Donald Trump briefly threatened to escalate his trade war with Canada by doubling his planned tariffs on its steel and aluminium from 25% to 50%.

The US president stepped back from his order after the provincial government of Ontario rowed back on a plan to charge 25% more for electricity it supplies to over 1.5 million American homes and businesses.

Canada’s most populous province provides electricity to Minnesota, New York and Michigan.

As a result, White House trade adviser Peter Navarro said Mr Trump would not double steel and aluminium tariffs – but the federal government still plans to place a 25% tariff on all steel and aluminium imports from Wednesday.

Ontario’s response

In his initial response to Mr Trump’s threat, Ontario’s premier Doug Ford said he would not back down until the US leader’s tariffs on Canadian imports were “gone for good”.

But he later suspended the change temporarily, saying “cooler heads need to prevail” and he was confident the US president would also stand down on his plans.

Meanwhile, Canada’s incoming prime minister Mark Carney said he will keep other tariffs in place until Americans “show respect” and commit to free trade.

Mr Carney called the new tariffs threatened by Mr Trump an “attack” on Canadian workers, families and businesses.

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Why is Trump threatening tariffs?

A worldwide 25% tariff on steel and aluminium is due to come into effect on Wednesday as a way to kickstart US domestic production.

Separate tariffs on goods from Mexico and Canada covered by a previous trade agreement (the US Mexico Canada, or USMCA deal) were delayed by a month to 2 April.

President Trump seems to bear a particular grudge against Canada because of what he sees as rampant fentanyl smuggling and high Canadian taxes on dairy imports, which penalise US farmers.

He has called for Canada to become part of the United States as its “cherished 51st state” as a solution, which has angered Canadian leaders.

Economic impact

Mr Trump’s turnaround comes after markets fell in response to his threat of doubling tariffs.

The stock market has fallen over the last two weeks and Harvard University economist Larry Summers put the odds of a recession at 50-50.

“All the emphasis on tariffs and all the ambiguity and uncertainty has both chilled demand and caused prices to go up,” the former treasury secretary for the Clinton administration posted on X on Monday.

“We are getting the worst of both worlds – concerns about inflation and an economic downturn and more uncertainty about the future and that slows everything.”

Investment bank Goldman Sachs revised down its growth forecast for this year from 2.2% to 1.7% and moderately increased its recession probability to 20% “because the White House has the option to pull back policy changes if downside risks begin to look more serious”.

Mr Trump has tried to reassure the American public that his tariffs will cause a bit of a “transition” to the economy as taxes spur more companies to begin the years-long process of relocating factories to the US to avoid tariffs.

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Trump refuses to rule out recession

Mr Trump did not rule out the possibility of a recession during an interview with Fox News on Sunday, where he said: “I hate to predict things like that.”

On Tuesday, he was asked about a potential recession and said “I don’t see it at all” and claimed the US is “going to boom”.

On Monday, the S&P 500 stock index fell 2.7% and on Tuesday it was around 10% below its record set last month.

All 404 Labour MPs have been called to Downing Street to attend a “welfare roundtable” to discuss expected major benefit cuts.

Number 10’s policy unit is hosting the discussions on Wednesday and Thursday about the “future of the welfare system”.

The prime minister’s team is hoping to win over MPs concerned about sweeping reforms to the benefits system.

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Sky News has seen the slots being offered to Labour’s 404 MPs, which involves three 45-minute sessions on Wednesday and three on Thursday.

Inviting all Labour MPs to Downing Street briefings is an unusual move, however, Number 10 said it is “entirely routine for MPs to come in for briefings”.

Several billion pounds in spending cuts, including from the welfare budget, are expected in the spring statement on 26 March, worrying some Labour backbenchers who are concerned about the impact on some of the most vulnerable members of society.

For some, the arguments sound very much like those made by the previous Conservative governments as they attempted to crack down on welfare spending.

Sir Keir Starmer told Labour MPs on Monday night that the current welfare bill was “unsustainable, it’s indefensible and it is unfair”.

“It runs contrary to those deep British values that if you can work, you should. And if you want to work, the government should support you, not stop you,” he added.

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MPs deeply nervous

Many Labour MPs are deeply nervous following the backlash to cuts on pensioners’ winter fuel allowance by the government, announced by Chancellor Rachel Reeves less than a month after winning the election last July.

