Daniel Hannan: Six tests that will reveal whether Starmer is serious about equipping Britain for Trump’s new world

Lord Hannan of Kingsclere was a Conservative MEP from 1999 to 2020 and is now President of the Institute for Free Trade.

If, as Sir Keir Starmer says, the world has changed utterly, his policies must change with it. That might sound obvious, but it is human nature to react to sudden and dramatic events by saying: “This just proves whatever I previously thought”.

The danger is that Labour will react to Donald Trump’s tariffs by doubling down on the things it already wanted to do: subsidies for favoured sectors; higher spending; an industrial policy.

In fact, the upending of the world trading system means that Britain needs to make itself more competitive. We must urgently cut spending to boost growth.

It is hard to exaggerate the impact of America’s lurch into protectionism. President Trump has hiked his effective tariff rate from 2.3 per cent to 21 per cent – higher than the Smoot-Hawley tariffs of 1930, which turned the Wall Street Crash into the Great Depression.

Those inter-war tariffs, and the chaos and conflict they engendered, shocked the free world into action. At the New Hampshire resort of Bretton Woods in 1944, representatives of the democracies hammered out an agreement to prevent a slide back into beggar-my-neighbour protectionism.

The Bretton Woods system held up well for eighty years. The world got richer at an unprecedented rate. But the entire structure rested, ultimately, on the United States.

Britain, as an open economy, did well out of it, other than when it was forced to adopt EEC tariffs after 1973. Precisely because we are an open economy, we will be impacted by America’s lurch into protectionism – even if we manage to get a trade deal over the line before the tariffs come into effect.

Trump has announced the lowest level of tariffs on UK exports – ten per cent, the baseline he reserves for allies and half of what he is imposing on the EU. Even so, the cost to us would be equivalent to £20bn.

But worse than any hit to our direct exports would be the hit to our American investments. We are the third-largest foreign investor in the US, and our companies there will be hurt both by tariffs on their component parts and by the fall in consumer spending.

That will be true whether or not we manage to negotiate an exemption. As the US plunges into recession, it will drag its trading partners down with it.

The US is our largest market, larger than our second, third, and fourth (Germany, Ireland, and the Netherlands respectively) combined. Reprieving our exports from tariffs, though it might make one or two EU companies invest in the UK to avoid the higher rate, will not shield us from an American downturn.

What, then, should we do? Most immediately, we must avoid the temptation to “retaliate” by imposing tariffs on our own people. It is to the credit of Sir Keir and Jonathan Reynolds, his Business Secretary, that they have listened to British industry and refrained from mutilating our commerce to prove a point. If our American cousins shoot themselves in the foot, we should not blast off our own toes in response.

That might sound obvious, but the leaders of Europe, Canada, and China are even now responding to Trump’s tariffs by lowering their gun-muzzles towards their own shoes.

Labour may secure a swift trade deal that will avert the ten per cent tariff – in exchange for cutting tariffs that we inherited from Brussels, lifting taxes on US tech firms, and allowing non-chlorinated American chicken and hormone-free American beef onto our shelves.

But we must not be content with that. The big potential gains to both countries are in services and the mutual recognition of qualifications.

In the mean time, trade deal or no trade deal, we need to be more agile. We need to make, as opposed to announcing, hard choices. Here are six immediate tests of whether Starmer is genuinely ready to adapt to the new order.

First, spending. We can’t hope to compete when the revenue-consuming part of our economy is as large as the revenue generating part. There are only so many pensioners, civil servants and benefits claimants that each private-sector worker can carry.

Social security, the NHS and interest payments are our three largest budget items. Any politician who talks about spending restraint while pretending that welfare and healthcare can remain untouched is being dishonest.

We must reduce our ballooning liabilities in public-sector pensions – and, indeed, in sickness benefits. Liz Kendall, the most impressive minister in the Cabinet, has announced plans that will slow the rise in the number of people claiming to be too ill to work because of mental health.

But slowing the rise is not enough. We need to return, at the very least, to the levels of early 2020, before the lockdown habituated a chunk of the population to claiming handouts.

Second, NHS reform. Because the Tories had no NHS policy beyond higher spending, the fruit is not so much low-hanging as heaped up in gargantuan mounds.

Labour could introduce a European-style insurance system, or at least charge for some procedures. It was, after all, a previous Labour government that placed most opticians and dentists in the private sector.

Third, strategic tax cuts, starting with taxes on employment and investment. Reversing the NI rise would preserve our 30-year record of structurally low unemployment.

Labour should also drop taxes that bring in little or no revenue, including VAT on schools and ending non-dom privileges. Millionaires are currently fleeing at the rate of one per 45 minutes, leaving the rest of us to pick up their share of the tab.

Fourth, deregulation. Starmer should start by shelving his demented Employment Rights Bill (qv 30 years of structurally low unemployment).

Fifth, Net Zero. It is mad to try to decarbonise the grid by 2030. Yes, let’s work to lower emissions – but not by bankrupting ourselves while the rest of the world continues to burn coal.

Sixth, and most urgently, Labour should drop any notion of handing away strategic British territory and paying for the privilege. The biggest change in the world order, the change to which Starmer refers, is the replacement of supranational jurisdiction with power-politics.

In such a world, it is demented to weaken our strategic position at the behest of Chinese and Russian judges. Mauritius has reportedly yet again demanded even more cash – cash, that is, for taking over a territory which it had already been handsomely paid for renouncing in 1965. It has, in other words, given Starmer one last chance to pull out of the débâcle.

With power and prestige suddenly mattering more, this is the first and most important test of whether Labour is truly able to change course. Let’s see if it’s serious.