Labour MPs have expressed concern about potential plans to cut or scrap a tax paid by tech giants to stave off the threat of Donald Trump’s tariffs.
The chancellor and business secretary have both left the door open to possibly abolishing the 2% levy on the online revenues made in the UK by companies including Facebook, Google, and Amazon.
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The idea has been mooted as a means to avoid further tariffs from Mr Trump, who has brought in 25% taxes on steel and aluminium imports and signed another executive order yesterday that will affect cars.
However, a number of Labour MPs have raised concerns about the optics of reducing or abandoning the tax while cutting benefits for sick and disabled people, as the chancellor confirmed yesterday in her spring statement.
Clive Lewis, the Labour MP for Norwich South, told Sky News any potential alterations to the tax – which was introduced in 2020 and raises about £800m annually – would amount to an “abject dereliction of responsibility”.
“We are rolling out the red carpet for these tech companies, and we are not getting much in return,” he said.
“If you are going to give tax cuts to some of wealthiest corporations on the planet just as you have taken billions from welfare – how do you think that is going to look to the public? It’s going to look absolutely horrific.”
He added: “I understand the argument of hugging America close – but this is not the way to do it.”
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‘We should be maximising it’
Another Labour MP argued there was “little appetite in the parliamentary party for any reneging on the digital services tax”.
“As a new revenue line to government at such difficult times, if anything we should be maximising it not minimising it,” they added.
A third backbencher said: “Unless part of a wider US trade deal that eliminates tariffs and delivers a net boost to the economy – which is more than the revenue of that tax – changing the digital services tax should not be considered.”
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‘Slam dunk’
However, some experts have suggested axing the tax could ultimately pay off it means the US leaves the UK out of its tariff regime or a beneficial trade deal is struck.
Tax expert Dan Neidle branded the tax “unprincipled”, as it raises less than £1bn.
“If the government can negotiate more than £1bn in benefits from the US, then it’s a slam dunk,” he said.
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Ministers have so far not committed to changing the tax but have left the door open to doing so as the government seeks to strike a favourable trade deal with the US.
While details of what could be included in the deal – mooted by Keir Starmer and Mr Trump during their meeting in Washington last month – remain light, AI and technology could form part of it.
Bloomberg recently reported the UK has told the US it could become a European hub for American companies’ data centres, outside EU regulation.
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Chancellor wants ‘to get balance right’
Last week, Rachel Reeves did not rule out changing the digital services tax in exchange for exemptions from US tariffs, telling the BBC: “We’ve got to get the balance right, and those discussions at the moment are ongoing.
“We want to make progress. We do not want to see British exporters subject to higher tariffs.”
She was echoed by Business Secretary Jonathan Reynolds, who said today the tax “was not something that can never change”.
He pointed to the fact the tax was introduced as a temporary measure, brought in by Rishi Sunak over concerns multinational tech giants making money in the UK were shifting their profits overseas.
The UK was due to phase out the tax three years ago, but this has not yet happened.
