The chancellor, Sajid Javid, has insisted that the UK will go ahead with plans for a tax on big tech companies this spring despite a threat from the US to slap “arbitrary “ tariffs on UK car exports.
The US treasury secretary, Steven Mnuchin, said the government’s proposed digital services tax discriminated against US multinationals and warned there would be retaliation – probably a tax on UK car exports to the US – if the 2% levy were imposed in April.
Almost one in five vehicles manufactured in the UK are exported to the US, worth £8.4bn, and it is a hugely important market to manufacturers including Jaguar Land Rover and Aston Martin.
The two finance chiefs were speaking on a panel at the Davos meeting of political and business leaders.
Javid said: “We plan to go ahead with our digital services tax in April. It is a proportionate tax, and a tax that is deliberately designed as a temporary tax.”
But Mnuchin warned: “If people want to just arbitrarily put taxes on our digital companies we will consider arbitrarily putting taxes on car companies.”
He added: “We’re going to have some private conversations about that and I’m sure the president and Boris [Johnson] will be speaking on it as well. This is an important issue that we’ll deal with.”
The spat between the US and UK over the tech tax comes at a sensitive time in transatlantic relations as Boris Johnson seeks a trade deal with America – which is the UK’s largest single-nation trading partner – to show he can make a success of Brexit. He hopes to seal a deal with the EU at the same time.
At a separate press conference in Davos Donald Trump heaped praise on Johnson and insisted the prime minister’s approach would result in a successful UK-EU trade deal after Brexit.
But the US has expressed its displeasure over government’s plans to introduce a new tax on digital commerce in the spring that Washington views as a targeted attack on US tech giants such as Google, Amazon, Facebook and Apple.
Downing Street later said: “Imposing additional tariffs would harm consumers and businesses on both sides of the Atlantic. We feel it is a proportionate step to take in the absence of a global solution. We made our own decisions in relation to taxation and will continue to do so.”
As well as defending the tech tax, Javid raised eyebrows as he told the panel that a deal with the EU was “of course, the first priority” over one with the US.
Mnuchin jokily replied: “I was a bit disappointed. I thought we’d go first. They [the Europeans] might be a little bit more difficult to deal with than we are, anyway.”
Until now, No 10 has been treading a careful line that both the EU and US talks can be conducted in parallel, while refusing to say either one is a priority.
France, which has been planning its own 3% tax on major US tech firms, announced a truce with Washington on Wednesday in which it will not collect revenues from targeted companies this year, while it gives the OECD the chance to hammer out a global deal. The US had threatened to impose retaliatory tariffs on French goods including wine and cheese, but will also now suspend that tax plan.
Government sources said the DST was included in the Conservative party’s election manifesto and was one of the few taxes that was actually popular with voters.
Britain intends to use the new tax regime as a bargaining chip in trade talks with the US, which are already under way.
Earlier this month the US and China signed a Phase 1 trade in which the US secured greater market access to the world’s second biggest economy in exchange for shelving or lowering tariffs on some Chinese goods.
Trump told reporters that he had wanted to get the Chinese talks out of the way before turning to Europe.
“They [the EU] are actually more difficult to do business with than China. All you have to do is ask Boris. But I think Boris is going to be OK too. I think he’s going to come out great. He’s got a lot of guts. He’s done a terrific job.
“They’re in a good position, which they would never have been able to do before Boris.”
Trump said he wanted to see the US trade deficit with the EU dealt with before he comes up for re-election in November and said of the Europeans: “They have trade barriers where you cannot trade, they have tariffs all over the place. They make it impossible.”
Javid was encouraged by Mnuchin’s insistence that the US was looking forward to agreeing a “big trade deal” with Britain. The government believes that ceasing to be aligned with EU regulations will make it easier to secure a deal with the US.
“A trade agreement between the sixth largest economy in the world and the largest economy in the world could benefit all consumers in terms of jobs and prices. It’s hugely important,” Javid said.