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Chancellor Jeremy Hunt is unsure if the government can afford further tax cuts – as a National Insurance (NI) reduction comes into force today.

The pre-election cut to NI, from 12% to 10%, will impact around 27 million payroll employees across the UK.

A person earning the UK’s average salary of £35,000 will save £450 a year, or £37.38 a month, as a result of this change.

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Mr Hunt said the reduction, announced in his Autumn Statement last year, means “that a typical family with two earners will be nearly a thousand pounds better off this year”.

But Labour argued this wasn’t true, saying frozen income tax and national insurance thresholds mean that many families have been drawn into higher tax bands.

The Opposition’s new attack ads criticising the policy even made it onto the Tory-supporting website Conservative Home on Friday.

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Shadow chancellor Rachel Reeves said: “Under Rishi Sunak’s raw deal, for every extra £10 people are paying in tax they are only getting £2 back.”

A van in Wellingborough, North Northamptonshire, displaying Labour's poster campaign of what it calls "Rishi's raw deal" for taxpayers ahead of the reduction in national insurance contributions on January 6. Picture date: Friday January 5, 2024.
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Labour attack ad

‘If I can afford to go further I will’

In a statement on Saturday, Mr Hunt said he wanted to further ease the tax burden, which is expected to rise to the highest level since the Second World War before the end of this decade, but he doesn’t yet know if he can.

He called the NI reduction “the start of a process”, adding: “If I can afford to go further I will… I don’t yet know if I can.

“We want to do this because it helps families, it also helps to grow the economy, and we believe that a lightly taxed economy will grow faster and in the end that’ll mean more money for public services like the NHS.”

Mr Hunt argued the Conservative government “wants to bring down taxes” and recognises that “families are finding life really tough”.

But he defended its previous measures, saying: “It was right to support families through COVID and through the cost of living crisis, and yes taxes had to go up in that period.”

The government says its NI reduction is the biggest tax cut on record for workers.

The chancellor added: “Even after the effect of the tax rises that have happened previously, this means that a typical family will see their taxes go down next year.”

Jeremy Hunt leaves Downing Street to deliver the autumn statement in the Commons
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Jeremy Hunt leaves Downing Street to deliver the autumn statement in the Commons

Will Hunt cut taxes again before election?

The clock is ticking for Mr Hunt to find the fiscal headroom to cut taxes again.

The spring budget, pencilled in for 6 March, will be the last chance for him to make major tax and spending promises before the election, which Mr Sunak has said will likely be in the second half of the year.

Following the Autumn Statement in November, the government has faced pressure from Tory MPs to go further and cut income tax or inheritance tax.

While many campaigners welcomed the National Insurance changes, they pointed out that the tax burden remains at record high levels for Britons – thanks in part to the threshold at which people start paying personal taxes being frozen, rather than rising with inflation.

Mr Sunak introduced the current tax freezes when he was chancellor back in 2021 and as prime minister, extended the time they would need to be in place, from 2026 to 2028.

This causes a so-called “fiscal drag” as pay goes up but tax thresholds don’t, so more people are dragged into higher tax brackets.

The Institute for Fiscal Studies has said the Autumn Statement gave back just £1 in tax cuts for every £4 of tax rises due to threshold freezes since 2021.

Ms Reeves claimed that despite the NI cut, the average family was paying £1,200 extra tax this year “because of choices by Rishi Sunak and this Conservative government”.

“Never have people paid so much in tax and got so little in return in the form of public services,” she said.

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However, the Labour leadership has not committed to cutting tax or unfreezing the thresholds if they win the election.

Sir Keir Starmer told Sky News his priority is to grow the economy and he won’t make promises he can’t keep – but that he does want to “lower the burden of working people”.

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Trump trade war escalation sparks global market sell-off

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Trump trade war escalation sparks global market sell-off

Donald Trump’s trade war escalation has sparked a global sell-off, with US stock markets seeing the biggest declines in a hit to values estimated above $2trn.

Tech and retail shares were among those worst hit when Wall Street opened for business, following on from a flight from risk across both Asia and Europe earlier in the day.

