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The Guardian
2 days ago
- Business
- The Guardian
HS2: a complete failure by the British state and its politicians
When was it obvious that HS2 was an economic turkey at risk of becoming 'an appalling mess', as transport secretary Heidi Alexander described today's position? A fair case can be made for 2013, a year of two neon-lit warnings of trouble ahead. One was a scathing report on HS2 from the National Audit Office (NAO), the first of many, when the project was still at the planning stage. The NAO concluded it was impossible to say whether the programme was likely to deliver value for money; the cost and benefit estimates were 'uncertain'; there had been 'past errors in the underlying model'; the Department for Transport had 'poorly articulated' the strategic need for a transformation in rail capacity and how HS2 was supposed to rebalance economic growth. In short, there was 'a weak foundation for securing and demonstrating success in the future'. Then there was Peter Mandelson's remarkable insider confession in the pages of the FT of how Gordon Brown and his cabinet came to approve HS2 in the first place in 2010. It was a tale of collective short-termism; in the grim post-banking crash era, the Labour government didn't want to be outdone by the Tories in their enthusiasm for a shiny new big project. The cost estimates were 'almost entirely speculative', wrote Mandelson, but 'the vision was exciting' and 'we were focusing on the coming electoral battle'. Laughably, ministers had imagined HS2 would attract private sector backers. By 2013, Mandelson had changed his mind on HS2 and feared 'an expensive mistake'. If only others had rethought. It would have been a painless option for David Cameron's coalition government to ditch the whole adventure. There was an excuse to do so because an earlier report in 2006 by former British Airways chief Sir Rod Eddington, which was being reread with fresh eyes at the time, had rejected the idea of new high-speed rail links. For a country the size of the UK, the best value will usually lie in improving existing rail and road networks, it argued. Instead, the HS2 show rolled on, fuelled by more political puff and short-termism. Some of the passages in the review by ex-KPMG infrastructure adviser James Stewart, published by Alexander on Wednesday, are excruciating. Key decisions, such as the passing of the first parliamentary bill in 2017 and the letting of works contracts, prioritised the schedule over costs. 'I have heard a range of reasons for this but pressure from politicians to maintain momentum, fear of HS2 being cancelled, and the belief that costs will increase as a result of delay have featured strongly,' says Stewart. Meanwhile, 'the top-down vision of building a railway that would be the best and fastest has been a major factor in undermining attempts to introduce a culture of cost control'. This is tear-your-hair-out stuff because it breaks the golden rule about getting plans hammered down in detail before you start building large-scale infrastructure projects. Even now half of Euston sits as a wasteland before a plan has been agreed for a design for a HS2 terminus. The main source of cost overruns, as Stewart and Mark Wild (the ex-Crossrail chief executive now charged with salvaging the shambles) agree, were the works contracts. The contracting model, combined with unrealistic targets, turned the contracts into 'cost-plus' arrangements whereby contractors had little to no incentive to hit cost targets. Companies rang rings around the department and its arm's-length body, HS2 Ltd. The Institution of Civil Engineers concluded roughly the same in its report last year: huge contracts created 'an imbalance of power', especially in the context of a political demand to hurry up. Sign up to Business Today Get set for the working day – we'll point you to all the business news and analysis you need every morning after newsletter promotion Later Tory leaders, especially Boris Johnson, deserve their own mention in the catalogue of infamy. It was Johnson who pushed the formal 'notice to proceed' button in 2020, in full knowledge that the review he commissioned from Douglas Oakervee said HS2 only made sense if built in full. Within 18 months, and with costs hurtling out of control, ministers amputated most of HS2's eastern arm to Leeds in 2021; the section to Manchester followed. In shrunken circumstances, it makes sense, as Alexander and Wild say, to slow down and complete the rump Birmingham-London link to a slower timetable in the interests of minimising yet more cost overruns. It will involve running the high-speed trains at slower speeds initially, a suitably farcical postscript to a project that has wasted tens of billions of pounds and consumed the lion's share of spending on rail for years. The tragedy is this ending has been predictable for about a decade.
