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Chancellor Rachel Reeves will try to collect a deep hole in Britain’s public finances this week in a spring statement held under the shadow of Donald Trump, as ministers compete to secure a deal with SH.BA to avoid punitive fees.
Reeves will tell MPs on Wednesday that Britain faces a “changing world” in which he has to find more money to defend himself. She has warned that “global heads such as trade insecurity” is causing disruption.
The Chancellor did not deny that Britain was looking to change or even axize its digital service tax, a tax opposed by Trump and US technology firms, in a move aimed at calming the US president.
Anydo’s tax change, which is expected to collect £ 800m this year, would worsen Britain’s already tense finance. But ministers believe it may be a price worth paying to avoid US global punitive fees, which is expected to be announced on April 2.
The perspective of an escalating global trade war will depend on the spring statement, when forecasts of October growth for 2025 by the Budget Liability Office are expected to be cut from 2 percent to about 1 percent.
Financial Times revealed last week that the digital service tax is on the table in talks with the SH.BA
The Chancellor, speaking to the BBC on Sunday, said it was “the right thing that companies operating in the United Kingdom pay their taxes in the United Kingdom”, but added: “We are in the discussion of about a whole range of things related to the tariffs with the US”
British officials say the United Kingdom and the US are close to ending the “heads of agreement” for an economic agreement that would initially focus on technology cooperation and tariffs.
Britain’s digital services tax, which affects American technology groups, including alphabet, Meta and Amazon, was presented by the former Conservative Government in April 2020 to ensure that global digital businesses paid tax reflecting the value they derive from the UK clients.
Flat rate 2 percent of the tax applies to companies that have global income greater than £ 500m, and applies to revenues deriving from the UK.
Treasury officials say any agreement with Washington would happen too late to appear in Wednesday’s statement, but ministers wish him in the country before April 2, called “World Tariffs Day” in Whitehall.
The Chancellor already has major fiscal problems, after slow growth and increased borrowing costs delete 9.9bn head room against its fiscal rule, which says current costs should be in balance with tax bills by 2029-30 with its October budget.
New OBR forecasts are expected to show that Reeves is red with about £ 4 billion, according to people familiar with the rating, leaving it necessary to find nearly £ 15 billion to rebuild her current fiscal room.
Reeves’ settlement will include £ 5 billion in welfare savings announced last week and £ 2 billion from spending foreign aid to a heavy capital protection budget. Another £ 1 billion is expected to rise from improving tax compliance.
Most of the remaining gap will be financed by expense cuts planned by Whitehall’s departments later in Parliament, a plan that created the opposition at a cabinet meeting earlier this month.
Reeves said on Sunday that 10,000 civil servants would lose their work while she announced Whitehall Cuts aiming to save over 2BN by 2029-30, with officials who said privately that “tens of thousands” could go. The civil service had 514,000 full -time equivalent staff in December 2024.
Reeves has said that a better use of technology and cuts in the use of consultants can provide Whitehall savings, as well as reduction in communications and travel budgets.
“I’m sure we can reduce civil service numbers by 10,000,” Reeves Trevor Phillips of Sky News told Reeves.
Dave Penman, head of the FDA Civil Service Union, warned that cuts could lead to major work losses and damage public services. “The idea that cuts of this scale can be delivered by cutting HR and COMMS teams is for birds,” he said.
Meanwhile, Sir Keir Starmer, the prime minister, will try to show Monday that he is still investing in voters’ advantages, despite narrow public finances, setting details of a pits filling program.
