US puts UK tech deal on ice after Budget digital tax move
Washington has paused the flagship US-UK tech pact just weeks after Rachel Reeves doubled down on Britain’s digital services tax in her Autumn Budget, sharpening fears that the levy has become a pressure point in wider trade talks with Trump’s administration.
The so-called Tech Prosperity Deal, unveiled during Trump’s state visit back in September and billed as a £31bn vote of confidence in the UK’s AI ambitions, has been suspended by the US amid mounting frustration over Britain’s refusal to concede ground on non-tariff trade barriers.
British officials confirmed that the pause was triggered last week, the Financial Times reported, with Washington seeking leverage beyond the tech partnership itself.
While publicly framed as a negotiating tactic, the move lands uncomfortably soon after the chancellor confirmed the government would retain the two per cent digital services tax, which raises roughly £800m a year from US tech giants including Google, Amazon and Apple.
One UK official briefed on the talks described the development as “hardball negotiating”, adding that the US was pressing London on food standards, industrial regulation and digital taxes in parallel talks.
“They negotiate incredibly hard,” the official said. “We’ll stand our ground.”
A deal caught in a wider trade squeeze
The move marks a setback for a deal Keir Starmer had hailed as a “generational step change” in UK-US relations designed to anchor Britain’s position as a global hub for AI, quantum computing and advanced nuclear technology.
At its centre was a promised wave of American investment, led by Microsoft’s £22bn commitment to UK cloud and AI infrastructure and a further £5bn from Google.
Officials also touted an AI growth zone in the north-east, expected to support up to 5,000 jobs.
But the text of the agreement included a key caveat: it would only become operational alongside “substantive progress” on broader trade issues, language that has now given Washington room to apply pressure.
US officials have grown increasingly irritated by what they see as Britain’s reluctance to dismantle so-called non-tariff barriers, particularly food safety rules that block certain American agricultural products and the continued application of the digital services tax.
Trump has long criticised digital levies imposed on US tech firms overseas, repeatedly threatening retaliation.
During spring negotiations, UK officials explored ways to soften the impact of the tax on US companies without reducing its overall take, but no changes were announced in the Budget.
A UK government spokesperson sought to downplay the pause, insisting the “special relationship remains strong” and that Britain is “firmly committed to ensuring the deal delivers opportunity for hardworking people in both countries”.
Behind the scenes, ministers remain keen to revive the agreement. Business secretary Peter Kyle and science secretary Liz Kendall were in Washington last week for talks covering steel, whisky tariffs and critical minerals, discussions officials say are ongoing.
Still, the episode underscores the fragility of Britain’s post-Brexit trade diplomacy, where a multi-billion-pound tech partnership has now tethered to arguments over food standards, tax sovereignty and how far the UK is willing to bend to keep Washington onside.