The Hill
11-06-2025
- Business
- The Hill
Foreign investors recoil from ‘discriminatory' tax in Trump's big bill
A proposal in the House version of President Trump's tax and spending cut bill that could levy a 20 percent tax on foreign investors from countries that 'discriminate' against the U.S. has foreign governments and financiers worried. Tax experts say the rule is designed to modify a global minimum tax in a way that could make it compatible with the U.S. tax system, but foreign companies and diplomats are fretting that it could open another front in President Trump's trade war and boost the tide of economic nationalism that's now crashing over international commerce. 'If you're creating such a risk or potential uncertainty tax on businesses here, then many will think twice about investing further in the United States,' United Kingdom Ambassador to the U.S. Peter Mandelson told The Hill. 'If you've got an argument with [foreign] governments, then take it out on the governments. Don't take it out on the businesses and the individuals,' he said. The proposed rule, known as Section 899, targets a 15 percent global minimum tax regime that was being negotiated by the Biden administration. Republicans successfully blocked that deal from being implemented in the U.S. in its current form. While the plan specifically calls out the regime's undertaxed profits rule (UTPR) along with digital service taxes aimed at U.S. tech giants — both of which Republicans have long railed against —the language of the provision is sweeping. Unfair foreign taxes, as designated by the legislation, include 'extraterritorial' taxes, 'discriminatory' taxes, or 'any other tax [that] will be economically borne, directly or indirectly, disproportionately by United States persons.' 'Any country could be deemed to have imposed 'extraterritorial' and/or 'discriminatory' taxes affecting U.S.-headquartered multinationals,' Alex Cobham, head of the U.K.-based Tax Justice Network, wrote in an analysis. 'U.S. multinationals systematically underpay tax by shifting profits out of most jurisdictions where they operate. … Section 899 [seeks] to exert taxing rights on profits arising locally that would otherwise be shifted out.' For some investors, the proposed law evokes the White House's 'reciprocal' tariffs against dozens of countries that used a novel calculation and took the international trade world by storm. '[Section 899] raises the risk of adding a capital war to the current trade war. The impact could well be notable, mostly via its impact on [foreign direct investment],' Deutsche Bank strategist Tim Baker noted in a June 5 note to investors. Lawmakers are also thinking about Section 899 in terms of Trump's trade war. 'President Trump [is] talking about tariffs being fair in terms of reciprocity. That's all it is,' Sen. John Hoeven (R-N.D.) said Tuesday. 'What this tax does is make sure we get fair treatment.' International business groups are warning about the impact on foreign investment in the U.S., as well as the prospect of retaliation against the tax measure by foreign countries. In a letter to Senate leadership, the Global Business Alliance, which represents foreign companies in the U.S., said the rule risks 'prompting retaliatory action by foreign governments against U.S.-headquartered companies, further destabilizing an already fragile international tax environment.' Section 899 would add a 5 percent tax per year on the U.S.-based income of individuals and companies from the 'discriminatory' foreign countries that levy such taxes. The surtax would top out at 20 percent. The law appears designed to nullify the effects of the global minimum tax in its current form. The global minimum tax is also known as 'Pillar 2' and was negotiated through the Organization for Economic Cooperation and Development (OECD), a Western-led group of wealthy countries. The Joint Committee on Taxation, Congress's in-house tax scorer, estimated that the U.S. would lose about $120 billion under that deal, while Section 899 is estimated to raise a comparable $116 billion in revenues over 10 years. That's about 0.2 percent of annual U.S. revenues. Pillar 2's undertaxed profits rule allows U.S. subsidiaries of multinational corporations to be taxed if their parent company isn't taxed at the minimum rate of 15 percent. Digital service taxes allow foreign countries to tax companies like Facebook and Google, since their products are used abroad even though they're headquartered in the U.S. 'Several countries have already made the wise decision to exclude the UTPR surtax from their implementation of the OECD global minimum tax,' House Ways and Means Republicans warned in a January statement related to the proposal. Tax experts say Section 899 is primarily focused on getting rid of the UTPR within Pillar 2 and making sure that countries don't start taxing tech giants for using their products. 'We've heard Treasury officials now speak publicly multiple times. [Their position] has consistently been [that] this is not about getting rid of Pillar 2. This is about getting rid of a mechanism that is essentially forcing countries to adopt an income tax,' Pat Brown, co-leader of accounting firm PwC's tax practice, told The Hill. Brown said the broader language in the bill that's perturbing foreign investors is likely intended to be a safeguard against semantic workarounds for instituting digital service taxes and subsidiary top-up taxes — not to be a general-purpose punitive tool in an escalating trade war. 