Sir Keir Starmer is right to argue that the era of globalisation is over after Donald Trump’s damaging retreat into protectionism and zero-sum mercantilism. “The world as we knew it has gone,” the prime minister said.
This week, Sir Keir will announce more measures to boost growth, including elements of his government’s long-awaited industrial strategy “to help shelter British business from the storm”. He is correct to diagnose that the new world will require more interventionist government, and that the UK’s tendency “to muddle through” in a crisis will not be enough this time.
Sir Keir must now live up to such rhetoric. Indeed, his government’s economic strategy, as outlined by Rachel Reeves in last month’s spring statement, could be described as “muddling through”. Even before we knew the extent of the Trump tariffs, the UK’s urgent need to raise defence spending could have provided the platform for a rethink.
It is welcome that Downing Street is now hinting at such an economic reset. Ms Reeves is wary of rewriting her fiscal rules because she does not want to frighten the financial markets and see them raise the government’s borrowing costs. But in such turbulent times, she could surely tweak the rules, perhaps by taking defence spending out of them. It is right that the UK is boosting defence spending – but Germany and the EU as a whole are finding different ways to do that; the UK should show similar flexibility.
The reset must include the grown-up debate about tax and spending that Labour and the Conservatives regrettably denied the public at last year’s election. Labour no longer has the justification of saying that tax rises are off limits because “we have an election to win”.
Sir Keir should lead a national conversation about whether the party’s manifesto commitment not to raise income tax, national insurance or VAT is fit for purpose in the “new era”. As he put it in The Telegraph, “We simply cannot cling on to old sentiments when the world is turning this fast.” The potential to raise other taxes – including levying a Robin Hood tax on financial transactions – can also be considered.
Of course, Labour’s opponents would cry betrayal if the party abandoned its tax pledges. But most voters would understand that the world has changed dramatically, and that the person responsible for this sits in the White House rather than Downing Street.
Fair tax rises that spare the “working people” Labour vows to protect and instead target the rich might prove more popular than Sir Keir and Ms Reeves suspect. The extra revenue would help Labour to deliver the “change” it promised last year on public services and living standards; the government will struggle to do so without it. But, following the £25bn rise in national insurance contributions for employers that has now taken effect, ministers should avoid loading more growth-harming measures onto business.
Thanks to Mr Trump, the world is moving ineluctably from a rules-based order to one based on deals, whether in terms of trade or resolving crises such as the war in Ukraine. Sir Keir should play his part in limiting the damage caused by the Trump effect.
Although the prime minister is right to pursue a trade agreement with the US to soften the impact of its tariffs on the UK, he should not put all his eggs in the Trump trade basket. The government should redouble its efforts to boost trade with Commonwealth countries, Japan, South Korea, and its biggest trading partner – the EU.
Sir Keir is unlikely to criticise the US president in the way that Canada’s Mark Carney and France’s Emmanuel Macron have done, even though such a “Love Actually” moment in which a prime minister attacks a US president would probably enhance his popularity at home more than his softly, softly approach.
The prime minister has previously rejected what he regards as a “false choice” between closer links with America and with Europe. But given that Britain has got a better deal than the EU when it comes to Trump’s tariffs, the UK has a competitive advantage. It must lean into that and exploit it to its full advantage, including in relation to how we strike deals with the EU.
The UK has a strong card to play as the world’s second-largest exporter of services after the US. The Starmer government must now strain every sinew to champion free trade and strengthen the UK’s trading links with the rest of the world, rather than side with a patently unreliable ally in the US.
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