Tag Archives: growth

Tariff climbdown offers Trump an off ramp, but uncertainty remains

History repeats itself. An adage the US President and his team of advisers would do well to heed.

In 2022 the radical tax cutting budget announced by Liz Truss’ government sent yields on UK gilts spiralling out of control, with the 10-year gilt yield increasing by the largest amount in a single day since the 1990s. The Bank of England had to intervene with emergency bond purchases to prevent a collapse in the pension fund market.

This market crisis ultimately had profound political consequences, with Kwasi Kwarteng being removed as Chancellor after just 38 days in office, and the end of Liz Truss’s premiership following soon after, making her the shortest-serving Prime Minister in UK history at only 49 days.

The episode highlighted how sensitive financial markets can be to fiscal policy decisions, particularly when they raise concerns about a country’s debt sustainability or when policy changes are announced without adequate preparation or buy-in from the market.

We can look further back to understand the might of the bond market. President Clinton’s economic adviser, James Carville, said: “I used to think that if there was reincarnation, I wanted to come back as the President or the pope or as a .400 baseball hitter. But now I would want to come back as the bond market. You can intimidate everybody.” This has arguably proved to be the case for President Trump – despite trillions being wiped off the stock market, it was rising yields on US Treasury bonds that forced him to blink.

The President claims that the decision to pause the new reciprocal tariff regime for 90 days was the result of 75 countries contacting the White House to express willingness to negotiate trade deals. This narrative creates a potential blueprint for a further watering down of tariffs once the pause ends. Trump has created some leeway to say that after successful negotiations countries will no longer be “ripping off” the United States and will point to his tariffs as a masterstroke in political and economic diplomacy. This exit strategy, however, may come too late to repair the damage done to the international economic and geopolitical order that Trump’s approach is likely to leave in its wake.

This short reprieve, as it may still turn out to be, is creating major issues for the global economy, with financial markets in a state of flux trying to pre-empt and then respond to Trump’s next move. The political and economic uncertainty of the next three months will be difficult to navigate, particularly for multinational businesses with complex supply chains.

UK Prime Minister Sir Keir Starmer has already acknowledged that fixating on whether the UK can negotiate the removal of its own 10% tariff is almost irrelevant, given the potentially more serious impacts the UK could face in the event of a global economic slowdown. A trade war between the two biggest global economies – the United States and China – would have far reaching implications that no country would be able to insulate itself from. The Bank of England has already warned that supply chain disruptions would be expected to weigh heavy on UK economic activity.

This all creates a big headache for the Chancellor of the Exchequer, Rachel Reeves. Having had to make some politically unpopular decisions in recent week to restore the £9billion of fiscal headroom she identified in the autumn budget in October, she could once again find this headroom wiped out as UK growth is revised down. There is already speculation about HM Treasury’s potential response. Tax rises, more spending cuts, or additional borrowing are the options, and none of them are politically palatable.

The global economic challenges have already had an impact on the machinery of government. The Prime Minister has removed two key people from the Number 10 policy unit as part of efforts for the government to speed up economic growth and policy delivery. In the coming weeks it is likely the government will bring forward the publication of the government’s Industrial Strategy (originally scheduled for publication alongside the Spending Review in June) to demonstrate that the UK is open to business and ripe for international investment. The government has also shown a willingness to support industries that are exposed to tariffs.  In anticipation of tariffs coming into effect, Starmer announced a watering down of regulations relating to electric vehicle sales targets to provide manufacturers with some breathing space. We are likely to see additional measures announced as the government continues its consultation with business on the impacts of higher tariffs, and what the UK’s response should be.

The government is facing a significant challenge to its central mission to grow the economy and raise living standards. A renewed emphasis to go further and faster in the delivery of its reform agenda, does, despite the doom and gloom, offer an opportunity for businesses. Policymakers are firmly in listening mode. Businesses that can offer solutions to the economic pressures the government is facing, as well as a commitment to investing in the UK, will find a welcoming ear.

The next few months will undoubtedly be challenging and uncertain. However, a renewed collaboration between the public and private sector to navigate these turbulent times has the potential to offer a pathway for the UK to position itself as a top destination for investment and business growth.