'I don't think there's something else specific on their radar. I think this is more [lawmakers' saying] 'We just need to make sure our bases are covered and somebody doesn't get cute,'' he said. Analysts for JPMorgan speculated that the practical scope of the provision would be much smaller than a 20 percent tax on foreign direct investment in the U.S., or even 'trivial.' 'More realistically, the effect of Section 899 should be much smaller, and perhaps trivial,' they wrote in a Tuesday note to investors. Notably, the big Republican bill does not axe the global minimum tax regime. However, there are questions about its prospects, given the inclusion of Section 899 in Republicans' big bill. 'If we look at Pillar 2 in a vacuum where the U.S. doesn't retaliate with tariffs and, say, Section 891 and proposed Section 899 … then I think Pillar 2 could definitely survive — although I think what I just said is unrealistic,' Scott Levine, former Treasury Department deputy assistant secretary for international tax affairs, said in April. 'We already know that we're not in a world without any of those measures.' Doing away entirely with the OECD regime would likely open up a floodgate of digital service taxes against U.S. tech giants that could drown countries in bilateral trade confrontations. European taxation and regulation of American Big Tech companies operating on their continent have been a sensitive spot for successive U.S. administrations. Vice President Vance voiced disapproval of European tech regulations, including the EU's wide-ranging Digital Service Act, at a conference on artificial intelligence in Paris earlier this year. 'Many of our most productive tech companies are forced to deal with the EU's Digital Services Act and the massive regulations it created about taking down content and policing so-called misinformation,' he said in February. Despite Republicans' overall maintenance of the OECD framework, some international tax groups have argued that Section 899 makes a rival framework advancing at the United Nations a more attractive option for international tax coordination. 'The negotiations of the U.N. tax convention are the best and perhaps only opportunity to act collectively against the unilateral threat posed by the Trump administration,' the Tax Justice Network's Cobham wrote. Sarakshi Rai contributed.
The Independent
29-05-2025
- Business
- The Independent
The UK-US trade deal has been thrown into chaos by Trump tariff ban - where do we go from here?
In their haste to be seen as Donald Trump 's closest buddies, there is now a serious question mark over whether Sir Keir Starmer and his government should have shown more patience in getting a 'great and beautiful' trade deal with the US. The deal, which was symbolically the first post- 'Liberation Day' agreement signed by President Trump with any country, was put in place to reduce the impact of the tariffs the US president had imposed. But while Sir Keir and the rest of the world's leaders were rapidly scrambling to respond, calmer, more measured voices in Washington were warning that the US president would never be able to go through with them. Now, it seems they were right, with the US Court of International Trade ruling that Trump 'exceeded his authority' when he imposed his sweeping levies on countries across the world and has blocked the move. The UK's ambassador in the US, Peter Mandelson, had been a strong advocate of getting a deal done with Trump quickly, and he probably saw the tariffs as an opportunity to accelerate the process. But had he listened to the wiser voices in DC more carefully, maybe Britain would not have been in such a hurry. Never mind that Trump came within hours of having his own Liz Truss moment with a meltdown on the bond markets before Treasury Secretary Scott Bessent persuaded him to suspend the tariffs just in time. It is understood that this was only achieved because Bessent's co-conspirator managed to distract Trump's tariff guru Peter Navarro and keep him away from the president long enough. The real issue, as pointed out by the Heritage Foundation's trade expert Andrew Hale - an ally not opponent of the administration - was that Trump never had the monarchical powers to impose these tariffs without legislation from Congress. The US Constitution specifically prevents presidents from acting like tyrants on a whim. Trump was relying on the Emergency Powers Act, which does not even mention the words 'tariffs'. Added to that, it is hard to justify why Canadian maple syrup, Scotch whisky or foreign films should constitute a national emergency. So the legal ruling yesterday - now subject to appeals - was inevitable and is likely to be upheld in higher courts, probably all the way to the Supreme Court. What this means though is that the series of trade negotiations, including the one already signed by the US and UK, are in chaos. Do the terms Trump imposed still apply? It seems not. In the best-case scenario for Sir Keir, the UK now has better trading terms with the US, minus the 10 per cent tariffs. But it may be that