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The thing about trade, and the economics of trade, is that it is simultaneously desperately boring and desperately important.

For example, consider a little bit of legal small print no one spent all that much time thinking about until recently – a clause in most countries’ customs arrangements known as “de minimis”.

The idea behind de minimis is quite simple.

Collecting customs can be an expensive business. You need to employ lots of people to check goods, police the system and collect the relevant customs and tariffs.

In theory, you could fund that via the customs you’re charging people to import goods into the country.

But what if the items you’re imposing tariffs and charges on are so cheap that it makes no economic sense to actually impose those charges?

Consider a £5 t-shirt of the kind you might order from an online retailer such as Shein. In theory, that garment should face a 20% tariff when it arrives from China into the UK.

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But since 20% of a small number is an even smaller number, most customs authorities, including those in the UK, have taken the stance of essentially excluding any cheap imports from paying customs. This is the ‘de minimis’ rule.

There are similar rules in most countries, with the main difference being the threshold at which they kick in. Here in Britain, de minimis applies to anything worth less than £135. In the US the threshold at which you start paying customs charges is higher: $800.

Chart showing each country's de minimis level

Now, there’s a long and detailed set of discussions that have bored on for decades about the pros and cons of this scheme. The historic arguments against collecting those fees were that a) doing so probably cost more money than it would raise, b) scanning and checking every import would jam up ports and airports unnecessarily and c) it might have a bearing on the wider economy as it throws further sand in the wheels of commerce.

But in recent years, a host of mostly Chinese retailers have exploited the de minimis rule to ship (actually, mostly to fly) cheap products to the US, UK, Europe and beyond.

The most visible of these companies are Shein and Temu. By directly flying consignments of very cheap clothes and consumer goods to airports in the west, they have been able to undercut other companies without having to pay customs fees.

Number of de minimis packages imported in to the US since 2018

All of which is why, alongside the host of other tariffs imposed in recent weeks, Donald Trump is also doing something else – eliminating America’s de minimis rules altogether. At least, that’s the plan.

Having pledged to do so in February, the administration rapidly reversed the decision after consignments began to pile up at US airports.

However, the impending rule, which is due to kick in this Friday, sounds like it might be more concrete than the last one. And, if it’s actually imposed, tariffs of 145% will be imposed on goods that, once upon a time, didn’t face any tariffs at all. Which is a very big deal indeed.

chart showing the app store ranking for Chinese ecommerce brands

Already, prices on websites including Shein have begun to increase. Consumers have begun to abandon the sites’ apps. And consignments of goods bound for the US from China have begun to slow.

The real question is what happens next.

Chart on how Shein prices have changed

Does the White House U-turn again? Or does it stand firm? Even as American consumers see the cost of their hitherto cheap goods rise, and potentially even face empty supermarket shelves, the notion of which was summoned up by a delegation of retail chiefs who met with the president last week.

The short answer, as with so much about the current US administration is: no one really knows, and if they say they do, don’t believe them.

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Government borrowing soars to second-highest level on record

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Government borrowing soars to second-highest level on record

Government borrowing rose significantly more than expected last month as debt interest payments soared.

Official figures show the cost of public services and interest payments on government debt rose faster than the increases in income tax and national insurance contributions.

It means government borrowing reached the second-highest level in June since records began in 1993, according to data from the Office for National Statistics (ONS).

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June’s borrowing figures – £20.684bn – were second only to the highs seen in the early days of the COVID-19 pandemic in 2020, when many workers were furloughed.

The figure was a surprise, nearly £4bn higher than anticipated by economists polled by Reuters.

State borrowing – the difference between income from things like taxes and expenditure on the likes of public services – was more than £6bn higher than the same month last year.

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Pushing the borrowing figure up was the high cost of interest payments, which was the second-highest June figure since those records began in 1997. Only June 2022 saw higher spending on government debt.

But despite the latest rise, borrowing this year is in line with the March forecast from the independent forecasters at the Office for Budget Responsibility (OBR), though it’s the second month in a row borrowing was above its projections.

It’s bad news for Chancellor Rachel Reeves, who has vowed to bring down government debt and balance the budget by 2030 as part of her self-imposed fiscal rules.

She’s expected to increase taxes to meet the gap between spending and tax revenue.

