President Donald Trump has threatened to impose a “big tariff” on the United Kingdom unless it scraps its 2 per cent digital services tax on US technology companies, in the latest and most consequential deterioration of a transatlantic relationship that has visibly fractured since the Iran war began on 28 February 2026. Speaking late on Thursday, the President said: “They think they’re going to make an easy buck. That’s where they’ve taken advantage of our country. We’ve been looking at it, and we can meet that very easily by just putting a big tariff on the UK.”
The digital services tax: a £700m irritant becomes a flashpoint
The UK’s digital services tax, introduced in 2020, imposes a 2 per cent levy on the UK revenues of major US tech firms — primarily Google, Meta, Amazon and Apple. It generates roughly £700 million a year for HM Treasury. From a US perspective, the tax has long been a discriminatory irritant; from a UK perspective, it represents a modest contribution from US firms whose effective UK corporation-tax rate is widely viewed as too low. The Treasury has consistently resisted abolishing the tax without a multilateral OECD replacement, and that position has held through the 2024 election cycle, the 2025 Trump return to office, and the September 2025 Chequers visit.
The Chequers technology deal: now openly threatened
Trump’s threat carries unusual weight because of what it would unwind. On 18 September 2025, the President met Sir Keir Starmer at Chequers, where the pair signed what was described at the time as a “groundbreaking” billion-dollar technology prosperity deal. That agreement covered AI infrastructure, semiconductors, biotech research and joint defence-technology programmes, and was sold by Number 10 as the centrepiece of a renewed US-UK economic partnership. Trump now openly questions even the underlying 2025 trade-deal foundations. Speaking last week, the President said: “Well, it’s been better, but it’s sad. And we gave them a good trade deal, better than I had to, which can always be changed.”
The Iran-war fallout: the underlying source of strain
The deeper source of tension is operational. When the Israel/US strikes against Iran began on 28 February 2026, Sir Keir Starmer initially declined to grant the United States access to British military bases — including Diego Garcia and RAF Lakenheath — for the first phase of the campaign. Trump has returned to that decision repeatedly in public commentary, claiming it cost American forces “crucial time” in the opening days of the conflict. The sequence has tinted every subsequent transatlantic interaction. As the TIME magazine analysis put it: “Trump’s threat to apply economic pressure to yield desired results is the latest display of how the so-called ‘special’ relationship between the UK and US has significantly splintered since the start of the Iran war.”
The North Sea oil attack and the immigration broadside
Trump’s grievance list has expanded beyond Iran and digital services. In a recent Sky News interview, the President said: “I think I like Starmer, but I think that he’s made a tragic mistake in closing the North Sea oil. You see your energy prices are the highest in the world and I think he’s made a tragic mistake on immigration.” He continued: “I love your country and I would love to see it succeed, but if you have bad immigration policies and bad energy policies you have the worst of both. You can’t succeed, it’s not possible.” Asked who the UK is being invaded by, Trump replied: “By illegal immigrants from all over the world, including those from prisons, drug dealers, people from mental institutions.”
The energy prices angle: not entirely wrong
Trump’s specific complaint about UK energy prices has more substantive grounding than some of his other broadsides. UK household energy prices are among the highest in the G7, and the closure of older North Sea oil and gas projects under Labour’s energy-transition policy has been controversial within the UK industrial sector itself. The Resolution Foundation notes that “gas accounts for 62 per cent of final household energy consumption” in Britain — by far the highest share in the G7 — meaning the Iran-war energy shock hits UK households disproportionately hard. The Bank of England raised its CPI forecast to 3 to 3.5 per cent for Q2 and Q3 2026 specifically because of energy passthrough.
The political calculation in Number 10
Sir Keir Starmer’s government faces an awkward triangulation. Withdrawing the digital services tax would save £700 million a year in protected revenue and an unknown but likely larger sum in averted tariffs, but would represent a politically costly concession to direct US pressure — particularly with this week’s London local-election results showing Labour losing Westminster, slipping to no overall control in Wandsworth, and being beaten into second place by Aspire’s Lutfur Rahman in Tower Hamlets. Refusing to withdraw the tax, on the other hand, invites a tariff regime that would hit British exporters across multiple sectors — pharmaceuticals, financial services, automotive components and aerospace — and would compound the broader economic-uncertainty premium already baked into UK gilt yields and mortgage rates.
What happens next
The UK Treasury has not formally responded to the latest threat. Number 10 and the Foreign Office have historically tried to de-escalate Trump statements through quiet diplomacy via Lord Mandelson’s Washington embassy. The next major transatlantic set-piece is the G7 finance ministers’ meeting in mid-June, where Chancellor Rachel Reeves is expected to face direct US Treasury pressure on the digital services tax. Markets will watch sterling against the dollar closely on Monday — the pound has been moving on every Trump-Starmer interaction since February — and the FTSE technology-services sub-index will likely price in tariff risk through the early part of next week.
Reporting collated from TIME magazine, the Financial Times, Sky News, HuffPost UK and Office for National Statistics data, current as of Saturday 9 May 2026.