Her self-imposed borrowing limits have been eaten into by months of economic downturn and geopolitical events since the October budget, with the Treasury understood to believe she must maintain £9.9bn of headroom.

The Treasury is putting forward the proposed cuts to the Office for Budget Responsibility (OBR) on Wednesday ahead of the forecaster’s financial prediction on the day of Ms Reeves’ spring statement.

Ministers have been priming MPs and the public for welfare cuts since January, when the chancellor promised to deliver “fundamental reform” of the welfare system, which “includes looking at areas that have been ducked for too long, like the rising cost of health and disability benefits”.

In an interview with Sky News’ political editor Beth Rigby last week on the Electoral Dysfunction podcast the chancellor argued: “We’ve got to reform our welfare system, because at the moment it’s letting down taxpayers because it’s costing too much, letting down our economy because there’s too many people trapped on out of work benefits.

“And it’s letting down the people who are recipients of benefits because they are trapped on benefits rather than actively supported back into work.”

And on Sunday, Cabinet Office minister Pat McFadden told Sunday Morning With Trevor Phillips “we cannot sit back and let this bill grow and write people off in the way that’s happened for many years”, promising reforms are coming “soon”.

Hays, Capita, Petrofac. These are some of Britain’s best known companies and big players in the recruitment industry. 

Now, a Sky News investigation has revealed how, over the course of two decades, some of Britain’s biggest recruitment companies were linked to large-scale tax avoidance when placing workers into jobs, including government roles in Whitehall.

Many of these workers, typically agency workers and contractors, were paid by third-party umbrella companies that promised to take care of taxes but were operating tax avoidance schemes.

They worked by paying workers what were technically loans, instead of a salary. This allowed them to circumvent paying income tax.

Often the umbrellas were recommended by recruiters, although there is no suggestion the recruiters knew these third-parties were operating tax avoidance schemes.

It is the latest revelation in a scandal that has caused untold misery for tens of thousands of people, who signed up with umbrella companies and were enrolled in tax avoidance schemes, thinking they were above board.

Many feel let down by the recruitment agencies who provided information linking them to the umbrella companies. They were not legally responsible for collecting the tax, as they did not run the payroll.

But the government is now strengthening the law to make them accountable for the tax collected by umbrella agencies on behalf of the workers they supply.

Tax avoidance is legal but HMRC has successfully challenged tax avoidance schemes in the courts and workers have subsequently asked to pay the missing tax.

In some cases, the tax demands have been crippling. It’s a campaign that has driven people to the brink of bankruptcy, devastated families and has been linked to 10 suicides.

Manuel’s story

Manuel Bernal did not doubt his working arrangement after taking on a piping supervisor job through Atlantic Resourcing, the recruitment arm of the energy giant Petrofac. In 2006, he was placed on an EDF plant in the Shetlands.

He received a contract between Atlantic Resourcing and an umbrella company, which managed his pay.

Weeks after he started working, he says he was pushed into an arrangement with a different company, which took over the payments. Hundreds of people were working on the site and “everybody on the management side was on that scheme”, he said.

Mr Bernal was assured that everything was above board. He did not know that he was in a tax avoidance scheme.

The company was paying him a loan instead of a salary, via a trust, so avoided income tax and National Insurance.

However, HMRC soon caught on and demanded he pay the missing tax for what it now deemed disguised remuneration.

“At the time, I was in two minds [whether] to pay or not to pay… At the time I couldn’t pay. I was short of money because I had cancer and I couldn’t work… I thought, ‘why should they not pay any money?'” said Mr Bernal.

Tax avoidance is the exploitation of legal loopholes to pay less tax. It is legal. It is not the same as tax evasion, which involves not paying or underpaying taxes and is illegal.

The scheme Mr Bernal was in, like other tax avoidance schemes, stretched the boundaries of the law.

Years later, HMRC successfully challenged the lawfulness of loan schemes in the courts. Workers paid the price. Irrespective of how they entered the schemes, they were deemed responsible for their own tax affairs.

In a statement, Petrofac said: “Like any other company, we are not involved in, or responsible for, the administration of taxes for self-employed limited company contractors.”

The company stopped using umbrella agencies in 2016 after an internal review.

Six-figure demands

Manuel got off comparatively lightly. Having only worked at the site for a few months, his bill came in at £4,000, but others are facing six-figure demands. HMRC has pursued around 50,000 people.

