Trump’s war on tech taxes is a big problem for Britain

LONDON — Keir Starmer hopes a tight, tech-focused trade deal with Donald Trump could give the British government a much-needed win.

But to land it, the British prime minister will have to confront a host of gripes held by U.S. tech billionaires — including Elon Musk — who have made a concerted effort to cozy up to their country’s president.

The X owner’s relentless attacks against Starmer won’t make a deal any easier, and he’s not the only tech boss to have befriended Trump with the explicit purpose of pushing back against European governments who have moved to check their power.

Now Big Tech lobby groups say they plan to use trade negotiations to push back strongly against the U.K.’s digital services tax.

And campaigners fear U.S. tech firms could seize on the prime minister’s new deregulatory drive — highlighted in his friendly call with Trump Sunday night — to go even further, pushing back against online safety obligations and a new regime meant to limit the market dominance of digital giants.

“They’ve just said we will do anything, take anything, run roughshod over all our principles, for a bit of growth,” warned online safety campaigner and U.K. lawmaker Beeban Kidron, who said she feared Starmer’s government would be willing to slash regulations to drum up U.S. investment.

Art of the digital deal

The British prime minister wants to start trade talks with Trump’s team within weeks, he told POLITICO in an interview this month.

But after years-long talks on a more ambitious U.S.-U.K. free-trade agreement floundered over hot-button issues like agricultural standards and corporate access to Britain’s state-run National Health Service, Starmer has hinted at a different type of deal.

Starmer told his Cabinet he’s determined to “pursue a partnership with the U.S. for the 21st century, which would protect security, advance our economic growth and leverage the opportunity of new technologies,” according to an official readout.

Peter Mandelson, Starmer’s pick for U.K. ambassador to Washington, has said he sees potential for an agreement based on “clicks and portals” rather than “bricks and mortar.”

In a Fox News op-ed published to coincide with Trump’s inauguration, Mandelson called on the U.S. and U.K. to “do more together to invent, develop and industrialize the technologies of tomorrow.”

British and American industry bodies have previously called for a digital trade deal between the two countries. Now, they’re working to reframe their asks for the Trump era, one industry figure, granted anonymity to discuss private discussions, said.

However, the same person said any deal faces obstacles given Trump’s propensity to raise long-standing U.S. vendettas in negotiations.

Taxing times

Trump’s “day one” moves give a hint at how things could play out.

Among a flurry of executive orders signed by Trump shortly after his inauguration last week, the U.S. president took aim at global efforts to raise more taxes from (predominantly U.S.) multinationals. Such global revenue grabs have long been despised by Republicans on Capitol Hill and disliked by tech bosses.

They make clear that a global tax deal that’s been under negotiation for years under the auspices of the Paris-based OECD has “no force” in the U.S.

Trump has also threatened retaliation against countries that “have any tax rules in place, or are likely to put tax rules in place, that are extraterritorial or disproportionately affect American companies.”

That’s a major potential headache for the U.K., which raised £678 million from predominantly American tech firms like Google, Amazon and Apple through its digital services tax last year  — a decent return, but likely to pale in comparison to the prize from staying on Trump’s good side and dodging tariffs.

The Treasury declined to comment, but has previously said the U.K. “remains committed to removing the Digital Services Tax once the [OECD’s] Pillar 1 global solution is in place.” With Trump signaling a withdrawal from those efforts, the prospect of such a deal looks bleak.

The industry figure cited above said they expected it to be one of the “trickier areas” in negotiations, given Trump’s record of viewing the levies as unfair trade measures targeting the U.S.

Trump’s action “put trading partners on notice that discriminatory taxes like Digital Services Taxes aimed at U.S. companies will be investigated and challenged,” said Jonathan McHale, a former U.S. trade official who’s now vice-president for digital trade at CCIA, a group whose members include the likes of Apple, Amazon and Google.

Matthew Sinclair, director of the CCIA’s London office, added: “There are huge opportunities for the U.K. in digital trade with the United States and the government should do everything it can to minimize the risks that tax policy undermines progress in this area.”

Regulation under threat?

While digital trade deals typically center on highly technical, if valuable, issues like data flows, cooperation on international standards, and regulatory compatibility, the presence of several self-described free-speech tech billionaires in Trump’s inner circle mean other dislikes could get aired too.

Musk, who has made a number of cuts to X’s content moderation teams since taking over, slammed Starmer in August as “the biggest threat to free speech we’ve seen in our history,” and has criticized the U.K.’s Online Safety Act.

Meta CEO Mark Zuckerberg, meanwhile, justified an overhaul of his company’s content policies with a warning that “Europe has an ever-increasing number of laws institutionalizing censorship.” He has described fines issued by European regulators as “almost like a tariff.”

Damian Collins, a former minister who helped draft the online rulebook under the Conservative government, has warned that Zuckerberg’s move is “a clear signal that a major challenge will come from the Trump administration against tech laws like the Online Safety Act… [which] will most likely be made through trade negotiations.”

A recent report by IPPR think tank, which has close ties to the Labour leadership, said that while the U.K. should “signal its openness” to U.S. trade talks, online safety regulation was one area it should set “clear red lines.”

The language of strongmen

It’s not just tax and online safety where the U.K. could face pushback, either.

The regulation of artificial intelligence, copyright, privacy and competition enforcement are all areas where U.S. firms could use negotiations to seek to extract changes in the U.K.’s set-up.

On the latter, the government appears to have already listened, ousting the chair of the U.K.’s Competition and Markets Authority with a reminder that it expects regulators to take “pro-business decisions.”

The CMA had developed a reputation among investors as being more hawkish than international counterparts after intervening in a number of major tech mergers, and is in the course of taking on new powers to police the biggest tech firms, adding to their nerves. It’s already targeted Google and Apple for its first investigations, with others to follow.

Deciding how much further to go could fall to Peter Kyle, the U.K.’s tech secretary, who has vowed to take an “assertive” approach to issues like online safety and said U.S. tech firms should view operating in the U.K. as a “privilege.”

He’s also said ministers should have “a sense of humility” when dealing with Big Tech. When it comes to negotiating with Trump, a bolder stance might be needed.

Tom Bristow contributed to this report.