Spring Statement: No tech tax shift, but Chancellor's defence push will be welcomed by Donald Trump

The spectre of Donald Trump - and further US tariffs - loomed large over the spring statement

For all the Spring Statement focused on the future of the British economy, the spectre of US president Donald Trump was never far away. It was evident in the opening remarks from Chancellor Rachel Reeves, who spoke of Britain’s place in “a world that is changing before our eyes.”

The Trump administration is largely responsible for those geopolitical shifts, and unsurprisingly key aspects of the Spring Statement will be of particular interest to officials in Washington at a time when Britain is fearful about the next raft of US tariffs.

Contrary to some speculation, Ms Reeves did not address any potential changes to the digital services tax, a 2 per cent levy that impacts major US tech giants such as Amazon and Meta. There has been talk the tax could be watered down, or neutered entirely, as part of efforts to dissuade the Trump administration from imposing more import taxes on the UK, and discussions are ongoing about its future.

The uplift in defence spending, and commitment to renew Britain’s nuclear deterrent, will be welcomed in Washington. Picture: James Glossop/WPA pool | Getty Images

Instead, the main area of interest to the US government in the Spring Statement was the ongoing commitment to a significant upturn in UK defence spending. Amidst threats from the Trump White House to pull support from Nato, or leave the alliance entirely, Prime Minister Sir Keir Starmer has already announced that military spending will increase from 2.3 per cent of GDP to 2.5 per cent by April 2027.

It is a commitment that Ms Reeves described on Wednesday as the biggest sustained increase in defence spending since the end of the Cold War, with the goal of reaching 3 per cent in the next parliamentary term.

Added to this, Ms Reeves announced a £2.2bn uplift to the Ministry of Defence’s (MoD) budget for 2025/26 - a step she described as a “further downpayment” in service of Labour’s ambition of turning the UK into a “defence industrial superpower”.

Ms Reeves told the House of Commons the benefits of defence spending would be felt by people in all nations and regions of the UK. But it is highly likely the US government and US businesses also have much to gain.

The most obvious example is via the UK government’s commitment, outlined in the Spring Statement, to prioritise the modernisation and renewal of Britain’s nuclear deterrent. While the UK produces and assembles its own warheads, the Trident missile systems continue to be manufactured in the US.

Rachel Reeves announced a £2.2bn increase in the MoD budget. | James Manning/PA Wire

The statement by Ms Reeves also referenced increased investment in advanced technology, such as “directed energy weapons”, which use focused energy, such as lasers or radio frequencies, to disrupt or damage targets. Although there are some home-grown initiatives in this field, such as DragonFire, the US is well ahead in the development of laser directed energy weapons.

US defence suppliers and the Pentagon will also be cheered by the promise to overhaul MoD procurement. In 2023/24, the MoD spent £614m via foreign military sales (FMS) agreements with Washington, with a further £1.43bn going to the US government and US Treasury, predominantly for F-35 and Trident systems.