Trump tariffs of 20 per cent could ‘knock out’ government’s fiscal headroom, OBR warns

Donald Trump could wipe out Rachel Reeves’ fiscal headroom with his tariff plans, the OBR has warned.

David Miles, a member of the OBR’s budget responsibility committee, said US tariffs at 20 per cent or 25 per cent would “knock out all the headroom the government currently has” if they were maintained for five years.

Last week, Reeves restored her £9.9 billion of budget headroom after she revealed cuts to welfare spending at the spring statement.

Giving evidence to the Treasury select committee, Miles said: “If tariffs at 20, 25 per cent were put on the UK and maintained for five years, our assessment of what that does is that it will knock out all the headroom that the government currently has.

“Had we made that a central forecast, and had the government not changed policy at all knowing that we were going to take that as our central forecast, then the headroom would have pretty much all gone.

“Of course that would have been in some ways, a very extreme assumption.

“Because not only would that be as bad as people might expect in the very near term, but it would have been maintained for five years, which is beyond the next presidential election in the US.”

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