Chancellor Rachel Reeves outlines red lines for US trade deal
Britain will not lower its standards or water down regulation in exchange for a trade deal with the US, the chancellor has confirmed.
Rachel Reeves was speaking ahead of a pivotal meeting with her American counterpart in Washington DC.
In an interview with Sky News, Ms Reeves said she was “confident” that a deal would be reached but said she had red lines on food and car standards, adding that changes to online safety were “non-negotiable for the British government”.
The comments mark the firmest commitment to a slew of rules and regulations that have long been a gripe for the Americans.
Rachel Reeves spoke to Sky’s Gurpreet Narwan
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The US administration is pushing for the UK to relax rules on agricultural exports, including hormone-treated beef.
While Britain could lower tariffs on some agricultural products that meet regulations, ministers have been clear that it will not lower its standards.
However, the government has been less firm with its stance on online safety.
A tech red line
The US tech industry has fiercely opposed Britain’s Online Safety Act, which was introduced in 2023 and requires tech companies to shield children from harmful content online.
In an earlier draft UK-US trade deal, the British government was considering a review of the bill in the hope of swerving US tariffs.
However, the chancellor suggested that this was no longer on the table.
“On food standards, we’ve always been really clear that we’re not going to be watering down standards in the UK and similarly, we’ve just passed the Online Safety Act and the safety, particularly of our children, is non-negotiable for the British government,” she said.
She added that Britain was “not going to water down areas of road safety”, a move that could pave the way for American SUVs that have been engineered to protect passengers but not pedestrians.
While non-tariff barriers will remain intact, it was reported on Tuesday night that the UK could lower its automotive tariff from 10% to 2.5%.
The calculations behind Reeves’s red lines
What can Britain offer the Americans if it’s not prepared to lower its standards?
Donald Trump has previously described non-tariff barriers that block US exporters as “cheating”.
Britain does have some scope to bring down tariff rates – and Rachel Reeves suggested that this was her focus – but ours is already a highly open economy, we don’t have huge scope to cut tariff rates.
The real prize for the Americans is in the realm of these non-tariff barriers.
There has been much speculation about what the UK could offer up, but the chancellor on Wednesday gave a comprehensive commitment that she would not dilute standards.
There are many who will breathe a collective sigh of relief – from UK farmers to road safety campaigners and parents of young children.
While the government is sensitive to any potential public backlash, it also has another factor to think about.
When Ms Reeves arrives back home, she will begin preparations for a UK-EU summit in London next month.
The UK’s food and road safety standards are, in many areas, in sync with Europe, and Britain is seeking even deeper integration.
Lowering standards for the Americans would make that deeper alignment with the Europeans impossible.
The chancellor has to decide which market is more valuable to Britain.
The answer is Europe.
Back at home, the chancellor suggested that she was still open to relaxing rules on the City of London, even though global financial markets have endured a period of turmoil, triggered by President Trump’s trade war.
Reforms at home?
In her Mansion House speech last November, the chancellor said post-2008 reforms had “gone too far” and set the course for deregulating the City.
Asked if that was a wise move in light of the recent sharp swings in the financial markets, Ms Reeves said: “I want regulators to regulate not just for risk but also for growth.
“We are making reforms and we have set out new remit letters to our financial services regulators.”
Britain’s borrowing costs hit their highest level in almost 30 years after Mr Trump’s Liberation Day tariffs announcements, a stark reminder that policy decisions in the US have the power to raise UK bond yields and in turn, affect the chancellor’s budget, dent her already small fiscal headroom and derail her plans for tax and spend.
However, the chancellor said she would not consider adapting her fiscal rules, which include a promise to cover day-to-day spending with tax receipts, even if it gives her more room to manoeuvre in the face of volatility.
“Fiscal rules are non-negotiable for a simple reason, that Britain must offer under this government fiscal and financial stability, which is so important in a world of global uncertainty,” she said.
Rachel Reeves has been urged by a think tank to cut national insurance and increase income tax to create a “level playing field” and protect workers’ pay.
The Resolution Foundation said the chancellor should send a “decisive signal” that she will make “tough decisions” on tax.
Ms Reeves is expected to outline significant tax rises in the upcoming budget in November.
The Resolution Foundation has suggested these changes should include a 2p cut to national insurance as well as a 2p rise in income tax, which Adam Corlett, its principal economist, said “should form part of wider efforts to level the playing field on tax”.
The think tank, which used to be headed by Torsten Bell, a Labour MP who is now a key aide to Ms Reeves and a pensions minister, said the move would help to address “unfairness” in the tax system.
As more people pay income tax than national insurance, including pensioners and landlords, the think tank estimates the switch would go some way in raising the £20bn in tax it thinks would be needed by 2029/2030 to offset increased borrowing costs, flat growth and new spending commitments. Other estimates go as high as £51bn.
