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“Fiscal headroom”. It is a desperately boring term, meaningless to many. Yet this bit of economic jargon may well have the power to swing the next election.

It is thanks to fiscal headroom that the chancellor may be able to splurge on billions of pounds of tax cuts in the coming months, hoping to lift the Conservatives’ sagging polls. It is on the basis of “fiscal headroom” that Sir Keir Starmer will decide whether he can go ahead with his much-vaunted plans to invest untold amounts in Britain’s energy sector.

All of which raises a rather important question – what is fiscal headroom anyway?

Happily, the explanation is quite simple. When politicians talk about fiscal headroom they are mostly talking about something quite specific; the room they have to spend money before they break their fiscal rules.

Ever since Gordon Brown, successive chancellors have imposed rules to discipline their borrowing. These rules have changed over time – mostly when the chancellor of the day realised he was about to break them. Today’s chancellor, Jeremy Hunt, has a few such rules but the most important one – the one he and pretty much everyone pays most attention to – is the rule about the national debt.

This rule states that he has to show that he is bringing down Britain’s net debt (in other words, the amount the state owes) as a percentage of gross domestic product (GDP) within five years.

There is plenty of logic in trying to keep the national debt under control. While there’s no hard and fast rule about precisely what level of debt is “safe” or not, there are many episodes throughout history of countries getting into big economic trouble when they allow their national debt to rise too high (since it often means higher debt interest payments, which can spiral out of control).

The fiscal equivalent of St Augustine’s prayer

But it’s also worth pointing out at this point that this rule is actually a lot less strict than it might at first sound. It’s not saying “bring the debt down immediately”. It’s saying “you can absolutely increase the national debt if you want to, provided it looks like it’s on the way down five years from now”. It is the fiscal equivalent of St Augustine’s prayer: “Lord, make me good. But not yet.”

And the current government plans aim to do precisely that. The figures in last November’s autumn statement show that its preferred measure of the national debt (there are many – don’t ask) actually rises in the coming years, from 90.2% of GDP in 2023/24 up to 95% of GDP by 2026/27.

Slide 1

Only in the following years does it start to fall, quite gradually, to 94.9% of GDP in 2027/28 and then to 94.4% of GDP in 2028/29. And, since it’s falling, the debt rule is met. Hurrah!

If at this point you’re still following, you’ve probably noticed a few things.

First, these supposedly strict fiscal rules aren’t actually stopping the national debt from rising. It’ll be considerably higher in five years’ time than it is today.

Second, the rate at which the debt is falling towards the end of this decade is actually quite slow.

Third, we seem to be fixating quite a lot on a couple of years (the difference between 2027/28 and 2028/29) which are a long way away, way beyond the government’s current spending plans.

And you’re right on all three. But no matter, because if all you care about is fiscal headroom, all that matters is the difference between those two figures, 94.9% of GDP and 94.4% of GDP. And that difference works out, in actual money, at about £13bn.

A made-up rule

Now, I could have easily skipped the preceding paragraphs and begun this article with this fact. Headroom equals £13bn. That, after all, is what most of Westminster does.

But every so often context can come in useful, and in this case the context underlines something important. Namely, that headroom is not an immutable law of economics. It is the product of a self-imposed rule. It is, to put it more bluntly, made up.

But this made-up number has an enormous bearing on economic policy right now. Since both the Conservatives and Labour have adopted the same fiscal rule, they also find themselves having to bend their knee to the god of headroom.

Jeremy Hunt says he won’t spend any more than the headroom he has at the next budget. Which, to translate, means he’ll probably spend nearly all the billions of headroom he has. Rachel Reeves says while she would like to invest £28bn on green energy technology projects, she won’t do it if it breaks the fiscal rules.

So the questions of how many tax cuts the chancellor offers this year and how much Labour will invest in the energy transition both hang on this made-up number. Indeed, the two things are related, since if Mr Hunt splurges a lot in the coming months, there’s no headroom left for Ms Reeves if she gets into office.

One of the single most important numbers in politics

Some would say this is all a bit silly. And they might just have a point. But since both main parties have agreed to respect this concept of headroom, it is among the single most important numbers in politics right now.

