The UK has rebuffed US lobbying against a tech tax on Silicon Valley giants, as the two countries launch a partnership on AI and other digital industries.
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The White House and US Congress have been pushing for the levy to be repealed, arguing that American companies are disproportionately affected. But ministers have held firm and insisted the tax is fair, The i Paper understands.
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.
The agreement has been struck to coincide with Donald Trump’s state visit to Britain, which Sir Keir Starmer wants to use to boost sluggish economic growth.
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.”
Speaking as he left Washington for the UK, Trump said he was primarily going to see “my friend” the King, but added: “I am there also on trade, they want to see if they can refine the trade deal a little bit – we’ve made a deal and it’s a great deal – and I’m into helping them.”
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.
A total of £31bn has been committed in the AI and computing sector, including for the construction of new data centres and the deployment of cutting-edge computer chips.
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.
The British Government hopes the investment will make it easier to achieve major breakthroughs such as developing new medical treatments and energy sources, although insiders acknowledge that the US and China will remain far ahead of this country in the advances being made in AI capabilities.
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.”
Starmer said: “This tech prosperity deal marks a generational step change in our relationship with the US, shaping the futures of millions of people on both sides of the Atlantic, and delivering growth, security and opportunity up and down the country.”
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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