Will Britain back down on the digital services tax?

The Trump White House has been complaining about Britain’s digital services tax for months. But now it is ramping up the pressure, calling on Andy Burnham’s new government to scrap the levy. Will Chancellor John Healey surrender? 

The US has long taken umbrage with the digital services tax, which is levied at 2 per cent on the revenues of tech giants such as Google and Amazon. Because the companies targetted by the tax happen to be almost exclusively American, the White House sees it as discriminating against the country’s most successful companies. In a strongly worded attack this week, Jamieson Greer, the US trade representative, insisted Trump’s tariff threats were ‘not a bluff’, that Britain was using American companies as ‘piggy banks’, and that he was ‘not going to tolerate that’. He has renewed Trump’s threat to rip up Britain’s trade deal with the US, as well as impose 100 per cent tariffs on British exports into the American market if the tax is not scrapped. 

Of course, Greer might be bluffing. And yet, the Trump administration has been perfectly willing to use tariffs as a very blunt instrument and often imposes them by surprise. Only last week, the President suddenly imposed a 100 per cent tariff on drones, and last month he slapped a 100 per cent tariff on imports of generic pharmaceuticals. It would hardly be a surprise if a late-night Truth Social post suddenly appeared imposing huge tariffs on Britain. After all, we could hardly say we were not warned. 

Will Britain have to back down on the digital services tax? The US is right: the tax does deliberately target the American tech giants. It only applies to platforms and online retailers with more than £500 million in sales, and, as it happens, they are all American rather than British or European. It is hard to argue that it is not discriminatory. 

Added to this is the fact that while the tax raised £944 million in the last financial year, it is dwarfed by the £200 billion of British exports that were sent to the US. With our economy stagnating, the Treasury desperate for money and with unemployment starting to rise, we can’t afford to be locked out of the crucial American market.

There is a high chance that Britain will have to give in on the digital services tax. The challenge for the Chancellor will be to find a way of doing so while saving face. The sooner he finds a way to climb down gracefully, the better.