The US has paused its promised multi-billion-pound investment into British tech over trade disagreements, marking a serious setback in US-UK relations.
The £31bn “tech prosperity deal”, hailed by Keir Starmer as “a generational stepchange in our relationship with the US” when it was announced during Donald Trump’s state visit, has been put on ice by Washington.
As part of the deal, US tech companies pledged to spend billions in the UK, including a £22bn investment from Microsoft and £5bn from Google. But Washington has paused the implementation of the agreement, citing a lack of progress from the UK in lowering trade barriers in other areas.
British officials sought to downplay the development, which was first reported by the New York Times. The newspaper said Trump’s administration was unhappy about the UK continuing to levy a digital services tax on American tech companies and its food safety rules, which bar the export of certain agricultural products.
One British government source said it was “the usual bit of hardball negotiations by the Americans” and said that the deal to allow tariff-free British pharmaceutical exports to the US was on and off before it was finalised.
“[The US commerce secretary] Howard Lutnick is a tough guy. We understand that the Americans negotiate incredibly hard but we’ll stand our ground. They want what’s best for their country, we want what’s best for ours,” the source said.
A second government source said the development was “part of the shape of the negotiations” with Washington.
The prosperity deal included the creation of an artificial intelligence “growth zone” in the north-east of England, which UK officials said could bring in up to £30bn and create 5,000 jobs.
But the text of the agreement stated that it only “becomes operative alongside substantive progress being made to formalise and implement” it.
The decision to put it on hold is a blow to the UK government, which touted the agreement as a prize of its intensive year-long engagement with the US to avoid punitive tariffs on British exports. As part of his diplomatic charm offensive, Starmer hosted Trump for a second state visit at Windsor Castle in September, an unprecedented honour for a US president.
Starmer has resisted US pressure to scrap or amend the digital services tax, a 2% levy on the revenues of tech companies including Amazon, Google and Apple that raises about £800m a year. Trump has repeatedly threatened to retaliate against countries with digital taxes, including the UK.
The Guardian revealed that during trade negotiations in the spring, the government drew up proposals to reduce the amount paid by US tech companies and by applying the tax to a wider range of companies without reducing its total take. But so far the tax has remained unchanged.
The US has also exerted pressure over the UK’s online safety rules, with officials promising to review their enforcement during the talks.
A third area of contention has been the UK’s food safety regime, with ministers admitting that the US has raised objections to it. As part of the trade deal the government agreed to lower tariffs on some US agricultural products including beef, but it has stood by its manifesto commitment not to water down farming standards.
Any decision to weaken these could open the door to American chlorine-washed chicken or hormone-treated beef being sold in Britain, a prospect that has long been highly controversial with farmers and consumer groups.
At a press conference at Chequers in September, where he unveiled the tech prosperity deal, Starmer said it had “the power to change lives” and “renewed the special relationship for a new era”.
“It’s our chance to ensure that technologies like AI, quantum and others amplify human potential, solve problems, cure diseases, make us richer and freer, strengthen democracy not tyranny,” the prime minister said. “This is the territory on which the future will be won.”
Trump at the time said the deal would help the US and UK “dominate” in the world of artificial intelligence and “ensure our countries lead the next great technological revolution side by side”.
Peter Kyle, the business and trade secretary, was in the US last week for negotiations with Lutnick, the US trade representative, Jamieson Greer, and the US treasury secretary, Scott Bessent. Their discussions touched on whisky and steel tariffs and collaboration on critical minerals. Kyle’s department said talks were due to continue in January.
A UK government spokesperson said: “Our special relationship with the US remains strong and the UK is firmly committed to ensuring the tech prosperity deal delivers opportunity for hard-working people in both countries.”
The Guardian reported at the weekend that Starmer was poised to choose his new ambassador to Washington after interviewing the three finalists last week. The three shortlisted candidates are the prime minister’s business adviser, Varun Chandra, who was central to negotiating the prosperity deal; Christian Turner, the incoming ambassador to the UN; and Nigel Casey, the ambassador to Russia.