they have to go back to the drawing table altogether. Fortunately, in the deal's small print was the means to continue talks to create a trade hub on future technologies, such as artificial intelligence and biotech which will shape the world's future. But where current goods and services now stand is anyone's guess. It may be that in signing up to tariffs, the UK has inadvertently put itself in a worse position than the countries which have not yet signed deals on whom most of the tariffs do not apply. There was already a question mark over the UK-US trade deal in terms of when the new terms would apply. Contrary to expectation, the 25 per cent imposed on cars and steel (which crucially, are unaffected by the court ruling), supposedly lowered to 10 per cent in the deal, is still in place. The wider picture, though, is that the reckless shock tactics on the global trading system initiated by Trump have now only led to more uncertainty and confusion with this legal ruling. Even though the markets reacted positively to the tariffs being ruled illegal, it could take months to resolve the chaos, putting the worldwide economy on a knife-edge.
The Guardian
28-05-2025
- Business
- The Guardian
Iran threatens to end nuclear talks with Europe after Mandelson comments
Iran's foreign minister has threatened to end all talks with European officials over its nuclear programme after Peter Mandelson, the UK ambassador to Washington, appeared to side with US calls to eliminate Iran's uranium enrichment facilities. It was not clear if Lord Mandelson's remarks during a question and answer session at the Atlantic Council in Washington revealed an unannounced change in UK policy or if, in seeking to side with Donald Trump, he had spoken in a way to allow misinterpretation. After five rounds of talks between Iran and the US mediated by Oman, the two sides remain at loggerheads over Iran's continued ability to enrich uranium, which Tehran regards as a sovereign right and which the US fears leaves open a path to an Iranian nuclear bomb. After Mandelson's comments, Iran's foreign minister, Abbas Araghchi, posted on social media on Wednesday: 'If the UK position is 'zero enrichment' in Iran, there is nothing left for us to discuss on the nuclear issue.' He said such request was a clear violation of the nuclear non-proliferation treaty and violated Britain's commitments in the joint comprehensive plan of action (JCPoA), the agreement to contain Iran's civil nuclear programme that the UK and other world powers signed with Iran in 2015. Under the JCPoA, Iran is entitled to enrich uranium to up to 3.75% purity subject to an intrusive inspection regime. Speaking later to reporters on a visit to Oman, Araghchi said: 'This tweet was in response to a British official who had talked about zero enrichment. I said there explicitly that we continued our consultations with three European countries during this period, but if their position is zero enrichment, we will no longer have any talks with them about nuclear issues.' He continued: 'They must determine their own position, and we are not joking with anyone on the issue of enrichment.' On Tuesday, Mandelson had said: 'Iran since the theocratic revolution has never been in a weaker state than it is now. Weakened by economic sanctions, weakened by the heavy pounding that its proxies have taken. Weaker because of the growth of public opinion, especially amongst young people in Iran, away from the regime. Iran is vulnerable. But it still retains enrichment facilities which can produce … a nuclear bomb. And we can't accept that. 'So Britain strongly support the [US] president's initiative in negotiating away these enrichment and related facilities in Iran. We support what Steve Witkoff [the US special envoy to the Middle East] has been doing in his negotiations, which are making some progress.' Trump has spoken of a good announcement within days, but many of his predictions about diplomatic breakthroughs have proved optimistic No date has been set for a sixth round of talks, but in a potentially important concession Iran has announced it may be willing to have US, and not just UN, inspectors visit and monitor its controversial nuclear programme. Iran has already offered to revert to much lower levels of enrichment, and for its stocks of highly enriched uranium to be put out of use, probably in a third country such as Russia. After Trump unilaterally left the agreement in 2018, Iran responded by enriching to much higher levels that took its nuclear programme close to the purity levels required to make a nuclear bomb. The proposal for US inspectors was made in Tehran by Iran's nuclear chief, Mohammad Eslami on Wednesday and came as Oman hosted the Iranian president, Masoud Pezeshkian, in a further attempt to break the deadlock in the talks. One idea is for an interim minimal agreement to be reached in which some US economic sanctions are lifted and inspections are fully restored. The UK, France and Germany have in effect been sidelined in the US-led talks over the nuclear programme, but senior Israeli officials have been holding talks with Witkoff and the CIA. The Iranian foreign ministry briefed three European officials in Geneva two weeks ago but European officials have remained silent on the US conduct of the talks.
