Big Tech pays up as Reeves keeps digital tax
The Treasury slipped out its long-awaited review of the UK’s Digital Services Tax alongside yesterday’s Budget – and despite months of diplomatic sabre-rattling from Washington, the government is digging in.
Big Tech, it seems, will still have to cough up.
The report, required by legislation and published with all the enthusiasm of a rainy Tuesday, offers little in the way of reform.
It acknowledges “some evidence” that parts of the tax may have nudged up consumer prices, but otherwise largely shrugs its shoulders and gestures towards ongoing growth in the digital economy.
Ministers, it concludes, are to keep the levy in place unless, and until, a global alternative lands – a diplomatic way of saying ‘don’t expect it to vanish anytime soon’.
This stance puts Britain increasingly at odds with many of its rivals.
Several countries have discreetly mothballed or repealed their own similar measures in recent months.
But the UK’s two per cent levy, which has scooped revenues from American Big Tech since it came into force five years ago, seems on track to stay intact.
Still, the numbers are tempting, with the tax collecting an estimated $1bn (£800m) from largely US-based tech firms last year.
Meanwhile, the OBR expects annual receipts to double to £1.2bn by the end of this decade.
Only 18 firms paid the tax in its first year of implementation, with around 90 per cent of its revenue coming from just five companies – a neat illustration of the scale of market concentration.
But as ever, these revenues have come with a sting.
Trump’s patience is wearing thin
While the UK is playing it cool, it seems Washington is anything but.
President Trump signed an executive order earlier this year, directing the US trade representative to explore reviving the notorious so-called ‘section 301’ investigations into countries which impose such taxes on American firms.
Those probes were the legal basis for past tariff threats, of the sort that the UK now can ill afford.
Trump has made his stance pretty clear on his social media platform, on which he warned that “digital taxes, legislation, rules or regulations are all designed to harm, or discriminate against, American technology”, and insisted the US will no longer act as the world’s “piggy bank”.
He also backed those words with teeth before, successfully convincing its neighbour Canada to abandon its own DST-esque legislation last year.
And he appears no less prepared to lean on Britain if necessary, openly comparing the issue to ongoing UK-US trade discussions.
During his state visit this summer, the president suggested refining the trade deal and hinted strongly at a £1bn a year tax as a bargaining chip.
The danger to British exporters still looms, as any US retaliation could hit the steel, automotive and manufacturing sectors with tariffs that could be both politically painful, and economically explosive.
A political and economic tightrope
This leaves the government walking a tightrope.
One one side lies the political imperative to ensure these tech behemoths pay their fair share, on the other the very real threat of a tariff war with the UK’s biggest trading aprtner.
Some see yesterday’s review as a missed opportunity.
Matthew Sinclair, senior director at the Computer & Communications Industry Association, called the move “disappointing”.
He added: “With longstanding concerns in the US about taxes that single out multinationals headquartered there, this tax will continue to create unnecessary risks to trade and cooperation”.
“Ministers should work towards ending this tax and seizing the investment, growth and revenue opportunities presented by growth in the global digital economy”.
Others, including tech founders like Brent Hoberman, said the levy could be softened in exchange for concessions in a new trade agreement.
There is also murmuring that, outside of the EU’s regulatory orbit, the UK could go further and faster in backing AI and other forms of frontier tech, making this tax a form of negotiation, rather than a permanent fixture.
Still, Labour’s Treasury team remains unmoved. A government spokesperson said: “The UK’s Digital Services Tax is a fair and proportionate approach… and it remains our intention to repeal it once an international solution is in place”.
The problem, however, is that the OECD-led global tax solution has been in progress for years, with no hard timeline in sight.
And until then, the DST remains an awkward, but lucrative bridge between UK fiscal policy and US geopolitical muscle.