Buried in the policy papers published alongside the budget is what would once have been headline news: confirmation that the government intends to impose a “digital sales tax”, a 2% levy on the UK revenues of search engines, social media services and online marketplaces, from 1 April.
The move, first announced in the 2018 budget, is an attempt to onshore some of the economic value created by technology companies such as Google and Facebook.
Currently, those companies argue that the economic activity generated in sales of services such as advertising and digital media should accrue where their HQs are based, in low-tax environments such as Ireland or Luxembourg. That allows them to keep their tax burden low in the UK, even as their importance to the British economy grows.
The move will be unpopular with the US, since the limitations put in place by the Treasury ensure that almost all of the revenues will come from American tech giants: only companies with £25m of revenues are covered at all, and the list of affected businesses is seemingly carefully drawn to include Google, Facebook and Amazon, while excluding European digital successes like Spotify (which doesn’t operate in the affected areas of “search engines, social media services and online marketplaces”) or Monzo (with “financial services providers” given an explicit carve-out of the “online marketplaces” coverage).
Those carve-outs do also limit the revenue raising possibilities of the act, however: the OBR currently expects it to raise £280m in its first year in effect, rising to a little over £500m by the end of 2025.
So the move looks like a PR win more than a financial coup – but if that’s the case, why not celebrate it at the despatch box? It may be a desire that this budget be seen as more tech-first than techlash: the chancellor also announced billions of investment in R&D, billions more in high-speed broadband, and a tax cut for digital media, allowing digital books, newspapers, magazines and academic journals to be sold VAT free, like their print counterparts.
Or it may be the uncomfortable fact that the government is about to barrel head-first into complex trade negotiations with a US government that views any digital taxes as a direct attack on American interests, and has said as much to the French when they proposed their own version – threatening massive tariffs on wine, cheese, handbags and cookware in response
