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UK will unilaterally tax web giants, says Hammond

Chancellor threatens to go it alone on tax reform for digital services businesses if an international agreement cannot be reached

Chancellor Philip Hammond has used his speech at the Conservative Party Conference in Birmingham to threaten to unilaterally impose a digital services tax on some of the world’s biggest internet businesses if an international agreement is not reached.

Hammond said the Conservatives had “led the debate” on international tax reform for the digital age and insisted that internet giants such as Amazon, Facebook and Google must make a fair contribution to funding public services in every country where they do business.

“The best way to tax international companies is through international agreements, but the time for talking is coming to an end and the stalling has to stop,” said Hammond.

“If we cannot reach agreement, the UK will go it alone with a ‘digital services tax’ of its own.”

In the absence of a global agreement, the European Union (EU) has been working on such an initiative since new rules were proposed by the European Commission (EC) back in March 2018, with the aim of forcing the internet giants to pay tax on profits generated in EU member states, even if they do not have a physical presence there.

The EC’s initial proposals also suggested taxing revenues from activities “where users play a major role in value creation”, namely revenue from selling online advertising, revenue from “digital intermediary activities which allow users to interact with other users and can facilitate the sale of goods and services between them”, and revenue from selling data generated from information provided by users.

A modified version of these initial proposals is currently being negotiated by the EU, led by the Austrian government, which holds the rotating bloc presidency.

Hammond spoke of his determination to do more to update the UK’s economy for the digital age. Drawing a comparison with 19th century concerns about oil and railway monopolies in the US, he said the expansion of tech giants and digital platforms raised similar “new questions about whether too much power is being concentrated in too few global technology businesses” – hence the August 2018 appointment of Jason Furman, a former economic adviser to the Obama administration, to oversee a panel reviewing digital competition.

Digital, not Brexit, shaping UK’s future

In a wide-ranging speech, Hammond also attempted to allay some fears around Brexit, and claimed that when the history books come to be written, it will be the process of digital transformation and how it was managed, not the Brexit debate, that will define the UK’s future.

“Technological change is transforming not only our economy, but our society and our politics at a rate that none of us have seen in our lifetimes,” he said.

“In the next decade or so, artificial intelligence, self-driving cars, personalised medicine, virtual reality, advanced robotics and many, many other cutting-edge developments will all begin to transform our lives.

“All of this is science fact, not fiction… But I understand that my enthusiasm for driverless cars may not be so readily shared by someone who earns their living as a cab driver, and that home 3D printing may look more of a threat than an opportunity to someone who works for a parcel delivery firm.”

Hammond added: “We have to take our people with us, be open with them about the scale and nature of the change that is coming, and set out clearly the benefits that individuals and families will see from the digital age…and how we will help them to prepare for it and deal with the consequences of it, reassure the very many who will worry about what new technologies mean for their job security, worry that the gains will be made by the few, and that they will be left behind.”

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The chancellor also moved to ease concerns that the Conservatives are in danger of losing their reputation as a pro-business party. He set out a series of reforms to the government’s apprenticeship levy, which was designed in part to help fund higher-quality apprenticeships in the science, technology, engineering and mathematics (Stem) field, but has yet to do so.

“We have heard the concerns about how the apprenticeship levy is working, so today we’ve set out a series of measures to allow firms more flexibility in how the levy is spent,” he said.

“But we know that we may need to do more to ensure that the levy supports the development of the skilled workforce our economy needs. So, in addition to these new flexibilities, we will engage with business on our plans for the long-term operation of the levy, working hand-in-hand with employers to ensure that every young person can fulfil their potential and achieve their dreams.”

Hammond also announced that £20m would be invested in a new network to help small and medium-sized enterprises (SMEs) to learn new management skills and techniques from enterprises, signing up mentors from the likes of Amazon, GSK, KPMG and Siemens. A further £11m will be put aside to fund a training programme to help build management skills, with the aim of helping 2,000 businesses in the first 12 months.

The first phase of the National Retraining Scheme, which Hammond first announced in the last Budget, will begin in 2019, backed by £100m for the first phase. This will include a new careers guidance service designed to equip people to identify local work opportunities and necessary skills, backed by “state-of-the-art” courses blending online and classroom teaching.

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