Yet here’s the other thing. What looks like a monolithic number is actually changing all the time. Since “fiscal headroom” is actually the difference between two other big numbers (the national debt four years hence, minus the national debt five years hence) which change quite a lot when the economy gets bigger or smaller or taxes come in faster than expected, it has a tendency to yo-yo around from one year to the next.

Consider this – last March, the Office for Budget Responsibility (OBR) was saying the amount of headroom was a mere £6bn. Not much, in other words.

But then, at the autumn statement, we learned that the public finances turned out to be in a better state than expected. That, plus the fact that there was an extra year until the deadline, increased the potential headroom by nearly £25bn in one fell swoop. So what looked like £6bn in headroom actually turned out to be £31bn of headroom.

slide 2

All of which is why the chancellor was able to splurge £18bn in November (on those National Insurance cuts) and to leave us still with a supposed £13bn headroom this time around.

And something similar is likely to happen again when we get to March’s spring budget. The public finances are looking a bit healthier than expected. This morning’s public finance figures showed the deficit and debt interest payments were both lower than anticipated.

Government debt interest payments slide 3

The upshot is that most economists think that £13bn of headroom could actually be anywhere up to £23bn. So there’s more money for the chancellor to spend, should he see fit.

It’s possible that at this point your head is spinning. Perhaps you’re wondering why on earth Westminster is tying itself in knots to stay true to a fiscal rule which was only made up a few years ago. Perhaps you’re wondering why the future of this economy hangs not on the question of the smartest long-term policy but on the difference between a few decimal places on a spreadsheet produced by the OBR.

These are all good questions. But mentioning them in Whitehall these days is tantamount to blasphemy. Trust, instead, in the creed of fiscal headroom. Everyone else is.

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‘Liberation day is here’: But what will it mean for global trade?

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'Liberation day is here': But what will it mean for global trade?

“Liberation day” was due to be on 1 April. But Donald Trump decided to shift it by a day because he didn’t want anyone to think it was an April fool.

It is no joke for him and it is no joke for governments globally as they brace for his tariff announcements.

It is stunning how little we know about the plans to be announced in the Rose Garden of the White House later today.

It was telling that we didn’t see the President at all on Tuesday. He and all his advisers were huddled in the West Wing, away from the cameras, finalising the tariff plans.

Follow the events of Liberation Day live as they unfold

Three key figures are central to it all.

Treasury Secretary Scott Bessent is the so-called ‘measured voice’. A former hedge fund manager, he has argued for targeted not blanket tariffs.

Peter Navarro is Trump’s senior counsellor for trade and manufacturing. A long-time aide and confidante of the president, he is a true loyalist and a firm believer in the merits of tariffs.

More on Donald Trump

His economic views are well beyond mainstream economic thought – precisely why he appeals to Trump.

‘Stop that crap’: Trump adviser Peter Navarro reacts to Sky News correspondent’s question over tariffs

The third key character is Howard Lutnick, the commerce secretary and the biggest proponent of the full-throttle liberation day tariff juggernaut.

The businessman, philanthropist, Trump fundraiser and billionaire (net worth ranging between $1bn and $2bn) has been among the closest to Trump over the past 73 days of this presidency – frequently in and out of the West Wing.

If anything goes wrong, observers here in Washington suspect Trump will make Lutnick the fall guy.

What are Donald Trump’s tariffs, what is ‘liberation day’ and how does it all affect the UK?

And what if it does all go wrong? What if Trump is actually the April fool?

“It’s going to work…” his press secretary said when asked if it could all be a disaster, driving up the cost of living for Americans and creating global economic chaos.

“The president has a brilliant team who have been studying these issues for decades and we are focussed on restoring the global age of America…” Karoline Leavitt said.

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‘Days of US being ripped off are over’

Dancing to the president’s tune

My sense is that we should see “liberation day” not as the moment it’s all over in terms of negotiations for countries globally as they try to carve out deals with the White House. Rather it should be seen as the start.

Trump, as always, wants to be seen as the one calling the shots, taking control, seizing the limelight. He wants the world to dance to his tune. Today is his moment.

But beyond today, alongside the inevitable tit-for-tat retaliation, expect to see efforts by nations to seek carve-outs and to throw bones to Trump; to identify areas where trade policies can be tweaked to placate the president.