The Independent
28-05-2025
- Business
- The Independent
Peter Mandelson criticises ‘fetish' for scrapping EU rules that work in Britain's favour
Peter Mandelson has hit out at what he said was a 'fetish' for scrapping EU rules that work in Britain's favour but warned that Britain will not rejoin the bloc 'for the foreseeable future'. Speaking at the Atlantic Council in Washington, the UK's ambassador to the US defended Sir Keir's recently signed 'reset' deal with the EU, saying the previous deal Britain had struck with the bloc was 'pretty miserable' and denying that closer alignment would begin the process of Britain rejoining. 'Why make a fetish of dis-alignment when we know that it's in the interests of our business and traders to pursue and to follow those rules and standards', he said. The previous Conservative government had promised to scrap up to 4,000 EU laws as part of a post-Brexit bonfire of regulation, but watered down the plans almost entirely as a result of the massive administrative burden. Lord Mandelson also argued that Britain's job on the world stage is to 'be of huge usefulness, both to the United States and the European Union'. He added: 'We're not in the European Union anymore, and we're not going to go back for the foreseeable future, certainly. But we are European, a European country. 'We left the European Union with a pretty miserable deal, frankly, unfair to us, not particularly favourable in the long term to the EU.' Sir Keir – who has made the Brexit reset a centrepiece of his administration – said last week's summit marks a 'new era' of relations with the bloc, adding that it is about 'moving on from stale old debates' and 'looking forward, not backwards'. Lord Mandelson also used his Atlantic Council address to argue that the transatlantic alliance needs a 'boot up the backside', saying that Britain must work closely with the US to take on Chinese technological dominance. The UK's ambassador to the US argued Beijing represents a 'far more dynamic and formidable strategic rival than the Soviet Union ever was', urging Britain and the US to combine forces to 'drive the scientific breakthroughs that will define this century'. 'Rather than stifling these transformative technologies through excessive regulation, our two governments must unleash their immense potential for human benefit and Western advantage', he said. While Donald Trump almost blocked Lord Mandelson's ambassadorship because of concerns about his links to China, the Labour peer now appears to have turned against Beijing, saying there is 'there is nothing in this world I fear more than China winning the race for technological dominance'. The ambassador warned that there is now a 'new dynamic between China and the west', saying Britain and the US 'must not be afraid... to take on aspects of China's behaviour and policies'. He also urged European countries to step up their defence spending and stop 'living in a fantasy created by the US security guarantee', accusing Europe of having spent decades relying on the US to defend it in the face of global threats. Lord Mandelson said: "If we are serious about rebuilding confidence in the international system… we need to devote an enormous amount of energy and goodwill to preserve, sustain and deepen the alliances which exist between like-minded countries for the UK and the rest of Europe. 'We must reboot the transatlantic alliance. Indeed, a boot up the proverbial backside is needed now to deliver peace through strength across three interconnected domains - military, economic and technological." Lord Mandelson added: "We have lived in a fantasy created by the US security guarantee, complacent that a friendly heavyweight across the water would be always there when the going gets tough.'
