U.S. Halts UK's £31B Tech Pact Over Tax, Food Standards Dispute

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Donald Trump's administration has put a pause on the UK's £31bn Tech Prosperity Deal according to reports, a major transatlantic agreement on artificial intelligence and tech collaboration. The move comes amid stalled trade negotiations and growing tensions over digital services tax and food standards. The deal had been hailed as a landmark for UK-US economic relations, with Microsoft, Google, and other tech giants pledging billions in investments.

British Prime Minister Keir Starmer had championed the deal as a way to boost innovation and jobs, including an AI "growth zone" in northeast England. However, the U.S. has expressed frustration over the UK's refusal to revise its digital services tax and food safety policies. The UK's 2% tax on tech giants like Amazon and Google has been a key sticking point according to reports.

The U.S. has also pushed for greater access to the UK market for American agricultural exports, particularly beef and poultry. UK officials have maintained their stance that they will not weaken domestic farming standards, which would open the door to hormone-treated or chlorine-washed meat imports according to reports. The dispute highlights the complexities of post-Brexit trade relations and the balancing act for the UK between its economic goals and regulatory independence.

Why the Standoff Happened

The tech prosperity deal was announced during Trump's state visit to the UK in September 2025, with both leaders emphasizing its potential to redefine the "special relationship" between the two nations. At the time, Trump praised the agreement as a step toward "dominating" in AI and leading the next technological revolution according to reports. But progress has since slowed, with Washington citing a lack of movement on key trade issues.

U.S. officials reportedly raised concerns about the UK's online safety regulations and its continued enforcement of the digital services tax. The tax, which generates about £800m annually, has long been a target for U.S. negotiators, who argue it unfairly targets American tech firms. During trade discussions in the spring, the UK explored proposals to broaden the tax's scope without reducing the total revenue collected, but no changes have been made according to reports.

A UK government source described the U.S. approach as "hardball negotiations," adding that such discussions were expected before major agreements are finalized. "We understand that the Americans negotiate incredibly hard, but we'll stand our ground," the source said according to reports. The UK's position is rooted in domestic political and public opinion, particularly from farming groups and consumer advocates who oppose relaxing food safety rules according to reports.

Market and Political Reactions

Despite the setback, UK officials have maintained that the "special relationship" with the U.S. remains strong. A government spokesperson reiterated the UK's commitment to the deal and its benefits for both economies. Meanwhile, Trump's administration has not yet commented publicly on the matter, but the freeze sends a clear signal about the stakes involved in the negotiations according to reports.

On the business front, Google DeepMind recently announced plans to open a state-of-the-art AI research lab in the UK in 2026, a move seen as a separate but related development. The lab, integrated with DeepMind's Gemini AI platform, will focus on material science and could boost the UK's AI research ecosystem. The UK government hailed the investment as proof of the strength of U.S.-UK tech collaboration, despite the current standoff according to reports.

Business and Trade Secretary Peter Kyle recently traveled to the U.S. for ongoing negotiations, emphasizing the need to keep momentum. Kyle's team is expected to continue talks with U.S. officials in January, according to his office according to reports. The outcome of those discussions could determine whether the tech prosperity deal remains on hold or moves toward implementation.

Risks to the Outlook

The pause raises questions about the broader UK-US trade framework, which has been a key diplomatic priority for both sides. The tech prosperity deal was meant to serve as a model for deeper cooperation on AI, quantum computing, and other advanced technologies. Its current status underscores the fragility of such agreements when core policy differences remain unaddressed.

U.S. negotiators have reportedly grown impatient with the pace of progress, particularly on non-tariff barriers. These include rules affecting food imports and digital services, which are seen as critical to securing long-term U.S. market access for British goods and services. The UK's resistance to altering these policies has left Washington with few levers to push for further concessions according to reports.

Analysts note that the UK's position is politically delicate. Weakening the digital services tax or food safety rules could face strong domestic backlash, especially ahead of future elections. At the same time, the U.S. is under pressure to secure favorable trade outcomes for American firms, many of which have invested heavily in the UK. The standoff highlights the broader challenge of balancing transatlantic interests with domestic priorities.

For now, the tech prosperity deal remains on hold, with both sides continuing to assess their next steps. If no resolution is reached soon, the pause could signal a shift in the tone of UK-US economic relations-or it could be another temporary bump in a complex negotiation process.