Even small offerings which change little in a material sense could give Trump the chance to spin and present himself as the winning deal maker he craves to be.

One significant challenge for foreign governments and their diplomats in Washington has been engaging the president himself with proposals he might like.

Negotiations take place with a White House team who are themselves unsure where the president will ultimately land. It’s resulted in unsatisfactory speculative negotiations.

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Treasury minister: ‘We’ll do everything to secure a deal’

Too much faith placed in the ‘special relationship’?

The UK believes it’s in a better position than most other countries globally. It sits outside the EU giving it autonomy in its trade policy, its deficit with the US is small, and Trump loves Britain.

It’s true too that the UK government has managed to accelerate trade conversations with the White House on a tariff-free trade partnership. Trump’s threats have forced conversations that would normally sit in the long grass for months.

Yet, for now, the conversations have yielded nothing firm. That’s a worry for sure. Did Keir Starmer have too much faith in the ‘special relationship’?

Downing Street will have identified areas where they can tweak trade policy to placate Trump. Cars maybe? Currently US cars into the UK carry a 10% tariff. Digital services perhaps?

US food? Unlikely – there are non-tariff barriers on US food because the consensus seems to be that chlorinated chicken and the like isn’t something UK consumers want.

Easier access to UK financial services maybe? More visas for Americans?

For now though, everyone is waiting to see what Trump does before they either retaliate or relent and lower their own market barriers.

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What are Donald Trump’s tariffs, what is ‘liberation day’ and how does it all affect the UK?

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What are Donald Trump's tariffs, what is 'liberation day' and how does it all affect the UK?

If there is a word that has dominated Donald Trump’s second term, it’s tariffs. 

Aluminium, steel, cars and champagne have all been in his firing line, while China, Canada and Mexico are the countries targeted with the heaviest costs.

Along the way, there have been threats, pauses and postponements.

So what are tariffs, what is in the pipeline – and what could all this mean for the UK?

What are tariffs and why is Trump threatening to use them?

Tariffs are taxes on goods imported into the US.

It is the importers buying the goods who pay the tariffs – therefore, American companies.

Ultimately, the intent is to protect US manufacturing and bolster jobs by making foreign-made products less attractive.

However, there is a knock-on effect: to compensate for tariffs, companies put up their prices, so customers end up paying more for goods.

Tariffs can also damage foreign countries as they make their products pricier and harder to sell.

In his second term, Mr Trump has frequently used them – or the threat of them – as a trade weapon.

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Trump’s tariffs: What can we expect?

They are a key part of Mr Trump’s efforts to reshape global trade relations, and he plans to impose a swathe of what he calls “reciprocal” taxes that would match tariffs levied by other nations.

Tariffs were also part of his playbook in his first term, when he imposed taxes on most goods coming from China and used them as a bargaining chip to force Canada and Mexico to renegotiate a North American trade pact.

On his first day back in office, the US president promised 25% tariffs on all products coming into the US from its nearest neighbours Mexico and Canada – ostensibly to force the countries to tackle illegal migration and fentanyl crossing the border.

What is liberation day?

Mr Trump has branded 2 April “liberation day”, when he could unveil the reciprocal tariffs on countries deemed to be giving the US a bad deal on trade.

The extent of potential tariffs and countries affected remains unclear, with Mr Trump at times sending mixed messages.

On 30 March, he said “all countries” could expect to be hit by tariffs.

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What is Trump’s ‘Liberation Day’?

Speaking from Air Force One, the US president rubbished a question from a reporter who asked whether it was true he was planning on targeting between 10 and 15 countries.

“Who told you 10-15 countries? You didn’t hear it from me,” he said.

When pressed on how many he was planning to hit, he said: “You’d start with all countries, let’s see what happens.”

Two days prior, he said he was open to carving out deals with countries seeking to avoid US tariffs, but that those agreements would be negotiated after 2 April.

He had previously said he “may give a lot of countries breaks, but it’s reciprocal”, adding: “We might be even nicer than that.”

How could the UK be affected?

The UK hopes an economic deal with the US will spare the country from some of the tariffs.

Sir Keir Starmer and Mr Trump have had “productive negotiations” towards a UK-US “economic prosperity deal”, Downing Street has said.

