24 January 2020

Will Britain follow France’s lead in delaying the introduction of a digital services tax?

Implementing the tax risks the US responding with punitive tariffs on British goods in a future trade deal.

France has agreed to delay the introduction of its digital services tax to the end of the year following diplomatic and economic pressure from the United States – will the British government go the same way?

The risk of going ahead with the tax on global tech giants such as Facebook is that the United States will respond with punitive tariffs on British goods, putting yet another barrier between the United Kingdom and a meaningful US-UK trade deal.

The French government’s secret hope, of course, is that the end of 2020 will also bring about the end of Donald Trump’s presidency, allowing them to introduce their new tax without the fear of tariffs. Will the British government end up doing the same?

Well, Boris Johnson has a problem that Emmanuel Macron doesn’t: the very specific pledges he made during the general election about tax and spending. Although there are large increases in public spending on the way, once you take into account the funding settlement for schools, the NHS and the police, Sajid Javid doesn’t have a lot of wriggle room for additional spending elsewhere. Austerity is ending for some parts of the public realm in some parts of the country, but not for everyone or everything. That’s particularly acute in the case of the NHS, because, as I explain in my i column this week, spending more money on the NHS while local councils are struggling to meet their social care obligations is throwing good money after bad.

And while there is lots of headroom for extra infrastructure spending, day-to-day spending is constrained by their promises to keep debt flat or falling. The Tory manifesto made a point of ruling out rises in income tax, national insurance – and threw in a cut in the national insurance threshold too.

The Treasury is going to need some revenue-raisers from somewhere. That’s one reason why multiple Conservatives have this week told me that they expect the Budget to trigger a row over car taxes, as vehicle excise duty and the fuel duty freeze are the only guaranteed revenue raisers that haven’t been specifically ruled out. And that same very tricky fiscal reality is one reason why the British government may decide that it can’t wait to introduce its own digital services tax until the era of Trump is over.