the UK, raising questions for the government and the CPS about why the prosecutions did not go ahead.

A formal inquiry into the collapse of the case will be held by a parliamentary committee.

Labour MP Matt Western, chairman of the Joint Committee on the National Security Strategy, said the inquiry would be launched "as soon as possible".

Cabinet Office minister Chris Ward assured him that the government would be as transparent as possible with the committee, after Western asked him for access to ministers and civil servants.

The Conservatives have accused the government of allowing the case to collapse to avoid jeopardising economic relations with China.

This is firmly denied by the government, who blame the previous Conservative administration who were in charge when Mr Collins sent his first evidence statement, for the collapse of the prosecution.

The head of the CPS Stephen Parkinson is also in the firing line, with MPs suggesting there was sufficient evidence to put the case before a jury.

He is reported to have told senior MPs on Wednesday that the evidence was "5%" short of what would have been required to stand a chance of getting a conviction.

In the first witness statement, sent in December 2023, Mr Collins outlines the case against former parliamentary researcher Christopher Cash, 30, and academic Christopher Berry, 33.

The pair are accused of collaborating with a Chinese Communist Party leader who was deputy director of the Central National Security Commission, chaired by President Xi Jinping.

In one message, Mr Cash is alleged to have told Mr Berry: "You're in spy territory now."

Both men deny any wrongdoing.

In a statement released on Wednesday evening, Mr Cash said he had been placed in an "impossible situation" because he had not "had the daylight of a public trial to show my innocence".

He added: "I should not have to take part in a trial by media.

"The statements that have been made public are completely devoid of the context that would have been given at trial."

While Mr Berry has previously denied spying for China, he has not commented since the day the case ended.

China's foreign ministry spokesperson Lin Jian said: "China's position is very clear: we firmly oppose peddling China spy narratives and vilifying China."

MPs are poring over the three witness statement released on Wednesday night - a highly unusual move sanctioned by the CPS.

The second witness statement, written by Mr Collins in February 2025, after Labour had taken power, said China's spying threatened "the UK's economic prosperity and resilience".

A third witness statement published in August this year restated the UK's view of the challenge posed by China.

But the two statements submitted under Labour made clear the government was "committed to pursuing a positive economic relationship with China".

Conservative MP Alicia Kearns, who previously employed Mr Cash as a parliamentary researcher, said Mr Collins's third statement includes language about China similar to that in Labour's election manifesto last year.

The witness statement and the manifesto both include the words "we will co-operate where we can, compete where we need to, and challenge where we must".

"There's a direct lift from the Labour Party manifesto," Kearns said. "It's very hard to believe there was no political interference and that a civil servant would have felt the need to do that."

But she said there been "misleading discussion" about whether China was deemed a threat to national security at the time of the alleged offences in 2023.

"In my view, the Crown Prosecution Service should have proceeded with this," Kearns said.

She added: "The case law shows it's for a jury to decide if China is or could be a threat to our country."

BBC News understands that Mr Collins assumed he had given enough evidence for the prosecution to continue when he submitted his third witness statement in August 2025.

A government source pointed to comments made by him where he described "the increasing Chinese espionage threat posed to the UK" as an example of why he believed he had said enough to satisfy the CPS's threshold for prosecution.

It is also understood that the CPS contacted Mr Collins after his first witness statement to ask for further clarification on the threat posed by China, but that they were not explicitly clear what the official would need to say in subsequent statements, in order to meet the CPS's threshold.

Mr Cash and Mr Berry were charged under the Official Secrets Act in April 2024, when the Conservatives were in power.

They were accused of gathering and providing information prejudicial to the safety and interests of the state between December 2021 and February 2023.

The director of public prosecutions has said the case collapsed because evidence could not be obtained from the government referring to China as a national security threat.

He said while there was sufficient evidence when charges were originally brought against the two men, a precedent set by another spying case earlier this year meant China would need to have been labelled a "threat to national security" at the time of the alleged offences.

Government minister Stephen Kinnock told Times Radio the Conservatives were making "unsubstantiated allegations" about "political pressure" being used to influence the decision to drop the prosecution.

He said Mr Collins was "reflecting the wider context of the relationship", adding: "It is, of course, a matter for the CPS to determine whether or not the bar for prosecution, the evidentiary basis, has been met.

"But the wider job of the deputy national security adviser is to provide the wider context of our economic, diplomatic and national security relationship with China."

He declined to say whether he believed director of public prosecutions [DPP] Mr Parkinson was the right man for the job.

Mr Kinnock told Sky News: "I believe the DPP told MPs yesterday that he felt the evidence was 95% of the way there, but there was a 5% gap that was missing.

"I think he's the best person to explain what that 5% was missing was."

Liberal Democrat foreign affairs spokesperson Calum Miller said the witness statements raised "yet more unanswered questions", adding: "We clearly need a statutory public inquiry to get to the bottom of this whole fiasco."