The UK’s finance minister Rachel Reeves (Chancellor of the Exchequer if you prefer) has faced difficulty these past few weeks. She adopted the triple objectives on assuming office last summer of:
A reduction in borrowing, already at worrying levels.Avoiding across-the-board tax increases.Protecting public services, especially in areas like health and social transfers.To the discomfort of many in the Labour party, there have been some spending reductions affecting benefit claimants, and employers’ payroll taxes were increased too in her first budget in October. But the heavy lifting, in arriving at a pleasing exit number for the public finances five years from now, was left to the assumed buoyancy of the economy and, hence, of tax revenue.
If the economy grows quickly enough, the borrowing targets are credible. Unfortunately, there is an independent fiscal council, called the Office for Budget Responsibility (OBR), and numerous London research outfits and think-thanks, and all have traditionally been staffed by number-crunching economists, quick to notice negative trends.
There have been plenty. Moreover, economists always insist that the rate of economic growth is not a policy instrument to be fast-forwarded at the behest of governments.
They have been quibbling at the forecasts of faster economic expansion – the OBR thinks a tariff imposition could halve their expected rate of economic growth, not exciting to begin with – and insist that something’s got to give. Blaming the previous government for leaving a fiscal mess, however reasonable, has a shelf-life with the media measured in weeks.
To be fair to Reeves and her colleagues, they could not have foreseen the tariff threats from the Trump administration nor the imperative to increase defence expenditure resulting from Trump’s estrangement from NATO and willingness to defect to the Russian camp over Ukraine.
Britain has to live with the realities along with the rest of Europe and will be hit hard if there is a tariff war.
Since the UK has zero tariffs with EU countries, part of the Brexit withdrawal agreement even though it created other trade impediments, it is difficult to see how there can be some kind of sweetheart deal for Britain in the form of lower tariffs than would apply to the rest of Europe.
As for Ireland, the open border between the Republic and Northern Ireland, with no customs checks, would be quite a headache if tariff rates on imports from the USA were different in the two jurisdictions. There is a tradition of ingenuity in the border counties on customs matters which could enjoy a revival.
Keir Starmer and the rest of the current Labour leadership campaigned vigorously for the ‘Remain’ side in the 2016 referendum, even though many on the Labour left were lukewarm, including his predecessor as leader Jeremy Corbyn.
Starmer has ruled out any notions of seeking a formal link with either the single market or the customs union, even though there are precedents in non-members Norway, Switzerland and Turkey. He is reluctant to reopen the Brexit debate, but has assumed a leading role with French president Emmanuel Macron in formulating a European response to Trump’s apparent tilt towards Russia in the Ukraine conflict and has specifically committed to a big increase in UK defence spending, adding to the challenge for Rachel Reeves. There are negative budget implications from the America First policy for the Republic, reflected in recent cautious remarks from the Minister for Finance Paschal Donohoe.
He has yet to say so in plain English, but tariffs will hurt as would unilateral changes to US corporation tax law.
The holiday from reality, producing effortless budget surpluses these last few years despite rapid spending growth, may be coming to an end.
The Government will have to produce new budget projections for the Summer Economic Statement, expected three months, hence in early July, and the Department of Finance officials must by now have given the minister a sneak preview.
A tariff war would hurt all European countries, Britain included, but Ireland could face both slower growth because of tariffs and the repatriation of corporation tax revenue to where it would belong in a normal country with conventional rules about corporate tax domicile.
That means in Washington – the big US corporations here can dodge US tax, perfectly legally, because of flaws in the US tax code which the US administration and Congress can alter whenever they get round to it.
Recent pointed remarks by Howard Lutnick about the Irish ‘tax scam’ are significant not because he is Donald Trump’s secretary of commerce but because he has a point and is in a position to do something about it. Paschal Donohoe must be concerned that the Programme for Government promises too much and that the penny has yet to drop with his ministerial colleagues.
