A 2 per cent digital services tax is applied by the Treasury to the revenue of the biggest online firms – including Mark Zuckerberg’s Facebook and Elon Musk’s X – which raises around £800m a year.
The refusal comes as large American firms including Microsoft, Google, OpenAI and Nvidia have pledged to invest tens of billions of pounds in Britain to build new artificial intelligence and computing technology.
Some tech experts continue to claim the digital services tax curbs innovation and risks a global tit-for-tat. Matthew Kilcoyne of the Center for Data Innovation said: “The UK never should have created a discriminatory tax targeting specific industries on dubious economic grounds. Digital services taxes are unfair tax grabs that violate longstanding international norms.”
A new “tech prosperity deal”, which is separate to the agreement that Starmer struck with the President to shield the UK from the full effect of tariffs earlier this year, will see American firms ramp up investment in Britain.
The majority of the money is coming from Microsoft, which will build more AI infrastructure including the country’s largest supercomputer. Google is opening a data centre in Hertfordshire, while ChatGPT creator OpenAI is partnering with British firm Nscale to give the UK better access to cutting-edge AI tech.
Jensen Huang, whose firm Nvidia is the world’s largest company, said the UK is “in a Goldilocks position” to take advantage of AI, while OpenAI boss Sam Altman added: “The UK has been a longstanding pioneer of AI, and is now home to world-class researchers, millions of ChatGPT users, and a government that quickly recognised the potential of this technology.”
Julia Lopez, the Conservatives’ shadow Science Secretary, said in response: “We welcome this announcement, but it comes against a backdrop of declining foreign direct investment into the UK. Under Labour, the number of FDI projects fell by 12 per cent last year to the lowest level on record.”
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