A major global economic shock is taking place; it’s duration unknown, it’s severity anyone’s guess, and no-one has a surefire way of stopping it because it’s all based on the proclivities of one man who is supposed to be our ally.
Billions have been wiped off the stock market since Donald Trump announced his global tariff scheme last week, meaning a hit to prices, pensions and jobs that could get a lot worse.
So what can the government do, in practice?
After the economic shocks of modern times – the 2008 financial crisis and 2020 pandemic – hundreds of billions of pounds were served up by the UK government to cushion the impact. Debates rage to this day about whether banks should have been bailed out by Gordon Brown and whether Rishi Sunak’s COVID furlough scheme should have been so generous.
On both occasions, the Bank of England rose to the challenge too, using its quantitative easing scheme to ensure cheap money.
But as we stand on the precipice of economic decline of uncertain severity, it is clear that any kind of big bazooka option of the scale seen during those two crises is not open to the UK this time around.
Borrowing is so high, and taxes at record levels, that there is not the headroom to do this now. The government’s options are severely limited.
That, in practice, is the starting point for Prime Minister Sir Keir Starmer and Chancellor Rachel Reeves. The big concession today is that tariffs may be in place for some time – the hope of two weeks ago for a quick deal that dampens or exempts tariffs appears to be fading.
The White House says 50 nations are queuing up to do a deal – there is no guarantee we are close to the front of the queue.
So instead, they have to look for other answers that cost little – cutting red tape and helping business grow. And here, there are no straightforward answers.
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The big announcement on Monday is to water down green rules for cars, delaying a ban on hybrids to 2035 from 2030 and giving the car sector more flexibility to meet its electric car goals on the path to the end of the decade.
But, although the government did not want to talk about it, these involve trade-offs which is why they have not happened to date. When it comes to deregulation, there is no such thing as an easy win.
The policy watered down on Monday was on course to be, by a very large margin, the single biggest lever for the UK to achieve its climate goals for the 2030s, so this will blow an even bigger hole in the ability to get on track for net zero.
Meanwhile, this change of policy means uncertainty for different firms – those that make batteries and charging points are no longer in such urgent demand after Monday’s decisions.
Yet Rachel Reeves makes clear this approach is the one she will follow. Pharmaceuticals and steel will also get help in coming days.
But whatever the announcement, remember there’s a cost – just not one the government will spell out when it tries to get back on the front foot.