The UK’s finance minister Rachel Reeves (Chancellor of the Exchequer if you prefer) has faced difficulty these past few weeks. She adopted the triple objectives on assuming office last summer of:
A reduction in borrowing, already at worrying levels.Avoiding across-the-board tax increases.Protecting public services, especially in areas like health and social transfers.To the discomfort of many in the Labour party, there have been some spending reductions affecting benefit claimants, and employers’ payroll taxes were increased too in her first budget in October. But the heavy lifting, in arriving at a pleasing exit number for the public finances five years from now, was left to the assumed buoyancy of the economy and, hence, of tax revenue.
If the economy grows quickly enough, the borrowing targets are credible. Unfortunately, there is an independent fiscal council, called the Office for Budget Responsibility (OBR), and numerous London research outfits and think-thanks, and all have traditionally been staffed by number-crunching economists, quick to notice negative trends.
There have been plenty. Moreover, economists always insist that the rate of economic growth is not a policy instrument to be fast-forwarded at the behest of governments.
They have been quibbling at the forecasts of faster economic expansion – the OBR thinks a tariff imposition could halve their expected rate of economic growth, not exciting to begin with – and insist that something’s got to give. Blaming the previous government for leaving a fiscal mess, however reasonable, has a shelf-life with the media measured in weeks.
To be fair to Reeves and her colleagues, they could not have foreseen the tariff threats from the Trump administration nor the imperative to increase defence expenditure resulting from Trump’s estrangement from NATO and willingness to defect to the Russian camp over Ukraine.
Britain has to live with the realities along with the rest of Europe and will be hit hard if there is a tariff war.
Since the UK has zero tariffs with EU countries, part of the Brexit withdrawal agreement even though it created other trade impediments, it is difficult to see how there can be some kind of sweetheart deal for Britain in the form of lower tariffs than would apply to the rest of Europe.
As for Ireland, the open border between the Republic and Northern Ireland, with no customs checks, would be quite a headache if tariff rates on imports from the USA were different in the two jurisdictions. There is a tradition of ingenuity in the border counties on customs matters which could enjoy a revival.
Keir Starmer and the rest of the current Labour leadership campaigned vigorously for the ‘Remain’ side in the 2016 referendum, even though many on the Labour left were lukewarm, including his predecessor as leader Jeremy Corbyn.
Starmer has ruled out any notions of seeking a formal link with either the single market or the customs union, even though there are precedents in non-members Norway, Switzerland and Turkey. He is reluctant to reopen the Brexit debate, but has assumed a leading role with French president Emmanuel Macron in formulating a European response to Trump’s apparent tilt towards Russia in the Ukraine conflict and has specifically committed to a big increase in UK defence spending, adding to the challenge for Rachel Reeves. There are negative budget implications from the America First policy for the Republic, reflected in recent cautious remarks from the Minister for Finance Paschal Donohoe.
He has yet to say so in plain English, but tariffs will hurt as would unilateral changes to US corporation tax law.
The holiday from reality, producing effortless budget surpluses these last few years despite rapid spending growth, may be coming to an end.
The Government will have to produce new budget projections for the Summer Economic Statement, expected three months, hence in early July, and the Department of Finance officials must by now have given the minister a sneak preview.
A tariff war would hurt all European countries, Britain included, but Ireland could face both slower growth because of tariffs and the repatriation of corporation tax revenue to where it would belong in a normal country with conventional rules about corporate tax domicile.
That means in Washington – the big US corporations here can dodge US tax, perfectly legally, because of flaws in the US tax code which the US administration and Congress can alter whenever they get round to it.
Recent pointed remarks by Howard Lutnick about the Irish ‘tax scam’ are significant not because he is Donald Trump’s secretary of commerce but because he has a point and is in a position to do something about it. Paschal Donohoe must be concerned that the Programme for Government promises too much and that the penny has yet to drop with his ministerial colleagues.
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