The UK government is engaged in discussions over potential changes to its Digital Services Tax (DST) as part of efforts to prevent the imposition of new US tariffs, Chancellor Rachel Reeves has indicated.
The DST, introduced in April 2020, applies a 2% levy on revenues earned in the UK by large technology firms such as Amazon and Meta, generating approximately £800m annually. The tax was designed to ensure that digital companies contribute proportionately to the value they derive from UK users. The tax is levied on companies generating more than £500m in global revenue and at least £25m in UK revenue from digital services. However, the US government has consistently opposed the measure, viewing it as discriminatory against US-based firms.
The latest discussions come amid heightened trade tensions, with US President Donald Trump initiating a review that could lead to retaliatory tariffs on UK goods. While some US-imposed tariffs on foreign imports have been delayed or revised, Trump has pledged to introduce additional duties on 2 April, a date some have referred to as “Tariff Day.” The tariffs form part of his broader strategy to encourage domestic manufacturing and reduce trade deficits, though critics argue they could disrupt global supply chains.
Reeves stresses the importance of balanced trade
“We’ve got to get the balance right, and those discussions at the moment are ongoing,” said Reeves, while speaking on BBC One’s Sunday with Laura Kuenssberg. “We want to make progress. We do not want to see British exporters subject to higher tariffs.”
She also reiterated the UK’s position that companies operating in the country should contribute their fair share in taxes. “It is the right thing that companies who operate in the UK pay their taxes in the UK, and the US government and tech companies understand as well, but we are having discussions with the US at the moment,” said Reeves. “I want to preserve free and open trade.”
The prospect of modifying or abolishing the DST has drawn criticism from opposition parties. Liberal Democrats Treasury spokesperson Daisy Cooper expressed concern over the potential move. “If the government is seriously talking about putting savage cuts in place that will affect disabled people while also giving a tax handout to Elon Musk, Zuckerberg, and other US tech barons, then the Labour government are at real risk of losing their moral compass,” Cooper told the BBC. The Liberal Democrats have called for the DST to be increased to 6% rather than reduced.
Industry analysts suggest that revising the DST could ease trade tensions with the US, but it may also impact the UK’s fiscal position given the significant revenue it generates. The UK government now faces the challenge of balancing its international trade relations with domestic fiscal policies as negotiations with the US continue.
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