| Keir Starmer’s choice of a Jaguar Land Rover plant in the West Midlands to make his speech yesterday was designed to portray him as ready to intervene on behalf of the UK’s most important industries. “This government will not just sit back and hope,” he said. “That is how politics has failed you in recent years.” But in truth, the interventions he has set out so far are pretty small compared to the scale of the economic threat – and to many observers, the UK’s industrial policy has been too passive for too long to be able to rise to the challenge of a global economic crisis. There are no easy options. But here’s what the government is trying. What did Starmer announce? The previous plan for nudging the UK’s car industry towards electric vehicles was designed as a gradual phase-out of petrol and diesel, in order to reach an output of 80% electric by 2030, with hefty fines in place for every fossil fuel car sold above each company’s quota. That 2030 target remains in place, but there is now more flexibility about interim milestones. The fines for missing the targets will be smaller, and full hybrid and plug-in hybrid vehicles will be allowed for longer. These changes have had a mixed reception: some in the car industry have suggested that incentives for consumers to move to electric vehicles would be more useful, while climate campaigners see the change as an alarming signal of the government’s priorities. To support the pharmaceutical industry, Starmer also promised to reduce red tape to allow clinical trials to be set up more quickly, and a £600m investment in health data research. But there is a question about whether any of this is really tailored to deal with the Trump tariffs. “This was likely coming anyway in the government’s industrial strategy this summer,” Richard said. “It’s convenient to frame it as a response to tariffs. The high level view is that the impact in either direction is probably pretty limited.” How does that fit into the UK’s industrial strategy? “At its simplest, industrial strategy is what the government does to steer business towards the areas of the economy that it wants to grow,” Richard said. “It becomes transformative when it’s backed by policy action: changes to taxation, regulation and subsidy in the sectors you care about.” For a long time, the UK has been accused of not really having an industrial strategy, as this 2023 piece by former economics editor Larry Elliott suggests. Labour has been promising to produce one for a while, but it has already been delayed until June, to coincide with the spending review that will set out plans for the next three years. That makes sense on one level, Richard said: “You can’t really come up with a fully rounded set of policies unless you’re making spending decisions at the same time. But the government has been indicating for a while that they might bring elements of it forward to give business clarity where they can.” But the elements being brought forward do not involve major government investment. “The EV mandate doesn’t cost anything to relax,” Richard said. While Starmer has promised more announcements later this week, it isn’t clear that any of it will amount to anything that wouldn’t have been happening in June anyway. Can the UK do anything else to mitigate the damage done by tariffs? There are options available, but none of them are likely to wipe out the damage done by the tariffs, and each comes with significant problems attached. The government could: • Pivot towards a closer trading relationship with Europe. While all of the attention is on the US at the moment, the EU remains a far more important trading partner for Britain – taking 42% of the UK’s exports against 15% to the US in 2023. “But the government has ruled out a return to the single market or the customs union,” Richard said. And politically, Labour has clearly concluded that being portrayed as ready to reverse Brexit by stealth is too great an electoral risk. • Focus on a new trade deal with the US. This has been a priority for the government – but with so many countries trying to negotiate new deals at the same time, it’s hard to know how quickly it can realistically be done. There is also the danger that a more liberal policy on US imports would complicate arrangements with the EU. “Chlorinated chicken and hormone-treated beef being allowed into the UK would be a red line for the EU on a new deal with them,” Richard said. “It would make it harder to achieve the reduction in border checks that would be covered by a so-called veterinary agreement. If our standards are in line with the US, that isn’t going to happen.” • Seek to lure manufacturers to the UK on the basis of the relatively low tariffs. Those seeking a silver lining in Trump’s “liberation day” changes point to the fact that the 10% charge on goods from the UK is much lower than those faced by many competitor economies, and some, like former chancellor Jeremy Hunt and his reputationally challenged predecessor Kwasi Kwarteng, have argued that it’s time to dust off the Brexiters’ “Singapore-on-Thames” dream again. But when companies are deciding where to make things, they need more reliable long-term indications of market conditions than Trump’s temperamental approach to tariffs seems to allow. • Change the fiscal rules to allow more borrowing. Rachel Reeves resisted this option in her spring statement – but the tariffs look like a decent excuse for thinking again. As Paul Johnson, director of the Institute for Fiscal Studies, told the Observer: “To the extent that this does change the economic situation in ways that could not have been predicted, that does give permission to do things that were not politically doable otherwise.” Yesterday, Starmer defended the fiscal rules, but declined to commit to keeping them until the next election. But he repeated the manifesto promise not to raise VAT, income tax, or national insurance. What about retaliatory tariffs? The government is still insisting that it has a productive relationship with Washington and that a deal can be done – but ministers have also said that the threat of retaliatory tariffs remains on the table. “They have raised the stakes by saying that they could retaliate on 1 May,” Richard said. But while the UK is a fairly important trading partner for the US, “it still pales in significance compared the EU as a bloc or Mexico, Canada and China.” That means that a response might antagonise Trump without forcing him to the negotiating table. The most likely area to make an impact in retaliation would be in services rather than goods, Richard added: “We are the US’s largest partner in services in the world.” But as with everything in Trump’s new zero sum economic ecosystem, that benefit would come with a cost. “The problem is that the UK has built an economy that is massively reliant on services. Making it tougher for JP Morgan or Citibank or Google to operate here would have an impact – but it would have serious economic consequences.” | 