Schemes like these proliferated from the early 2000s.

At the time the use of umbrella companies was becoming popular as workers were worried about falling foul of new rules – originally designed by Gordon Brown – that clamped down on contractors operating as limited companies.

Umbrella companies would manage the payroll so that businesses could avoid bringing workers onto their direct payroll. Others asked workers, like Manuel, to declare as self-employed, while continuing to distribute their pay.

Many umbrellas paid PAYE to the exchequer, but tax avoidance companies also entered the market.

Workers assumed their tax was being paid, but the schemes were pocketing deductions instead of passing them on to the exchequer.

The Treasury became alert to the scale of the missing tax revenue and sought to recoup it – not from the companies but from the individuals.

These schemes were deemed disguised remuneration and, in his 2016 budget, former chancellor George Osborne brought in the loan charge.

In its original form, the loan charge calculated the tax on up to 20 years of income as if it was earned in one financial year – 2018/19. The resulting sums caused considerable financial distress.

Mr Bernal said: “(HMRC) kept sending letters when I was in hospital and my wife had to deal with it. Eventually, I sent in a doctor’s report and they stopped.”

‘I trusted them’

Loan schemes became enmeshed in the recruitment supply chain.

Many recruiters were not aware the umbrella companies they were working with were tax avoidance schemes. However, the strength of their recommendations often gave workers confidence.

John (not his real name), an IT worker, felt he was in safe hands when he used an umbrella company that was on an approved list given to him by the recruiter Hays in 2010.

“I thought Hays is one of the biggest recruitment companies in the country,” he said. “They’re saying they are okay, so I started using them.”

Hays said it “engages only with umbrella companies that appropriately meet legal and financial obligations… We conduct thorough due diligence… we recommend (contractors) also do their due diligence”.

HMRC has previously warned recruitment agencies they face penalties if they refer people to non-compliant umbrella companies but it has not confirmed whether fines have ever been levied.

Meanwhile, new tax avoidance promoters continue to enter the market.

A recent government report concluded there could be “70 to 80 non-compliant umbrella companies involved in the operation of disguised remuneration avoidance schemes”.

Crackdown

The government is now attempting to clean up the industry. It plans to hold recruitment companies legally responsible for PAYE, rather than umbrella companies.

Sky News understands that the Treasury will today unveil a package of reforms it will consult on as part of a crackdown on tax avoidance schemes.

However, this offers little respite to those who have already fallen victim to these schemes.

While in opposition, key Labour Party figures railed against what they described as mis-selling and promised they would review the policy.

The government has now launched an independent review into the loan charge – and HMRC is pausing its activity until that review is complete – but its focus is on helping people to reach a settlement. The review will not look at the historical role of promoters and recruitment agencies.

That is a bitter pill to swallow for those affected by the loan charge, particularly as many of them were working for the government itself.

‘I sent them a suicide note’

Peter (not his real name) worked at the Department for Business, Innovation and Skills as a project manager for the regional growth fund, a role he was recruited into in 2012 by the agency Capita.

He said Capita recommended he use an umbrella arrangement, which he was told was above board.

“I’m really angry. [Capita] gave me confidence. They are the key agency for central government work… If Capita say something to you then you believe it’s correct. You have to trust what you’re told.”

Capita said: “We have strict policies in place to ensure both Capita and our suppliers comply with relevant law, policies and procedures. Given this was over 12 years ago, we do not have the details to be able to comment on this particular matter.”

Sky News has spoken to other Whitehall workers who have also been affected.

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After the loan charge came into force, Peter was inundated with letters from HMRC. It became overwhelming and in 2019 he tried to take his own life.

“I sent them [HMRC] a suicide note because I was just fed up with all of this,” he said. “I’ve been on anti-depressants. I live in denial. I drink alcohol sometimes quite a bit.”

HMRC said it takes the wellbeing of taxpayers seriously and believes it has made significant improvements to its support services in recent years.

The government department Peter worked for has since been fashioned into the Department for Business and Trade.

It said it was unable to comment on the previous department’s arrangements with Capita but said the government was cracking down on non-compliant umbrella companies.

Anyone feeling emotionally distressed or suicidal can call Samaritans for help on 116 123 or email jo@samaritans.org in the UK. In the US, call the Samaritans branch in your area or 1 (800) 273-TALK