The US-UK Tech Prosperity Deal

Good afternoon from New Economy Brief.

US President Donald Trump’s second visit to the UK ended with a deal on technology investment and a memorandum of understanding for collaboration on research and development. What was in the deal? How does it fit into the big picture of trade negotiations with the US? What might the UK have to give up to get it, and what are the implications of conceding to the demands of the ‘Big Tech’ lobby? This week’s New Economy Brief explores.

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What’s in the US-UK Tech Prosperity Deal?

Last week the two countries signed a technology partnership, pledging to work together on areas like AI, quantum computing and space. US tech companies like Microsoft, Google, Nvidia and OpenAI announced £31 billion of private investment in data centres and other AI infrastructure in the UK economy, pitched as a way to compete in a technological race with China – such as a new ‘AI Growth Zone’ in the North East. They also agreed a ‘civil nuclear deal’ to deregulate the sector and speed up the delivery of new energy projects. 

Resisting ‘digital feudalism’. The UK government hopes the partnership will accelerate healthcare innovation, lower energy bills, create skilled jobs and spur economic growth, but economist Mariana Mazzucato warns it “will lead to outsourcing… more AI capacity across public institutions and the wider economy to US tech firms”. She suggests Labour should put clear conditions on any investments to ensure AI is governed for the common good rather than commercial interests – like the Biden administration’s use of the CHIPS act to limit share buy-backs and improve working conditions. (Her Project Syndicate article has more on this.)

Explaining the UK’s ‘Goldilocks zone’ strategy. Last week's state visit and trade deal are part of much wider US-UK trade negotiations. Many UK priorities still need to be secured through future negotiations – it also wants to lower the 25% US tariffs on UK steel and aluminium exports and receive ‘preferential treatment’ on any future pharmaceutical tariffs. To strengthen its hand, the UK government is trying to position its digital economy between a more laissez faire US market and the more strictly regulated EU. Chatham House experts describe this as a ‘Goldilocks zone’, with the UK removing barriers for US tech firms in exchange for minor US concessions on trade. However, they warn such an approach is “hazardous indeed. The UK is right to try and avoid the pain of trade war. But that cannot come at the cost of sovereignty over the foundational digital infrastructure on which so much of modern life is built.”

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What do the Big Tech lobby want?

A couple of things are reportedly on the table in the negotiations of future trade deals. The Trump administration and the Big Tech lobbyists accompanying his state visit want less regulation, like rolling back parts of the Online Safety Act and AI copyright law. The administration also says other countries’ Digital Services Taxes (DSTs) are specifically “designed to plunder American companies”. The UK introduced a DST in 2020, and Politico says it “could stand in the way of a final US-UK trade deal, or even prompt new tariffs”.

Digital services tax (DST). The Times reports that scrapping the DST is the Trump administration and Big Tech lobby’s chief concern. Set at 2% on the revenues of search engines, social media services and online marketplaces, it mainly affects US companies like Google, Meta and Amazon. Despite persistent rumours, Secretary of State for Science, Innovation and Technology Liz Kendall reiterated that the government is still committed to the DST… for now. Tax Justice UK note that “while we didn’t hear about it being scrapped during this visit, there is still a risk that it could go.” They warn that scrapping the tax would cost £5 billion pounds over the course of the parliament, which could train up to 128 thousand nurses or eight of the sixteen new hospitals the government plans to build until 2030.

Regulation and US tech monopolies. Any removal or watering down of the Online Safety Act is unlikely to go down well. Polling shows the British public generally supports tech regulation, particularly on issues around online harms and young people growing up online. The Times reports Big Tech monopolies may already be benefiting since Labour replaced the chair of the Competition and Markets Authority with Amazon UK’s former boss and gave it a “pro-growth” strategic steer, including using regulations “proportionately, with growth and investment in mind”. IPPR explains why, on the contrary, rising market concentration in a handful of powerful companies is stifling the UK economy, and an “unwavering and robust competition policy, enforced by a more responsive regulator” can boost UK investment in line with industrial and trade policy goals.

AI copyright law. Some of the biggest British artists including Mick Jagger and Paul McCartney wrote to Keir Starmer ahead of Trump’s visit arguing “Labour had failed to defend artists’ basic rights by blocking attempts to force artificial intelligence firms to reveal what copyrighted material they have used in their systems.” Equity warns that exempting generative AI from copyright law threatens the incomes of actors, artists, journalists and more by allowing their creative work to be used without consent or compensation. Beeban Kidron, the crossbench peer who tabled amendments to the incoming data bill, said: “by prioritising the short-term optics of data centre announcements and trade deals, they are knowingly undermining the foundations of the UK’s creative industries.” (The government is keen to show it’s taking such concerns seriously, and will publish a report on the changes’ potential impact by March 2026.) 

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The case for protecting UK digital sovereignty.

MPs on last week’s business and trade committee concluded that any tech deal “should strike a careful balance: promoting AI adoption and cross-border collaboration to strengthen the western technological alliance, while safeguarding intellectual property, ensuring fair taxation, and enabling the development of sovereign UK AI capabilities”. There is also a strong political case against conceding further to the US negotiator. New Tax Justice UK polling finds “67% of the public think the UK government should enforce its laws on Big Tech, even if it strains relations with Trump. Half of the public also think the [DST] is too low at just 2%.”

Chatham House analysts think it’s likely the UK will eventually have to abandon its ‘goldilocks zone’ and stop trying to straddle the fence between the US and EU. They recommend siding with the EU, arguing its approach to digital regulation is “one of the most meaningful attempts to use pooled democratic power to manage and rein in the influence of these companies. Piecemeal concessions to the US in exchange for the uncertain prospect of tariff exemptions or trade deals might be less beneficial than aligning with the EU approach.” In making its choice, the government may have to decide which it values more: chasing the chimera of growth through deregulation or protecting sovereignty in the face of a clear set of threats.