As the dust settles on the Chancellor's Budget, the IT industry has
been left with a sense of frustration and disappointment about
exactly how it will affect them. Mike Simons finds out what they
really wanted
IT-friendly sound-bites, some sound policies and good intentions
littered lastweek's Budget. But there were also missed
opportunities, industry experts said.
"It was a business Budget, but not a bold one," said Ian McDade,
technology companies partner at PricewaterhouseCoopers.
Chancellor Brown boasted of the boost he was giving to
e-commerce, but industry experts were not overwhelmed by the detail
behind the headline announcements.
For the IT and telecoms departments, the key features of Brown's
Budget were tax credits on IT investment by small- and medium-sized
companies, tax credits on research and development, and in
addition, the Chancellor clarified what qualifiesas R&D,
announced major changes to the capital gains tax system and
encouraged employee share ownership schemes.
E-commerce
Despite Brown's e-commerce-friendly rhetoric, David Graham,
PricewaterhouseCoopers' expert on direct taxation of electronic
commerce, said the Chancellor had not gone far enough.
"These are steps in the right direction, but only small steps.
The 100% write-off of tax for small businesses investing in
technology may not affect many dotcoms as they are making losses,
anyway," Graham said.
He said the Budget contained little incentive for senior
employees - such as IT directors - to consider leaving traditional
bricks-and-mortar companies for dotcoms.
As for plans to discuss how the UK can attract capital funds,
Graham said there was a need to free up funds, but questioned how
quick the consultation would be.
"If you go to Sand Hill Road in Silicon Valley, they are said to
be ready to throw money at you to start dotcoms. That's hardly the
case here," he explained.
Robbie Vann-Adibé of Web consultancy Viant had a different
take.
He pointed to an influx of funds to European markets from US
venture capitalists, and suggested market forces were already doing
the job.
Vann-Adibé agreed that plans to allow dotcom firms recruiting
essential personnel to offer share option incentives of £100,000
for up to 15 employees were "too low".
Share options
John Higgins, director-general of the Computing Services and
Software Association was disappointed that the Chancellor failed to
address a National Insurance liability for businesses that give
staff share options.
If the company floats and the shares increase in value, the
employer has to pay NI contributions against the value of these
employee shares.
"This is a tax on growth," said Higgins.
Ian Mitchell, IT analyst at stockbroker Beeson Gregory, and
Computer Weekly columnist, echoed the point.
"There is a tremendous atmosphere in the UK for new technology
start-ups, but the Government has got to sort out the situation
over employers' National Insurance contributions on share options,"
he said.
"Ministers have announced a consultation. It should be quick and
this burden should be removed."
Communications
Telecom user groups were not enthusiastic about the Budget. The
Chancellor missed an opportunity to speed up high-bandwidth access
to the Internet for business, according to David Harrington,
director-general of the Telecommunications Managers Association
(TMA).
"Although capital gains tax incentives for SMEs investing in
technology is welcome, larger companies in a position to expand
broadband access - like the ISPs - haven't been given an incentive
to put in the massive investment necessary to rival BT," he
said.
"Even BT hasn't been given that much of an incentive to expand
its broadband initiatives to rural areas," he added.
Telecommunications Users Association chairman Bill Mieran said:
"The R&D incentives are obviously welcome, but what we really
need is new entrants in the telecoms fields to rival BT."
Skills shortage
Moves to beat the skills shortage didn't impress Philip Virgo,
strategic advisor the Institute for the Management of Information
Systems.
"When it comes to overseas workers, we are already competing
head-to-head with the Americans and the Germans," said Virgo.
"There are worldwide shortages of IT skills. The rest of Europe
has the same e-commerce shortages as we do but, in parallel, they
have to get their systems euro converted by 2002," he explained.
"They will have to compete for skills harder than we are. It's far
more important to train and to keep our own people."
Industry hopes that the Chancellor might amend its IR35
legislation to increase tax allowances for training have not been
realised. "IR35 was a done deal," said PricewaterhouseCoopers'
McDade.
Public sector
John Serle, of the Society of IT Management, which represents
local government IT chiefs, was enthusiastic about the Budget, but
thought more could have been done on training. He wanted the
Chancellor to reintroduce a measure abandoned by the last Tory
Government and offer tax breaks to organisations that train staff
to agreed levels.
Serle welcomed the Government's plans to increase public
spending by £4bn, but said: "We need this to be 'invest to save'
money, providing a sustainable infrastructure that can drive down
costs year on year."
NHS IT managers were pleased at the Chancellor's announcement of
£4.9bn extra funding for the National Health Service, as part of a
four-year 6.1% above-inflation spending commitment.
"If it takes pressure from the NHS overall it could be good for
IT," said one IT manager from a health authority in the
Midlands.
The NHS has a £1bn modernisation fund for IT, but this is not
ring-fenced and sometimes ends up in non-IT projects. The funding
boost could make this less likely.
IT managers at trust level were less optimistic. One said it was
rare that funding increases ended up with IT, would be more likely
to be directed to frontline staff like doctors and nurses.
Budget highlights for IT
- Relaxation of rules on work permits for It staff
- SME tax credits of 100% for hardware, software and online
infrastructure investment
- Research and development tax credits of 30% for SMEs
- Employee shareholder schemes boosted with 10% capital gains
rate
- The Chancellor missed an opportunity to speed up high bandwidth
access to the Internet