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‘Everything on table over US tariffs’

The two leaders discussed a possible deal in a phone call on Sunday and agreed negotiations will “continue at pace”, according to a statement released on Sunday 30 March.

The day before the so-called “liberation day”, Sir Keir told Sky News political editor Beth Rigby the UK was “working hard on an economic deal” with the US and said “rapid progress” has been made.

But, he admitted: “Look, the likelihood is there will be tariffs. Nobody welcomes that, nobody wants a trade war.

“But I have to act in the national interest and that means all options have to remain on the table.”

Sir Keir added: “We are discussing economic deals. We’re well advanced.

“These would normally take months or years, and in a matter of weeks, we’ve got well advanced in those discussions, so I think that a calm approach, a collected approach, not a knee-jerk approach, is what’s needed in the best interests of our country.”

Mr Trump has not explicitly said the UK is in his sights for further tariffs, though he has described VAT – a tax added on all goods and services in the UK – as unfair.

In deciding what is a reciprocal tariff for the UK, it’s possible Mr Trump could use the tax, typically 20%, to decide.

Data shows no great trade imbalances – the gap between what you import and export from a certain country – and UK figures show no trade deficit with the United States.

UK ministers have previously suggested this could be good news for avoiding new levies.

But the tariffs Mr Trump has already announced would have a big impact on the UK – particularly the car tariff.

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Business secretary hopes Trump tariffs will be ‘reversed in weeks or months’

Jonathan Reynolds, the business and trade secretary, told Sky News he is “hopeful” the tariffs can be reversed soon.

He warned: “The longer we don’t have a potential resolution, the more we will have to consider our own position in relation to [tariffs], precluding retaliatory tariffs.”

He added the government was taking a “calm-headed” approach in the hope a deal can be agreed, but said it is only “reasonable” that retaliatory tariffs are an option, echoing Sir Keir’s sentiments over the weekend.

What tariffs have already been announced?

Some tariffs have already come into effect, while Mr Trump has confirmed some that will come in on 2 April.

He has said a 25% tariff on all cars imported to the US will come into effect, with a similar tariff on car parts expected to follow in May.

This could prove even more complicated for American car makers, who source components from around the world even if the vehicle is made in the US.

Trump tariffs teaser for SEO liberation day explainer

But Mr Trump has insisted the move will “continue to spur growth”, pointing to plans from Hyundai – the South Korean car maker – to build a $5.8bn (£4.5bn) steel plant in Louisiana.

The tariff could have a huge impact on the UK’s car industry, including on manufacturers such as Jaguar Land Rover, Aston Martin and Rolls-Royce.

Official data shows the US is the UK car sector’s largest single market by country, accounting for £6.4bn worth of car exports in 2023 – 18.4% of the total.

Trump has also said he will place a 25% tariff on all imports from any country that buys oil or gas from Venezuela, which includes the US itself – in addition to imposing new tariffs on the South American country.

On 12 March, a 25% tariff on all steel and aluminium imports to the US came into effect, affecting UK products worth hundreds of millions of pounds.

The move came after he placed a 10% tax on all imports from China, which he later doubled to 20%.

He placed 25% tariffs on Mexico and Canada, but paused them for a month two days after they came into effect, meaning they are set to resume on 2 April.

The pause did not fully cover a tariff of 10% on Canadian energy products.

What has been the global response to tariffs?

There has widely been condemnation of the tariffs, especially from countries worst affected like Mexico and Canada.

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Canadian PM: ‘Tariffs are an attack’

Some have imposed, or threatened to impose, retaliatory tariffs.

China has already hit back with retaliatory tariffs covering a range of US goods, including a 15% tariff on coal and liquefied natural gas products, a 10% tariff on US crude oil and tariffs of up to 15% on key US farm exports.

Canada imposed tariffs of its own on US products, including a 25% reciprocal tariff on US steel and aluminium products and tariffs worth an estimated C$29.8bn (£16bn) on a wide range of US products including orange juice, peanut butter, alcohol, coffee and clothing.

Read more on tariffs:
It may be harder for the UK to trump metals tariffs
Stock markets tumble as Trump tariffs loom

The European Union has said it will impose retaliatory tariffs on the US, but when they will come into force is unknown.

