Labour drops plans for a £3bn tax raid on tech giants
Proposed charges on Amazon and Facebook ditched due to concerns about a trade war with the US
Labour leader Sir Keir Starmer is facing criticism for yet another "flip-flop" after abandoning plans for a £3 billion tax raid on tech giants.
Shadow Chancellor Rachel Reeves had previously made a commitment to increase the "digital services tax" on the revenues of American companies like Amazon and Facebook from 2% to 10%.
The funds generated from the tax were intended to lower business rates for small businesses and high street shops, from the current threshold of £15,000 to £25,000.
Additionally, Labour had proposed to allocate £1.6 billion from the new tax to expedite the benefits of a forthcoming business rate review, rather than implementing the changes gradually.
However, these proposals have been ditched due to concerns about the potential for a trade war with the United States. There were apprehensions that such a tax could result in UK exporters facing retaliatory tariffs from the US, which would have negative consequences.
Labour says it currently has "no plans to raise digital services tax in government". They argue that their previous announcement regarding the tax was time-limited and only applicable to the previous year, rendering it irrelevant at present.
"Our position on the digital services tax referred to the years of 2022/23 and 2023/24 and was a temporary measure, entirely within the rules of the international agreement, that we would be doing in that time to cut business rates and help our struggling high streets," a Labour spokesman told The Times.
"In government, Labour have said that we will scrap business rates and replace it with a fairer, more modern system that shifts the burden away from the high streets and more on to online giants. We have said we will set out more details on this ahead of the next election."
In 2021, a total of 136 countries reached an agreement to implement a minimum global corporate tax rate of 15% and eliminate digital service taxes. Originally scheduled to take effect in 2023, the implementation of this policy has been postponed until 2024 at the earliest, according to reports.
Labour's latest decision comes shortly after Rachel Reeves' visit to the United States, where she aimed to promote her party's economic plans for the future, strengthen relationships, and restore confidence in the UK.
It is also the second recent change Labour's economic policy, as the party aims to protect its plans from Conservative criticisms leading up to elections. Just two weeks ago, Rachel Reeves scaled back the scale and scope of a proposed £28 billion annual green prosperity fund.
In response to Labour's U-turn, the Conservatives have launched an attack advertisement online featuring Rachel Reeves and party leader Sir Keir Starmer alongside a pair of flip-flops.
"Labour's fifth flip-flop this month," it stated.
Conservative Party Chairman Greg Hands criticised Labour, claiming that they have very few policies and "the few they have are always negotiable".
Treasury minister Andrew Griffith said Labour makes "promises only to break them straight away," adding that "if they can't run an opposition party, how could they run a country?!"
Minister for technology and the digital economy Paul Scully said: "Labour came up with this policy when I was retail minister, they've U-turned whilst I'm tech minister."
"Our high street and tech businesses need forethought and certainty, not this flip-flopping."