Analysis by the investment platform AJ Bell put the value of the peak losses among major indices at $2.2trn (£1.7trn).

The tech-focused Nasdaq Composite was down 5.8%, the S&P 500 by 4.3% and the Dow Jones Industrial Average by just under 4% at the height of the declines. It left all three on course for their worst one-day losses since at least September 2022 though the sell-off later eased back slightly.

Trump latest: UK considers tariff retaliation

Analysts said the focus in the US was largely on the impact that the expanded tariff regime will have on the domestic economy but also effects on global sales given widespread anger abroad among the more than 180 nations and territories hit by reciprocal tariffs on Mr Trump‘s self-styled “liberation day”.

They are set to take effect next week, with tariffs on all car, steel and aluminium imports already in effect.

Price rises are a certainty in the world’s largest economy as the president’s additional tariffs kick in, with those charges expected to be passed on down supply chains to the end user.

The White House believes its tariffs regime will force employers to build factories and hire workers in the US to escape the charges.

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The latest numbers on tariffs

Economists warn the additional costs will add upward pressure to US inflation and potentially choke demand and hiring, ricking a slide towards recession.

Apple was among the biggest losers in cash terms in Thursday’s trading as its shares fell by almost 9%, leaving it on track for its worst daily performance since the start of the COVID pandemic.

Concerns among shareholders were said to include the prospects for US price hikes when its products are shipped to the US from Asia.

Other losers included Tesla, down by almost 6% and Nvidia down by more than 6%.

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PM: It’s ‘a new era’ for trade and economy

Many retail stocks including those for Target and Footlocker lost more than 10% of their respective market values.

The European Union is expected to retaliate in a bid to put pressure on the US to back down.

The prospect of a tit-for-tat trade war saw the CAC 40 in France and German DAX fall by more than 3.4% and 3% respectively.

The FTSE 100, which is internationally focused, was 1.6% lower by the close – a three-month low.

Financial stocks were worst hit with Asia-focused Standard Chartered bank enduring the worst fall in percentage terms of 13%, followed closely by its larger rival HSBC.

Among the stocks seeing big declines were those for big energy as oil Brent crude costs fell back by 6% to $70 due to expectations a trade war will hurt demand.

The more domestically relevant FTSE 250 was 2.2% lower.

A weakening dollar saw the pound briefly hit a six-month high against the US currency at $1.32.

There was a rush for safe haven gold earlier in the day as a new record high was struck though it was later trading down.

Sean Sun, portfolio manager at Thornburg Investment Management, said of the state of play: “Markets may actually be underreacting, especially if these rates turn out to be final, given the potential knock-on effects to global consumption and trade.”

He warned there was a big risk of escalation ahead through countermeasures against the US.

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Sandra Ebner, senior economist at Union Investment, said: “We assume that the tariffs will not remain in place in the
announced range, but will instead be a starting point for further negotiations.

“Trump has set a maximum demand from which the level of tariffs should decrease”.

She added: “Since the measures would not affect all regions and sectors equally, there will be winners and losers as in 2018 – although the losers are more likely to be in the EU than in North America.

“To protect companies in Europe from the effects of tariffs, the EU should not respond with high counter-tariffs. In any case, their impact in the US is not likely to be significant. It would be more efficient to provide targeted support to EU companies in the form of investment and stimulus.”

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British businesses issue warning over ‘deeply troubling’ Trump tariffs

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British businesses issue warning over 'deeply troubling' Trump tariffs

British companies and business groups have expressed alarm over President Donald Trump’s 10% tariff on UK goods entering the US – but cautioned against retaliatory measures.

It comes as Business Secretary Jonathan Reynolds launched a consultation with firms on taxes the UK could implement in response to the new levies.

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A 400-page list of 8,000 US goods that could be targeted by UK tariffs has been published, including items like whiskey and jeans.

On so-called “Liberation Day”, Mr Trump announced UK goods entering the US will be subject to a 10% tax while cars will be slapped with a 25% levy.

The government’s handling of tariff negotiations with the US to date has been praised by representative and industry bodies as being “cool” and “calm” – and they urged ministers to continue that approach by not retaliating.

