Ministers express concerns over possible EU tech alignment

UK weighs risks of closer EU tech ties amid US trade tensions

UK technology ministers are concerned that closer EU tech alignment could compromise the UK’s tech sector and further strain relations with the US regarding Digital Services tax.

Technology ministers have expressed concern that the ongoing work on the post Brexit reset of EU relations might end up compromising the UK’s tech sector.

The likely outcome of talks with Brussels is far greater alignment with the EU in all sort of areas, but some officials have raised concerns that the UK will effectively be forced to fall in with the EU on AI regulation, placing the UK relationship with the US under further strain.

One person briefed on the discussions in the Department for Science, Innovation and Technology (DSIT) and quoted in the Financial Times said:

“Our more laissez-faire approach is seen to have attracted investment for our companies and given them freedom to operate. Plus the US has thrown their . . . investment and bases at us for the same freedom,” the person said. “We need opt-outs, which are tough in these negotiations.”

Walking the EU/US tightrope

The government is, once again, walking a tightrope in attempting to balance potential economic gains from greater EU alignment with potential losses from likely US reprisals in the form of tariffs.

An AI Bill was expected in the Prime Minister first Kings Speech, but that was put on a back burner as the UK sought favour with the Trump administration and tried to utilise Brexit freedoms to run a more relaxed tech regulatory regime.

By contrast, the EU introduced a wide-ranging AI Act that has created new obligations for the makers of “high-risk” technologies and is considered the world’s strictest regulatory regime for machine learning.

There is also concern in DSIT that full alignment with the EU might stymie the UK’s ability to flex on the digital services tax, which imposes a two per cent levy on the revenues of tech companies whose global income exceeds £500 million, although at the moment the EU doesn’t have a bloc wide mandate on this, with individual member states implementing their own regimes.

Donald Trump threatened the UK again last week with “a big tariff” if the tax isn’t dropped. This places the government in an almost impossible position, given that public attitudes towards Big Tech have hardened noticeably in the last year, as more people fall in behind the idea of social media bans for children. To be seen to capitulate to Trump’s threats would be politically poisonous for a Prime Minister who is struggling to keep his head above water.

Made in Europe

One person involved in discussions said there was also “massive concern” in DSIT that the UK would have apply the EU’s Made in Europe mandate to digital services as a condition of the greater alignment that Chancellor Rachel Reeves considers crucial to the UKs prospects of economic recovery.

The Made in Europe mandate compels public sector purchasing decisions to consider the locality of services in procurement and funding decisions. It’s a function of the wider discussion about economic sovereignty and in France has resulted in the public sector moving away from US companies like Microsoft.

A DSIT spokesperson said: “Our digital services tax is fair and it’s a proportionate approach to taxing business activities undertaken in the UK. We continue to negotiate a wider economic deal with the United States.”