Torsten Bell appearing on Sky News
‘Significant tax rises needed’
Another proposal by the think tank would see a gradual lowering of the threshold at which businesses pay VAT from £90,000 to £30,000, as this would help “promote fair competition” and raise £2bn by the end of the decade.
The Resolution Foundation also recommends increasing the tax on dividends, addressing a “worrying” growth in unpaid corporation tax from small businesses, applying a carbon charge to long-haul flights and shipping, and expanding taxation of sugar and salt.
“Policy U-turns, higher borrowing costs and lower productivity growth mean that the chancellor will need to act to avoid borrowing costs rising even further this autumn,” Mr Corlett said.
“Significant tax rises will be needed for the chancellor to send a clear signal that the UK’s public finances are under control.”
He added that while any tax rises are “likely to be painful”, Ms Reeves should do “all she can to avoid loading further pain onto workers’ pay packets”.
The government has repeatedly insisted it will keep its manifesto promise not to raise income tax, national insurance or VAT.
A Treasury spokesperson said in response to the think tank report it does “not comment on speculation around future changes to tax policy”.
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Chancellor urged to freeze alcohol duty
Meanwhile, Ms Reeves has been urged to freeze alcohol duty in the upcoming budget and not increase the rate of excise tax on alcohol until the end of the current parliament.
The Scotch Whisky Association (SWA), UK Spirits Alliance, Welsh Whisky Association, English Whisky Guild and Drinks Ireland said in an open letter that the current regime was “unfair” and has put a “strain” on members who are “struggling”.
The bodies are also urging Ms Reeves “to ensure there will be no further widening of the tax differential between spirits and other alcohol categories”.
A Treasury spokesperson said there will be no export duty, lower licensing fees, reduced tariffs, and a cap on corporation tax to make it easier for British distilleries to thrive.
Leave retailers alone, Reeves told
This comes as the British Retail Consortium (BRC) warned that food inflation will rise and remain above 5% into next year if the retail industry is hit by further tax rises in the November budget.
The BRC voiced concerns that around 4,000 large shops could experience a rise in their business rates if they are included in the government’s new surtax for properties with a rateable value – an estimation of how much it would cost to rent a property for a year – over £500,000, and this could lead to price rises for consumers.
Read more:
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Latest ONS figures put food inflation at 4.9%, the highest level since 2022/2023.
The Bank of England left the interest rate unchanged last week amid fears that rising food prices were putting mounting pressure on headline inflation.
“The biggest risk to food prices would be to include large shops – including supermarkets – in the new surtax on large properties,” BRC chief executive Helen Dickinson said.
She added: “Removing all shops from the surtax can be done without any cost to the taxpayer, and would demonstrate the chancellor’s commitment to bring down inflation.”
Donald Trump has revealed that media mogul Rupert Murdoch and his son Lachlan could be part of a deal in which TikTok in the United States will come under American control.
The US president also namedropped Michael Dell, the founder and CEO of Dell Technologies, as a possible participant in the deal during an interview with Fox News, which is owned by the Murdochs.
“I think they’re going to be in the group. A couple of others. Really great people, very prominent people,” Mr Trump said. “And they’re also American patriots, you know, they love this country. I think they’re going to do a really good job.”
Mr Trump said that Larry Ellison, founder and CEO of software firm Oracle, was part of the same group. His involvement in the potential TikTok deal had previously been revealed.
President Donald Trump speaking to reporters outside the White House. Pic: AP/Mark Schiefelbein
White House press secretary Karoline Leavitt said on Saturday that Oracle would be responsible for the app’s data and security, with Americans set to control six of the seven seats for a planned TikTok board.
This comes after Mr Trump said he and China’s Xi Jinping held a “very productive call” on Friday, discussing the final approval for the TikTok deal, much of which is still unknown.
Once confirmed, the deal should stop TikTok from being banned in the US after lawmakers decided it posed a security risk to citizens’ data.
Officials warned that the algorithm TikTok uses is vulnerable to manipulation by Chinese authorities, who can use it to push specific content on the social media platform in a way that is difficult to detect.
Congress had ordered the app shut down for American users by January 2025 if its Chinese owner ByteDance didn’t sell its assets in the country – but the ban has been delayed four times by President Trump.
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Mr Trump said on Sunday that he might be “a little prejudiced” about TikTok, after telling reporters on Friday: “I wasn’t a fan of TikTok and then I got to use it and then I became a fan and it helped me win an election in a landslide.”
After the call with Mr Xi, Mr Trump said in a Truth Social post: “We made progress on many very important issues, including Trade, Fentanyl, the need to bring the War between Russia and Ukraine to an end, and the approval of the TikTok Deal.”
Mr Trump later told reporters at the White House that Xi had approved the deal, but said it still needed to be signed.
Representatives for the Murdochs, Mr Dell and Mr Ellison have not yet commented on a potential TikTok deal.
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