UK Digital Services Tax survives US trade negotiations

In its second international trade deal in the space of a week, the UK government has secured a major trade deal with the US that leaves Britain’s Digital Services Tax unchanged and potentially opens the doors to a future UK-US technology partnership via which the science and tech sectors in both countries will collaborate in areas such as quantum computing.

The UK Digital Services Tax (DST) was introduced at the height of the Covid-19 pandemic in the spring of 2020, and applies a 2% levy on search engines, social media platforms and online marketplaces that make worldwide sales of more than £500m and derive £25m of that total from the UK. This includes the likes of Google, Meta and Amazon. At the time, it was estimated that it could contribute over £500m to the economy. The true figure is thought to be much higher.

However, amid a swathe of Executive Orders (EOs) issued at the start of his second presidential term, Donald Trump directed the US government to take action to “defend” US companies and innovators from DSTs, which have been enacted by other countries besides the UK.

Trump had accused other governments of exercising undue extraterritorial authority over American tech business and said their officials had openly admitted they were “designed to plunder American companies”.

The president also said US partners were engaged in practices such as limiting cross-border data flows, requiring US streaming services such as Netflix to fund local productions, and charging network usage and internet termination fees. He claimed such measures violate US sovereignty, limit the competitiveness of its digital businesses and increases costs.

However, this has now been walked back because in place of changes to the DST, the deal instead provides for Britain and the US to start work on a digital trade deal to “strip back” paperwork for UK firms trying to export across the Atlantic. Westminster claimed that if successful, the deal will put “rocket boosters” on the economy.

The retention of the DST will come as a relief to many government insiders and outside observers who raised concerns that axing it could cause a backlash given Labour’s controversial changes to benefits and National Insurance contributions since the General Election. In March, MP Clive Lewis said the mere suggestion of killing it off would look “absolutely horrific” to the public.

Speaking after the deal was announced in Washington DC, prime minister Keir Starmer said: “This historic deal delivers for British business and British workers. My government has put Britain at the front of the queue because we want to work constructively with allies for mutual benefit rather than turning our back on the world.

“As VE Day reminds us, the UK has no greater ally than the United States, so I am delighted that eight decades on, under president Trump the special relationship remains a force for economic and national security. My government is determined to go further and faster to strengthen the UK’s economy, putting more money in working people’s pockets as part of our Plan for Change.”

Speaking at a press conference, Trump said: “The actual deal is a very conclusive one. We think just about everything’s been approved. It’s so good for both countries.

“Both countries have agreed that the economic security is national security and will be working together as allies to ensure that we have a strong industrial base, appropriate export controls and protections for key technologies and industries.”

US commerce secretary Howard Lutnick added: “This deal marks a new era in our relationship with the United Kingdom, our great ally. And more importantly this deal opens up an enormous multibillion-dollar export opportunity for hardworking Americans. While groundbreaking, this deal is the first of many as president Trump continues to deliver on his promises to the American people.”