Rachel Reeves' bid to balance the books is at risk (Image: Getty)
Donald Trump's tariffs could torpedo Rachel Reeves's bid to balance Britain's books, the Chancellor has been warned. Professor David Miles, a member of the Office for Budget Responsibility's (OBR) responsibility committee, said US levies at 20% or 25% could "knock out" the Government's financial headroom if maintained for five years.
It comes as the US President is set to unveil sweeping tariffs on goods from around the world tomorrow, with the UK expecting to be hit by the event Mr Trump has dubbed "liberation day". The taxes cold include a general 20% tax on UK products in response to the rate of VAT, which Mr Trump deems to be discriminatory against America.
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US President Donald Trump has announced sweeping tariffs (Image: Getty)
Speaking to MPs on the Treasury Committee today, Prof Miles said: "If tariffs at 20, 25% 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."
However, Prof Miles said a "very limited" tariff war that the UK stays out of could be "mildly positive" for Britain.
The expert told cross-party MPs that there could be a scenario where some things become cheaper in the UK, but warned that most possible outcomes are still "negative" when it comes to tariffs.
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He said: "Let's suppose there's a very limited tariff war. So it's China, Mexico, Canada, countries that are already, it's pretty clear what Trump is going to do, and that's it, and the UK stays out of it, so does most of the rest of the world.
"It wouldn't be unreasonable to think that could be, if anything, very mildly positive for the UK.
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"Because there's a bit of trade that will get diverted to the UK, and some of the exports from China, for example, that would have gone to the US, they'll be looking for a home for them in the rest of the world."
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He said that in that scenario "stuff will be available in the UK a bit cheaper than it otherwise would have been".
Prof Miles added: "So there is one, not central scenario at all, which is very, very mildly potentially positive to the UK. All the other ones which involve the UK facing tariffs are negative, and they're negative to very different extents."
It comes as the UK has been seeking to negotiate an exemption from the tariffs.