Black hole Britain could learn from America’s energy

I’ve just returned from the US, where can-do spirit and positivity were on abundant display – a welcome contrast to the self-doubt and anaemic growth Labour are presiding over. Instead, talk in Washington, as well as in an Alabama congressional district, was of cutting taxes, increasing investment and building everything from power plants to manufacturing centres.

A major difference is the approach to energy and tax. ‘Energy dominance is national security’ – so said the huge billboard alongside the freeway. While America is maximising its natural resources, Labour are rushing to decarbonise the grid and are shutting down the North Sea by extending and increasing the energy profits levy with a 78% headline rate on oil and gas, banning new licences and removing investment allowances. 

Fundamentally, the difference in attitude is because Labour simply do not understand enterprise. Their mismanagement of the economy has driven entrepreneurs and investors from the UK, just as the US launches new initiatives to attract them. Ministers fail to see that taxing jobs and imposing more regulation stifles risk-taking and enterprise. Meanwhile the Trump administration is moving in the opposite direction – scrapping regulation and cutting taxes.

The results are clear. Growth is flat-lining here. Borrowing and debt are increasing. Inflation is above target. And the Chancellor’s doom-loop of rising debts, higher taxes and slower growth means she is expected to increase taxes further at the Autumn Budget. She can hardly cut spending when Labour backbenchers rebelled at modest welfare spending savings.

So which taxes might increase? Unfortunately there’s no shortage of candidates.

It looks odds-on the Chancellor will extend the freeze to income tax thresholds beyond 2028. Ending the freeze was a centrepiece of the Autumn Budget on the basis continuing it would ‘hurt working people’. But under pressure – and with the move estimated to raise £10 billion – Reeves has consistently refused to reiterate the pledge.

At the emergency Budget this spring, the Chancellor also quietly slipped out several consultations which offer more clues. Presented as simplifications, these are all designed to increase taxes.

Plans include a single gambling duty rate, which is likely to be set at the 21% that applies for online casinos, rather than the current 15% rate on horseracing – imposing a £66 million bill on that industry according to the British Horseracing Authority. Racing is right to call on the Government to Axe the Racing Tax. Then there’s the potential changes to the landfill tax, which the Mineral Products Association has warned could add £28,000 to the cost of a new home.

Banks should also be worried. The Deputy Prime Minister produced her wish list of tax rises, including hiking the 3% surcharge banks pay on top of corporation tax. With the bank levy at 0.1% of balance sheets, banks already pay the highest rate of tax on banks among major economies. Squeezing the sector is a strange way to encourage access to capital and investment.

Angela Rayner also proposed removing inheritance tax relief on AIM shares, hiking dividend taxes and scrapping the £500 dividend allowance. Changes to pensions tax relief or restricting the 25% tax free lump sum amount could also be on the cards.

Logistics firms are not the only ones worried fuel duty is in the Chancellor’s sights. The 5p per litre cut has been extended until March 2026, but scrapping it beyond that would raise around £2bn. More alarming, given the long-term freeze in fuel duty, is the troubling precedent when the Government decided to impose a retrospective 27% increase in the Soft Drinks Levy which had been frozen since 2017.

A common issue on both sides of the Atlantic is debt. The US debt clock on a Washington bus stop showed an amount of £107,396 per person. In the UK, the Chancellor’s addiction to spending money she doesn’t have means our borrowing costs are among the highest in the developed world. Interest payments are set to increase from £100bn to £130bn a year. This is unsustainable.

The Chancellor’s political choices have real consequences for working people, savers and business owners. Her failure to grip ballooning welfare spending has left her little choice but to come back for more – further choking businesses and investment.

Instead, the Conservatives are committed to being honest about the challenges and living within our means. We can’t go on increasing tax. Levels are already at a record high. We cannot keep borrowing and spending more on debt interest than defence or education.

If the Government doesn’t change course, we will all pay the price.

 – the best pieces from CapX and across the web.