UK to press ahead with digital tax despite US pressure, Javid insists

Larry Elliott in Davos

The chancellor, Sajid Javid, has insisted that the UK will go ahead with plans for a tax on giant tech companies this spring despite intensifying pressure from the US to drop the idea.

The US treasury secretary, Steven Mnuchin, said the proposed digital services tax discriminated against US multinationals and there would be retaliation – probably a tax on UK car exports to the US – if the 2% levy were imposed in April.

Speaking on a panel in Davos that included Mnuchin and the head of the International Monetary Fund, Kristalina Georgieva, Javid said: “We plan to go ahead with our digital services tax in April.

“It is a proportionate tax, and a tax that is deliberately designed as a temporary tax.”

France is preparing to drop its own plan for a 3% levy on the total annual revenues of the largest technology firms providing services to French consumers.

France’s plan – called the GAFA tax because it was seen to target the US companies Google, Apple, Facebook and Amazon – prompted the threat of retaliation from Washington, which vowed to put taxes on French imports including wine.

Mnuchin and Georgieva argued strongly that the way to tax digital commerce was to back the attempts to strike an international accord being negotiated by the west’s leading economic thinktank, the Paris-based Organisation for Economic Co-operation and Development.

Javid said the proposed UK tax “will fall away when there is an international agreement”.

Mnuchin said: “We’re going to have some private conversations about that and I’m sure the president and Boris [Johnson] will be speaking on it as well. This is an important issue that we’ll deal with.”

He added: “If people want to just arbitrarily put taxes on our digital companies we will consider arbitrarily putting taxes on car companies.”

Georgieva said digital companies needed to pay their fair share of tax. “But do it properly and do it in a multilateral context rather than having countries coming up with plans here, there and everywhere.”

Javid was also challenged over the UK government’s insistence that it can negotiate a comprehensive free-trade deal with the EU by the end of the year.

The chancellor admitted that the deadline was pressing but added: “There is a strong belief on both sides that it can be done. Both sides recognise that it’s a tight timetable, a lot needs to be done.

“It can be done, And it can be done for both goods where we want to see zero tariffs and zero quotas, and also services.”

The government believes that ceasing to be aligned with EU regulations will make it easier to secure a deal with the US.

“A trade agreement between the sixth largest economy in the world and the largest economy in the world could benefit all consumers in terms of jobs and prices. It’s hugely important,” Javid said.

Some of the UK businesses in Davos – in sectors such as artificial intelligence and finance – agree with Javid that they will be able to thrive once freed from regulatory alignment with Brussels. Companies in the automotive and aerospace sectors are much more concerned.

The chancellor was upbeat about the prospects for the UK economy, predicting that it would emerge from its recent doldrums.

“We’ve seen a huge boost in investor confidence in the last few weeks because of the UK election result, which removed a double whammy of risk.

“There was the risk of effectively a Marxist agenda for government,” he claimed. “That was the proposal from the Labour party in the UK. It was probably the most anti-business manifesto for government that has been seen in modern times.

“That would have been a disaster for the British economy, and a disaster for working people in the UK. That has been removed, and that has been a welcome boost for business.

“There is also certainty around Brexit, with the biggest majority since Tony Blair’s time, there is political and economic stability, and confidence that Brexit law will be implemented quickly.”