LABOUR have ditched a pledge to raise taxes on multinational companies such as Facebook and Amazon in order to support small businesses.

Keir Starmer’s party had claimed to want to increase the 2% digital services tax rate, which is charged on the gross revenues of tech giants, to 10%. They said this could raise £3.2 billion a year which would fund a support package to reduce the business rates paid by small high street shops.

But Labour have ditched the policy, with a spokesperson claiming they had only wanted it as a “temporary” measure from 2022-2024.

Reports in the Times said the move had come amid concerns that the US, where many of the tech giants who pay the levy are based, would have retaliated.

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The U-turn came just one month after Rachel Reeves, Labour’s shadow chancellor, travelled to the States to “promote Labour’s economic plans for the future, strengthen our relationships and rebuild confidence in the UK”.

It also follows Reeves watering down Labour’s commitment to immediately introduce a £28bn-a-year “green prosperity fund”. Instead, the party has said it will look to gradually bring in such a fund over its first term in government.

The Times reported that a rise in the digital services tax would have likely faced retaliation from the US, as it may have breached an agreement not to increase such taxes until a new, internationally agreed set of rules comes into force.

In 2021, 136 countries agreed to bring in a minimum global corporation tax of 15%, and scrapped such digital service taxes. Due to come into force in 2023, the policy has now been delayed till 2024 at the earliest, according to Bloomberg.

Analysis from Tax Watch UK after the deal was struck found: “For companies subject to the DST [digital services tax] rate of 2%, the DST rate in the UK, it is a near certainty that they will end up paying less in tax in ‘market jurisdictions’ such as the UK … than under existing digital services taxes.”

A Labour spokesperson said they had “no plans to raise digital services tax”.

They went on: “Our position on the digital services tax referred to the years of 2022/23 and 2023/24 and was a temporary measure, entirely within the rules of the international agreement, that we would be doing in that time to cut business rates and help our struggling high streets.

“In government, Labour have said that we will scrap business rates and replace it with a fairer more modern system that shifts the burden away from the high streets and more on to online giants. We have said we will set out more details on this ahead of the next election.”