Raise digital services tax

Policy baseline

Party costings claim GBP 2.09bn from raising the DST to 6 percent. International response and platform pass-through are key uncertainties.

• Targets large digital platforms.
• Users and advertisers may bear costs.
• International tax rules may change.

Core trade-offs

The direct beneficiaries are the exchequer and domestic competitors. The costs fall mainly on large platforms, advertisers and users. The main economic question is pass-through can raise online advertising costs.

• The exchequer and domestic competitors gain most directly.
• Costs fall mainly on large platforms, advertisers and users.
• Key risk: pass-through can raise online advertising costs.

Fiscal impact by 2028-29

-GBP 3.0bn to -GBP 0.4bn. Central estimate: -GBP 1.6bn.

• Positive numbers mean net fiscal cost; negative numbers mean Exchequer savings.
• Main channel is the scored tax, spending or delivery change.
• Offsets depend on tax receipts, behaviour and pass-through.
• Range reflects uncertain implementation and economic response.
• This is not an official costing.

Economic impact by 2028-29

• Jobs: Little direct job effect; sector-specific taxes can reduce hiring in affected industries.
• Wages: Legal taxpayers may shift costs to workers, owners or consumers over time.
• Prices: Some pass-through likely where market power or fixed demand exists.
• GDP / productivity: Usually mildly negative before spending use; stronger if investment or mobility responses rise.

Assessment

This is a real trade-off, not a free gain. The exchequer and domestic competitors benefit, while large platforms, advertisers and users bear most costs. Overall output depends on behaviour, capacity and pass-through.

Confidence: Medium-low. Higher on the policy target and fiscal channel; lower on behaviour, pass-through and economy-wide effects.

Main risks

• Behavioural response: Avoidance, timing and relocation can reduce receipts.
• Incidence uncertainty: Legal taxpayers may shift costs to workers, consumers or investors.
• Investment risk: Higher taxes can reduce investment where returns are mobile.

Safeguards

• Use HMRC microsimulation before legislating.
• Close avoidance routes before rate rises.
• Review receipts and investment annually.

Academic evidence

UK government evidence

Sources

• PolicyLens illustrative scenario methodology for raise digital services tax Internal - PolicyLens, 2026
• Corporate Income Tax Reforms and International Tax Competition Academic article - Devereux, Griffith and Klemm, Economic Policy, 2002
• Tax Incidence Academic chapter - Kotlikoff and Summers, Handbook of Public Economics, 1987
• Funding a Fair Deal: Liberal Democrat Manifesto Costings Party costing - Liberal Democrats, 2024
• For a Fair Deal: Liberal Democrat Manifesto 2024 Party policy source - Liberal Democrats, 2024

Other Liberal Democrats policies

• Introduce free personal care
• Raise Carer’s Allowance by GBP 20
• Create a Carer’s Minimum Wage
• Scrap two-child and benefit caps
• Recruit 8,000 more GPs
• Guarantee urgent NHS dentist access
• Put counsellors in schools
• Extend free school meals