The pressure is such that analysts from economic research firm Pantheon Macroeconomics said: “Autumn tax hikes are likely and will probably be backloaded.”

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What’s the deal with wealth taxes?

Rob Wood, its chief UK economist, estimated the size of the gap between government expenditure and income has grown.

“All told, we estimate that the chancellor’s £9.9bn of headroom has turned into a £13bn hole, meaning that Ms Reeves would need to raise taxes or cut spending by a little over £20bn in the autumn budget to restore her slim margin of headroom,” he said.

“We expect ‘sin tax’ and duty hikes, freezing income tax thresholds for an extra year in 2029 and a pensions tax raid – reinstating the lifetime limit on pension pots and cutting relief – to fill most of the hole.”

Taxes on goods such as alcohol and tobacco are classed as sin taxes.

Darren Jones, Ms Reeves’s deputy as the chief secretary to the Treasury, said: “We are committed to tough fiscal rules, so we do not borrow for day-to-day spending and get debt down as a share of our economy.”

“This commitment to economic stability means we can get on with investing in Britain’s renewal.”

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The wealth tax options Reeves could take to ease her fiscal bind

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The wealth tax options Reeves could take to ease her fiscal bind

Faced with a challenging set of numbers, the chancellor is having to make difficult choices with political consequences.

Tax rises and spending cuts are a hard sell.

Now, some in her party are calling for a different approach: target the wealthy.

Is there a way out of all of this for the chancellor?

Economic growth is disappointing and spending pressures are mounting. The government was already examining ways to raise revenue when, earlier this month, Labour backbenchers forced the government to abandon welfare cuts and reinstate winter fuel payments – blowing a £6bn hole in the budget.

The numbers are not adding up for Rachel Reeves, who is steadfastly committed to her fiscal rules. Short of more spending cuts, her only option is to raise taxes – taxes that are already at a generational high.

For some in her party – including Lord Kinnock, the former Labour leader, the solution is simple: introduce a new tax.
They say a flat wealth tax, targeting those with assets above £10m, could raise £12bn for the public purse.

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Yet, the government is reportedly reluctant to pursue such a path. It is not convinced that wealth taxes will work. The evidence base is shaky and the debate over the efficacy of these types of taxes has divided the economics community.

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Chancellor will not be drawn on wealth tax

Why are we talking about wealth?

Wealth taxes are in the headlines but calls for this type of reform have been growing for some time. Proponents of the change point to shifts in our economy that will be obvious to most people living in Britain: work does not pay in the way it used to.

At the same time wealth inequality has risen. The stock of wealth – that is the total value of everything owned – is much larger than our income, that is the total amount of money earned in a year. That disparity has been growing, especially during that era of low interest rates after 2008 that fuelled asset prices, while wages stagnated.

It means the average worker will have to work for more years to buy assets, say a house, for example.

Left-wing politicians and economists argue that instead of putting more pressure on workers – marginal income tax rates are as high as 70% for some workers – the government should instead target some of this accumulated wealth in order to balance the books.

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Lord Kinnock calls for ‘wealth tax’

The Inheritocracy

At the heart of it all is a very straightforward argument about fairness. Few will argue that there aren’t problems with the way our economy is functioning: that it is unfair that young people are struggling to buy homes and raise families.

Proponents of a wealth tax say that it would not only raise revenue but create a fairer tax system.

They argue that the wealth distortions are creating a divided society, where people’s outcomes are determined by their inheritances.

The gap is large. A typical 50-year old born to the poorest 20% of parents in the UK is already worth just a quarter of what someone born to the richest 20% of parents is worth at that age. This is before they inherit anything when their parents die.

A lot of money is passed on earlier; for example, people may have had help buying their first home. That gap widens when the inheritance is passed on. This is when inheritance tax, one of the existing wealth taxes we have in the UK, kicks in.

However, its impact in addressing that imbalance is negligible. Most people don’t meet the threshold to pay it. The government could bring more people into the tax but it is already a deeply unpopular policy.

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Former BP boss: Wealth tax would be ‘mistake’

Alternatives

So what other options could they explore?

Lord Kinnock recently suggested a new tax on the stock of wealth – one to two percent on assets over £10m. That could raise between £12bn and £24bn.

