The US is pressuring Britain to scrap its £800million-a-year digital services tax on Silicon Valley tech giants as negotiations intensify to avoid the harshest of Donald Trump’s looming tariffs.
The tax, introduced in 2020, is a two per cent levy that falls heavily on American tech companies such as Alphabet and Facebook.
The UK Treasury has insisted it has no plans to drop the tax, but British officials confirm it is under discussion. It is expected to raise £800million by 2024-25 for a cash-strapped Treasury.
Last month, Trump ordered investigations into digital service taxes that "discriminate against US companies", which will inform his decision on additional tariffs next month.
Britain is racing to secure a deal with the US before April 2, dubbed "world tariff day" in Whitehall, when President Trump will unveil trillions of dollars worth of "reciprocal" tariffs of up to 25 per cent.
Trump has made tariffs central to his agendaREUTERSThese tariffs will be aimed at countries that apply VAT to US imports, which Trump claims acts as a hidden tariff.
According to The Washington Post, Trump is moving forward with plans to impose tariffs on imports worth trillions of dollars. The sheer scale of these measures could seriously undermine the UK Government's efforts to boost economic growth.
Allies of Rachel Reeves admit that a global trade war could "blow all our plans off course".
Business Secretary Jonathan Reynolds travelled to Washington on Tuesday for discussions with US Commerce Secretary Howard Lutnick and US trade representative Jamieson Greer.
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Reynolds has left a negotiating team in the US with hopes that a deal could be tied up in the coming days.
Officials described the talks as "productive" and focused on the fact that Britain and the US have a broadly balanced trade relationship. However, there was an acknowledgement that the "window of opportunity" is closing.
British officials have been told to continue discussions with Trump's trade team over the next 48 hours in hopes of securing a deal. The UK is seeking a technology and AI-focused economic deal that could spare Britain from the worst tariffs.
When Sir Keir Starmer visited the White House last month, Trump said he was prepared to grant the UK an exemption if a deal on artificial intelligence and other critical technologies could be reached.
Trump is moving forward with plans to impose tariffs on imports worth trillions of dollars
REUTERSWhile the EU is pressing ahead with plans to regulate artificial intelligence, the UK is taking a light-touch approach based on voluntary commitments by tech companies. Starmer believes that AI could transform the economy and help stimulate growth.
The Government recently shelved plans for legislation on regulating AI, pending the outcome of the negotiations. British officials said there were "potential heads of agreement" on a broad trade deal between the UK and US.
UK officials now accept that Britain will inevitably face some of Trump's tariffs next month.
"We are working at rapid speed," said one UK official. "There will be some friends of the US who will be in the tent and others who will be outside. Our aim is to be in the tent."
Reynolds' aim is to see tariffs applied at a reduced rate rather than secure a complete exemption. The American negotiation position was described as "demanding" by British officials.
The Department for Business and Trade said: "The UK looks forward to developing this deal over the coming weeks and months."
Talks are continuing with urgency as the April 2 deadline approaches.
US Treasury Secretary Scott Bessent also told Fox Business Network that the Trump administration would apply different tariffs to different trading partners.
"On April 2, each country will receive a number that we believe represents their tariffs," Bessent said. "For some countries it could be quite low, for some countries it could be quite high."
The US administration is considering a broad range of factors when determining tariffs
GETTYThe administration is considering a broad range of factors when determining tariffs, including "non-tariff barriers".
Trump is especially targeting the EU, and any special deal for the UK could lead to trade tensions between London and Brussels.
Ministers hope that even a limited agreement, likely to be called the Economic Prosperity Deal, could spare the UK the kind of tariffs likely to be imposed on the European Union.