GK Point of View – Raising the roof?

GK consultant Milo Boyd assesses the new proposals from the Department for Levelling Up, Housing and Communities for nationally significant infrastructure, and if these will truly get the UK planning system firing on all the right cylinders. 

The planning system has long been viewed as one of the things that has hamstrung the UK and its growth, particularly in the case of energy and transport infrastructure. Too often, the planning system has been the way that so-called ‘‘NIMBYs’ have been able to stymy any new developments that impact them locally, despite arguments in support of their national importance.

Planning remains a considerable hurdle for the Government if it is serious about achieving its net zero objectives. Onshore wind energy has perhaps been the best example in recent years of how the planning system has hindered the rapid and necessary development of cheap and vitally important infrastructure. In 2015, the UK Government effectively gave local communities the right to veto windfarms by stipulating that they have the final say over whether onshore wind farm applications get the go-ahead in their area. That move, coupled with a removal of subsidies, brought onshore wind installations to an immediate and almost complete halt, the cost of which we are all feeling.

According to IPPR, where England had previously been making modest yet steady progress with onshore wind before the effective ban in 2015, the years since have seen the number of sites receiving planning permission fall off a cliff. Of those which did receive approval, they generate just 0.02% of the target for onshore wind set by the National Grid Future Energy Scenarios, putting England thousands of years behind schedule of its targets for onshore wind.

Now, the Government and the Department for Levelling Up, Housing and Communities (DLUHC) have outlined a number of new proposals which aim to deliver a system with more flexibility for nationally significant infrastructure (NSIPs) development to take place. The proposals fall broadly into 3 areas of reform:

  1. Operational reform to support a faster consenting process;
  2. Recognising the role of local communities and strengthening engagement; and
  3. System capability – building a more diverse and resilient resourcing model.

These proposals form part of the Government’s wider ambitions to stimulate growth and create jobs, as well as ensuring that the UK power, waste and water, and transport systems are future proofed. Removing burdens is viewed as a one of the key ways that the Government can promote new opportunities, scale up training and build a more dynamic workforce. In doing, it provides a good deal more certainty and confidence for the promoters and developers of projects – something that is vital for investment. This is something that has similarly been trailed by Labour in recent months, advocating for planning reform to reverse the UK’s sluggish growth and remove barriers to investment in new industries. It is unclear as of yet what Labour’s response to this consultation will be, but it seems likely given recent announcements that Labour will follow a similar tack.

The most eye-catching of the Government’s announcements is a ‘new’ fast-track route for certain projects, which builds on the fast-track system first proposed in 2016 under the Housing and Planning Bill. What is most useful about this measure is that if infrastructure projects are deemed to deliver tangible environmental or community benefits, they can be fast-tracked through the planning process if they meet the proposed quality standards, and – owing to their tangible benefits – quickly sidestep any potential local opposition. The scope of this is also broad, covering energy, water and waste facilities, and transport, thus going beyond the Housing and Planning Bill’s ambition to galvanise housebuilding and meaning that a wide range of projects will be able to benefit from DLUHC’s new measures.

To complement the fast-track route, there is real focus on the pre-application stage of the planning process. and new, targeted input from the Planning Inspectorate for applicant projects. To ensure that those projects which successfully apply to the fast-track route speedily receive consent, the Government is effectively seeking to ensure that any practical hurdles are overcome at the pre-application stage. This would mean that the process for projects can essentially be streamlined to move from acceptance to decision within a shorter maximum examination timescale of 12 months, whilst striking a balance between external consultation and ensuring that involvement is very light touch. Government proposals aim to ensure a limited number of meetings are held during the pre-application process. Following this, any further meetings should only be held at key milestones of the project.

Overall, the fact that the reforms aim to considerably streamline processes for NSIPs is positive. Of course, what the final proposals look like is still up for consultation, but seeking to ensure that projects do not have to jump through a prohibitively high number of hoops will no doubt give investors and developers a heightened degree of confidence that their projects will get off the ground.

Get in touch with the GK team through milo@gkstrategy.com if you would like any further information.