No 10 says US president’s decision is ‘disappointing’, as experts warn UK may have to raise taxes in autumn
Donald Trump’s tariffs signal a new global economic era, Downing Street has said, as economists warn the British government is likely to have to raise taxes in response.
No 10 said on Friday the prime minister believed that this week’s trade announcement by the US president, which has started a global trade war and sent stock markets tumbling, marked a turning point in history.
Starmer is due to speak to European and Commonwealth leaders in a series of calls over the next few days before setting out how he intends to respond more fully on Monday.
But while the prime minister will say he wants to cut red tape and remove more planning restrictions as a way to boost growth, experts say this is unlikely to fill a new budget black hole in the autumn.
A Downing Street spokesperson said: “The global economic landscape is shifting, and we need to shift with it through overhauling our planning system, bringing forward our industrial strategy and cutting excess red tape. We are ready embracing that new era and ready to tackle it.”
David Lammy, the foreign secretary, went further on Friday morning, saying he regretted what he saw as a “return to protectionism” from the US, and adding it was “something that we’ve not seen for nearly a century”.
No 10 on Friday refused to echo Lammy’s language, but called Trump’s decision “disappointing” – in contrast with the US president himself, who said
Ministers are still optimistic they can agree a trade deal with the US in the coming weeks which would avoid the worst of the direct impact of the tariffs.
Economists warn, however, that the likely slowdown in the global economy will have such an impact on the UK, with or without a US trade deal, that it will force the chancellor, Rachel Reeves, to raise taxes in the autumn.
Paul Johnson, the director of the Institute for Fiscal Studies, said: “I would have thought the central expectation now must be that if she is sticking to her fiscal rules, she’ll need to increase taxes in the autumn by possibly some significant amount.”
“Taking the spending review as given, and given there’s not much more to be had from welfare, then there really is only tax.”
Given Labour’s promises not to increase major taxes including income tax, national insurance and VAT, he suggested one option might be a “defence and security levy,”, with the proceeds earmarked for the planned increase in defence spending. Johnson added: “the one upside for Reeves is that it’s now going to be quite easy to make the argument that the world has changed.”
Treasury sources say it is too early to start planning this year’s budget, but they stressed on Friday that Reeves did intend to stick to her borrowing rules.
“Our broader economic strategy remains the same – we need to offer stability to make the UK an attractive place to invest,” said one Whitehall official.
Downing Street said on Friday that Starmer thought Trump’s decision to impose such sweeping tariffs would have as much impact on the global economy as his shift away from Europe was having on security policy.
European leaders have responded to the US’s increasing distance from its traditional allies by ramping up defence spending. Germany has overhauled its debt rules to allow a higher military budget, while the UK has diverted nearly half of its aid budget to defence.
A No 10 spokesperson said: “We need to understand – just as we’ve understood it for defence and security – the changing world when it comes to trade and the economy. That’s where we are, with the beginning of a new era.”
Officials will begin US trade talks again next week. The Guardian revealed earlier this week that Britain had offered to reduce the headline rate of its digital services tax to relieve the burden on major US technology companies.
Downing Street on Friday refused to deny reports that it was also considering softening the enforcement of the Online Safety Act in an attempt to placate the US technology industry.
“None of our basic protections for children and vulnerable people are up for negotiation,” a spokesperson said.
