Home Money ALEX BRUMMER: The United States has a huge tax advantage over the United Kingdom

ALEX BRUMMER: The United States has a huge tax advantage over the United Kingdom

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Betting on the wrong horse: Labor put all its eggs in the Democratic basket ahead of the US election

Rarely has George Bernard Shaw’s aphorism that “England and the United States are two countries separated by the same language” seemed more accurate than today, as Donald Trump takes the oath of office for the second time.

Born to a Scottish mother, the president has more British ancestry than many of his recent predecessors.

But when it comes to the economy and trade, the Starmer government and the Trump administration bring very different perspectives. Even the silky skills of Peter Mandelson, whose brief stint as Business Secretary is well remembered, might find it difficult to reconcile the differences.

Chancellor Rachel Reeves and the Labor Party put all their eggs in the Democratic basket ahead of the election. Reeves’ reverence for former US Treasury Secretary Janet Yellen, one of the stars of her partially plagiarized book, Women Who Made Modern Economics, has been boundless.

Yellen was her first stop as chancellor of the International Monetary Fund last October, days before Trump’s victory. His idea of ​​”securonomics,” which isn’t heard much now, had its roots in Joe Biden’s policies.

There has been much debate about whether Britain can avoid the worst of Trump’s tariffs, aimed primarily at China but also at NATO allies. Trump’s love of Scotland and its golf courses and resorts could, this time, make it more likely that the UK’s biggest cash export to the US – Scotch whiskey – will be spared a huge tax. But that’s too much to expect.

Betting on the wrong horse: Labor put all its eggs in the Democratic basket ahead of the US election

Anyone listening to U.S. Treasury Secretary Scott Bessent’s confirmation testimony on Capitol Hill will not be able to miss the contrast between treasury guardians on both sides of the Atlantic.

Bessent is an experienced Wall Street figure, founder of the hedge fund Key Square Capital. Working alongside George Soros in 1992, when Britain was kicked out of the Exchange Rate Mechanism, he was largely responsible for the bets that depleted the UK’s foreign exchange reserves. Reeves may be a former Bank of England official, but her practical experience of how money markets work pales in comparison.

At the center of Bessent’s testimony was a distinctly Reagan-esque message about taxes. He told Congress that if the $4 trillion (£3.3 trillion) in tax cuts from the previous Trump administration were not extended and renewed “we would face an economic calamity”.

The contrast with the British ‘Iron Chancellor’ Reeves could not be starker. Its £40bn tax budget in October focused exclusively on supporting the public sector. Far from unleashing entrepreneurship, it has caused entrepreneurs to flee abroad and undermined confidence on the high street.

Bessent gave no hint of the pessimism that, until very recently, was at the heart of government rhetoric in the UK. Instead, Bessent hailed the dawn of “a new economic golden age of prosperity” ushered in by pro-growth fiscal, investment, trade and energy policies.

To Biden’s credit – he did not seek to reverse the Trump-era tax cuts until he left office – growth was 2.9 percent in the United States last year and the International Monetary Fund expects 2025 to be higher. or less the same. There is no smell of stagnation.

The US has a huge tax advantage over the UK, although bond rates (the cost of borrowing) are no different. The difference is the extraordinary privilege of the dollar as the world’s reserve currency. Around the world, other central banks have no choice but to hold on to the dollar, so fiscal discipline can be avoided for the time being. The United Kingdom does not enjoy that advantage.

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