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The latest numbers on tariffs

Business lobby group the CBI (Confederation of British Industry) said: “Retaliation will only add to supply chain disruption, slow down investment, and stoke volatility in prices”.

Industry body the British Retail Consortium (BRC) also cautioned: “Retaliatory tariffs should only be a last resort”.

‘Deeply troubling’

While a major category of exports, in the form of services – like finance and information technology (IT) – has been exempted from the tariffs, the impact on UK business is expected to be significant.

Mr Trump’s announcement was described as “deeply troubling for businesses” by the CBI’s chief executive Rain Newton-Smith.

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The Federation of Small Businesses (FSB) also said the tariffs were “a major blow” to small and medium companies (SMEs), as 59% of small UK exporters sell to the US. It called for emergency government aid to help those affected.

“Tariffs will cause untold damage to small businesses trying to trade their way into profit while the domestic economy remains flat,” the FSB’s policy chair Tina McKenzie said. “The fallout will stifle growth” and “hurt opportunities”, she added.

Companies will need to adapt and overcome, the British Export Association said, but added: “Unfortunately adaptation will come at a cost that not all businesses will be able to bear.”

Watch dealer and component seller Darren Townend told Sky News the 10% hit would be “painful” as “people will buy less”.

“I am a fan of Trump, but this is nuts,” he said. “I expect some bad months ahead.”

Industry body Make UK said the 25% tariffs on cars, steel and aluminium would in particular be devastating for UK manufacturing.

Cars hard hit

Carmakers are among the biggest losers from the world trade order reshuffle.

Auto industry body the Society of Motor Manufacturers and Traders (SMMT) said the taxes were “deeply disappointing and potentially damaging measure”.

“These tariff costs cannot be absorbed by manufacturers”, SMMT chief executive Mike Hawes said. “UK producers may have to review output in the face of constrained demand”.

The new taxes on cars took effect on Thursday morning, while the measures impacting car parts are due to come in on 3 May.

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Trump trade war: The blunt calculation that should have spared UK from reciprocal tariffs

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Trump trade war: The blunt calculation that should have spared UK from reciprocal tariffs

Economists immediately started scratching their heads when Donald Trump raised his tariffs placard in the Rose Garden on Wednesday. 

On that list he detailed the rate the US believes it is being charged by each country, along with its response: A reciprocal tariff at half that rate.

So, take China for example. Donald Trump said his team had run the numbers and the world’s second-largest economy was implementing an effective tariff of 67% on US imports. The US is responding with 34%.

Trump latest: UK considers tariff retaliation

How did he come up with that 67%? This is where things get a bit murky. The US claims it studied its trading relationship with individual countries, examining non-tariff barriers as well as tariff barriers. That includes, for example, regulations that make it difficult for US exporters.

However, the actual methodology appears to be far cruder. Instead of responding to individual countries’ trade barriers, Trump is attacking those enjoying large trade surpluses with the US.

A formula released by the US trade representative laid this bare. It took the US’s trade deficit in goods with each country and divided that by imports from that country. That figure was then divided by two.

More on Donald Trump

So, in the case of China, which has a trade surplus of $295bn on total US exports of $438bn, that gives a ratio of 68%. The US divided that by two, giving a reciprocal tariff of 34%.

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PM will ‘fight’ for deal with US

This is a blunt measure which targets big importers to the US, irrespective of the trade barriers they have erected. This is all part of Donald Trump’s efforts to shrink the country’s deficit – although it’s US consumers who will end up paying the price.

But what about the small number of countries where the US has a trade surplus? Shouldn’t they actually be benefiting from all of this?

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That includes the UK, with whom the US has a surplus (by its own calculations) of $12bn. By its own reciprocal tariff formula, the UK should be benefitting from a “negative tariff” of 9%.

Instead, it has been hit by a 10% baseline tariff. Number 10 may be breathing a sigh of relief – the US could, after all, have gone after us for our 20% VAT rate on imports, which it takes issue with – but, by Trump’s own measure, we haven’t got off as lightly as we should have.

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