It's time to make the post-Brexit decisions at last
The Prime Minister seems to have hunkered down, leaving his impetuous Foreign Secretary David Lammy to hint at retaliation, with his remark on a visit to Brussels that 'all options are on the table'. This is mere posturing.
Retaliatory tariffs would achieve nothing but higher prices for consumers and would risk countermeasures from Washington. The former chancellor, Jeremy Hunt, is on the right track, though, by calling on the Government to revive the vision of Britain as 'Singapore-on-Thames'. After Brexit, there was genuine enthusiasm for plans to turn the UK into a low-tax haven for international trade and investment. Alas, that opportunity was squandered. Instead, inertia took hold and we have clung to the European model outside the EU – the worst of both worlds.
Time has now run out for that model, with its crippling fiscal burden and unaffordable welfare bills. Only a leaner, more agile British economy will be able to navigate a course through the storms ahead. Both the US and the EU have just become more expensive places in which to do business. This gives London and our other cities a chance to seize the commercial initiative.
In a protectionist world, Rachel Reeves must do more than promise to be just a little less profligate. Her Spring Statement may only be a week old, but it is already a museum piece. Nothing less than root-and-branch reform of the public finances will do now, and if she cannot deliver it, Sir Keir needs to find a chancellor who can.
David Ricardo, the British economist who conceived the theory of comparative advantage – the basic principle of free trade – wrote: 'Taxation under every form presents but a choice of evils.'
Unless we take Ricardo's insights to heart, Britain has a bleak future. Instead of forcing wealthy 'non-doms' to emigrate, the taxation system must be redesigned to make the UK a magnet for prosperity. And rather than raise retaliatory tariffs, we should embrace the comparative advantages that flow from our historic status as the champions of free trade.
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