The European Commission initially threatened to impose “countermeasures” affecting €26bn (£21.9bn) of US goods from 1 April, but later delayed this until the middle of April.

The bloc said the delay was because it wanted “additional time for discussions” with the US after Mr Trump threatened a 200% tariff on EU alcohol – including wine and champagne – if the bloc imposed duties on US whiskey.

Any tariffs imposed by the bloc would not only impact US steel and aluminium products, but also textiles, home appliances, agricultural goods and whiskey.

Why tariffs could cost you – even if Trump spares UK

Even if no tariffs are put on all UK exports to the US, consumers globally will still be impacted by the wider trade war, particularly in the US.

Economists believe that tariffs will raise costs in the US, sparking a wave of inflation that will keep interest rates higher for longer. The US central bank, the Federal Reserve, is mandated to act to bring inflation down.

More expensive borrowing and costlier goods and services could bring about an economic downturn in the US and have knock-on effects in the UK.

Forecasts from the National Institute of Economic and Social Research (NIESR) predict lower UK economic growth due to higher global interest rates.

It estimated that UK GDP (a measure of everything produced in the economy) could be between 2.5% and 3% lower over five years and 0.7% lower this year.

The Centre for Inclusive Trade Policy thinktank said a 20% across-the-board tariff, impacting the UK, could lead to a £22bn reduction in the UK’s US exports, with the hardest-hit sectors including fishing and mining.

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Planning reforms to ‘rewire the system’ and get Britain building – all while protecting wildlife

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Planning reforms to 'rewire the system' and get Britain building - all while protecting wildlife

Major developers will only deal with one regulator under planning reforms which ministers say will “rewire the system” to get Britain building – all while protecting the environment. 

A review by former Labour adviser Dan Corry into Britain’s sluggish system of green regulation has concluded that existing environmental regulators should remain in place, while rejecting a “bonfire of regulations”.

But Mr Corry suggested there might be circumstances in which the government look at changing the wildlife and habitat rules inherited from the EU, which protect individual species.

Politics latest: Follow live updates

These lie at the centre of the controversy of a £120m bat tunnel – the shed in Aylesbury which protects a rare breed from future high speed trains.

Keir Starmer has declared war on £100m HS2 bat shed – but has he got a solution?
New planning bill could be the government’s most important – but will it work in practice?

The government has now explicitly ruled out any such change in this parliament.

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Campaigners have questioned whether the changes go far enough and will make a major difference to the rate and scale of building in the UK.

Speaking to Sky News, Environment Secretary Steve Reed insisted that accepting nine of the recommendations from the Corry review would amount to wholesale reform.

The minister said: “We can get a win-win for economic growth and for nature. And that is why we are moving ahead with proposals such as appointing a lead regulator for major developments so that the developers don’t have to navigate the architecture of multiple regulators.

“They just work for a single regulator who manages all the others on their behalf. Simplifying the online planning portal.

“These are huge changes that will save developers billions of pounds and speed up decisions doing damage to the environment.”

Mr Reed insisted that there would be “no more bat tunnels” built, even though the Corry review suggests that more work needs to be done to look again at the relevant guidance.

It says: “Rapidly reviewing the existing catalogue of compliance guidance, including on protecting bats, will identify opportunities to remove duplication, ambiguity or inconsistency.

“Natural England has already agreed to review and update their advice to Local Planning Authorities on bats to ensure there is clear, proportionate and accessible advice available.”

The review will mean:

• Appointing one lead regulator for every major infrastructure project, like Heathrow expansion

• A review on how nature rules are implemented – but not the rules themselves

• Insisting regulators focus more on government priorities, particularly growth

Economist and former charity leader Mr Corry, who led the review, said it shows that “simply scrapping regulations isn’t the answer”.

“Instead we need modern, streamlined regulation that is easier for everyone to use. While short-term trade-offs may be needed, these reforms will ultimately deliver a win-win for both nature and economic growth in the longer run.”

However, Sam Richards from Britain Remade, a thinktank trying to get Britain growing, said that while the steps are welcome, the number of regulators that report to the environment department would remain the same before and after the review. He questioned whether this would have the impact ministers claimed.

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