Rachel Reeves is reviewing the UK’s £700m digital services tax (DST) on American tech giants in a bid to avoid Donald Trump’s tariffs.
The DST, which was introduced in April 2020, imposed a two per cent levy on UK revenues of major tech leaders like Amazon, Apple and Google.
The US previously expressed strong opposition, viewing them as unfairly targeting American businesses, and Trump’s recent tariff imposition has reignited the issue.
In the last year, it generated approximately £678m for Britain.
Reeves’ move comes as president Donald Trump recently imposed tariffs of 25 per cent on Canada and Mexico. These two however have had a reprieve.
Leaders of Mexico and Canada made agreements to pause Trump’s 25 per cent tariffs for 30 days, temporarily averting a trade war.
Britain walks a tightrope
While the UK has not been directly targeted, the Chancellor is preempting pressure from the newly re-elected president, who recently said that the UK is ‘out of line in trade’.
He suggested that a compromise “can be worked out” to avoid potential tariffs, as Rachel Reeves and Keir Starmer face their own domestic problems.
Fresh polling today, revealed exclusively by City AM, showed the majority of Brits now have little confidence in Reeves’ plan to generate economic growth despite a renewed push from the Chancellor to kickstart Britain’s ailing economy.
Meanwhile, in an open letter Sacha Lord, who was until recently Andy Burnham’s night time economy adviser for Greater Manchester, said he no longer considers Labour to be the party of “business and growth”.
As these problems pile up, Rachel Reeves and Keir Starmer are declining to directly criticise Donald Trump, and looking to ensure the UK isn’t in line for a tariff.
John Denton, from the international chamber of commerce, said: “I think there will be a a lot of pressure put on the UK on this particular issue’ from the US, regarding the DST.
In response, in 2021, the Biden administration threatened 25 per cent tariffs on UK exports, including clothing, ceramics and furniture.
Similarly, Marco Forgione, director general of the institute of export and international trade, noted: “The sense that US-based businesses, particularly the so-called tech bros, are being targeted specifically is something that [Trump is] seemingly not willing to accept”.
Analysts warn that these ongoing trade tensions could lead to increased market volatility.
AJ Bell’s Russ Mould compared “the twists and turns of the tariff situation’ to a ‘theme park roller coaster’.”
The DST was intended as a temporary measure until a global tax agreement could be finally reached.
In 2021, Britain agreed to phase it out following the implementation of an international tax reform deal.
Yet, with the US escalating its trade war and imposing tariffs, the UK is reassessing its position.
The UK aims to maintain strong ties with the US, while also engaging with the European union.
Prime minister Keir Starmer recently stressed the importance of collaboration with the US at an EU summit in Brussels.
According to Express News, he said: “When it comes to trade, we have a huge amount between the US and UK, and that’s why it’s important that I act in the national interest”.
“We do not have to choose between having strong relations with both the US and the EU”, he continued.
Reducing or eliminating the DST could make the UK more attractive to key tech players, potentially encouraging them to expand operations in the UK.
Britain’s reform leader, Nigel Farage, said that Trump would ‘fight for US tech’, arguing that he was particularly concerned about taxes on tech giants like Elon Musk, the leader of a new department of government efficiency.