Keir Starmer has been warned that moving to cut a tax on US tech firms to secure a carve-out from reciprocal tariffs would be like “paying off a bully”.
Lord Darroch, the former UK ambassador to the US, cautioned against getting rid of the digital services tax because of the message it would send to Donald Trump, who he said would come back for more.
The comment comes amid speculation the UK could offer to reduce or lift the tax on technology firms as part of negotiations with the US on an economic deal to mitigate the impact of Trump’s 10 per cent tariff on British goods.
DST was introduced in 2020 as a temporary move prior to an international agreement on digital taxation. The policy imposes a 2 per cent tax on search engines, social media services and online marketplaces which make money from UK users, regardless of where the headquarters are based.
The levy raises about £800 million a year for the UK.
Questioned in recent weeks, government ministers and spokespeople have not ruled out changing the digital services tax in exchange for exemptions from US tariffs.
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Lord Darroch, who served as the UK’s man in Washington DC during Trump’s first presidential term, said the UK should “keep calm and carry on” with negotiations on a bespoke US-UK economic deal, but warned of the potential implications of granting big concessions.
He gave the example of the US administration seeking more access to the UK market for agricultural goods and said that would bring with it a risk of “massively” undercutting British producers.
On the digital tax, Lord Darroch told LBC: “I also think it is difficult to agree to abolish the digital tax because you are essentially saying to someone who is bullying you, ‘I am going to pay you to stop’ and the risk there is they come back in six months time and say ‘we would like some more money now please’.
“I think that is a very difficult decision for the government to take.”
Lord Darroch’s position echoes that adopted by the Liberal Democrats in recent weeks, who have warned the prime minister against “appeasing” the US president.
Lib Dem leader Ed Davey told his party’s spring conference in Harrogate last month: “Now Labour’s even talking about scrapping Britain’s tax on social media giants. Changing the UK’s tax policy to appease Donald Trump and Elon Musk.”
Speaking prior to the imposition of tariffs, Davey added: “Well, appeasement never works with bullies, and it doesn’t work with Trump.
“And you can see that he’s already put his tariffs on British steel.”
Left-wing Labour MP Rachael Maskell has also urged the government to avoid a “dash to let the US tech companies off the hook”.
She told the Guardian newspaper last month: “With the chancellor saying that she is still looking at the digital services tax, just days before the spring statement, then I would be concerned if relief was granted in what would be seen as a dash to let the US tech companies off the hook, while at the same time as making disabled people pay for the revenue loss, with their lifelines being cut.”
Josh Self is Editor of Politics.co.uk, follow him on Bluesky here.
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Source: Politics