When making the case for the tax, Lord Kinnock told Sky News: “That kind of levy does two things. One is to secure resources, which is very important in revenues.

“But the second thing it does is to say to the country, ‘we are the government of equity’. This is a country which is very substantially fed up with the fact that whatever happens in the world, whatever happens in the UK, the same interests come out on top unscathed all the time while everybody else is paying more for getting services.”

However, there is a lot of scepticism about some of these numbers.

Wealthier people tend to be more mobile and adept at arranging their tax affairs. Determining the value of their assets can be a challenge.

In Downing Street, the fear is that they will simply leave, rendering the policy a failure. Policymakers are already fretting that a recent crackdown on non-doms will do the same.

Critics point to countries where wealth taxes have been tried and repealed. Proponents say we should learn from their mistakes and design something better.

Some say the government could start by improving existing taxes, such as capital gains tax – which people pay when they sell a second property or shares, for example.

The Labour government has already raised capital gains tax rates but bringing them in line with income tax could raise £12bn.

Then there is the potential for National Insurance contributions on investment income – such as rent from property or dividends. Estimates suggest that could bring in another £11bn.

This is nothing to sniff at for a chancellor who needs to find tens of billions of pounds in order to balance her books.

By the same token, she is operating on such fine margins that she can’t afford to get the calculation wrong. There is no easy way out of this fiscal bind for Rachel Reeves.

Whether wealth taxes are the solution or not, hers is a government that has promised reform and creative thinking. The tax system would be a good place to start.

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UK gives final go-ahead to £38bn Sizewell C nuclear plant

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UK gives final go-ahead to £38bn Sizewell C nuclear plant

The government has given the final go-ahead for a £38bn nuclear power plant in eastern England.

The Sizewell C project in Suffolk will be jointly funded by Canadian pension fund La Caisse, UK energy firm Centrica and Amber Infrastructure.

The Department for Energy Security & Net Zero (DESNZ) said Sizewell C will deliver clean power for the equivalent of six million homes, as well as support 10,000 jobs and create 1,500 apprenticeships once it is operational, which is expected to be in the 2030s.

A map shows Sizewell in Suffolk in the east of England
Image:
Sizewell in Suffolk in the east of England


The government will be the largest shareholder in the project with a 44.9% stake. La Caisse will hold a 20% stake, Centrica 15% and Amber Infrastructure will take an initial 7.6%.

Earlier this month, French energy giant EDF announced it was taking a 12.5% stake, lower than its previously stated 16.2% ownership.

Sizewell C was initially proposed by EDF and China General Nuclear Power Group in the early 2010s, but in 2022 the Conservative government bought the Chinese company out.

The cost of construction was forecast to be around £20bn by EDF five years ago.

DESNZ said the cost is around 20% cheaper than the development of the Hinkley Point C nuclear power station in Somerset.

Energy Secretary Ed Miliband said: “It is time to do big things and build big projects in this country again – and today we announce an investment that will provide clean, homegrown power to millions of homes for generations to come.

“This government is making the investment needed to deliver a new golden age of nuclear, so we can end delays and free us from the ravages of the global fossil fuel markets to bring bills down for good.”

Chancellor Rachel Reeves said: “La Caisse, Centrica and Amber’s multibillion-pound investment is a powerful endorsement of the UK as the best place to do business and as a global hub for nuclear energy.

“Delivering next generation, publicly owned clean power is vital to our energy security and growth, which is why we backed Sizewell C.”

Alison Downes of campaign group Stop Sizewell C said: “This much-delayed final investment decision has only crawled over the line thanks to guarantees that the public purse, not private investors, will carry the can for the inevitable cost overruns.

“Even so, UK households will soon be hit with a new Sizewell C construction tax on their energy bills. It is astounding that it is only now, as contracts are being signed, that the government has confessed that Sizewell C’s cost has almost doubled to an eye-watering £38bn – a figure that will only go up. Given that ministers claimed not to recognise the cost was close to £40bn is there any wonder there is so little trust in this project?”

The government considers nuclear power to be an increasingly important energy source as it seeks to decarbonise Britain’s energy grid by 2030.

The last time Britain completed a nuclear plant was the Sizewell B plant in 1987.

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