Feature

Budget 2005: Lukewarm response from IT

IT groups have given a muted welcome to a Budget that included enhanced tax incentives for research and development and the promise of lighter regulation for business.

John Higgins, director general of Intellect, the software suppliers’ association, said, "Today's Budget is halfway to getting it right for the knowledge economy. However, the chancellor must do more if we are to become "the world's leading location for research-based, science-based and knowledge-based industries".

He welcomed the government’s promise of a discussion paper on R&D tax credits in the summer, after criticism from business that it R&D definition is too complicated.

Higgins called on the government to include software in the definition of R&D that qualifies for tax relief.

"We look to government to ensure that software is included within this [R&D area] as this is the area that has suffered most due to inconsistent treatment by tax inspectors."

He added the government needed to do more to encourage firms to invest in training.

"This Budget has failed to provide UK firms with the incentives they need to invest in training and still fails to offer sufficient incentive to firms considering the UK as an R&D base."

Oracle's managing director UK & Ireland, Ian Smith, welcomed the chancellor’s commitment to improving the skills of the UK workforce and boosting "knowledge-based" industries.

Gordon Brown also announced plans to lighten the regulatory load on business - a growing concern of IT directors.

The government has said it will reduce the number of government inspection bodies from 35 to nine. In addition, companies that have a good track record in meeting regulations will be inspected less.

Smith welcomed the chancellor’s endorsement of the Hampton report which has outlined proposals for reducing the burden of red tape on companies while maintaining regulatory standards.

"The UK is in danger of falling to the bottom of the productivity index unless we foster innovation and reduce red tape," said Smith. "UK businesses, small and large, face increasingly rigorous regulatory compliance and a raft of bureaucracy. Estimated costs of this regulation vary wildly from £30bn to £100bn or more."

Paul Fegan, managing director of Absolutely Training, e-learning partner of the Council of Mortgage Lenders (CML) and British Banking Association (BBA), said UK small businesses that have invested in compliance or training IT systems stand to benefit from the new regulatory regime.

"The recommendations give training managers the chance to reduce the regulatory burden and cut red tape out of the business. Training systems that demonstrate as well as educate will be in great demand," he said.

"By demonstrating that the right people have been trained at the right time, a firm can prove that it is low risk and cut its inspection time. This announcement gives small businesses another incentive to move to cheaper e-learning solutions."

Loughlin Hickey, UK head of tax at KPMG LLP said, "We applaud the chancellor’s measures to introduce simpler compliance for small companies. We are also encouraged by his decision to accept the recommendations of Sir Philip Hampton’s report which we hope will result in a collaborative approach to risk assessment."

The chairman of the Professional Contractors Group, PCG chairman Simon Juden welcomed the Chancellor’s commitment to reducing red tape on business. But he added that the Budget was a missed opportunity to create a "fairer" tax system for contractors.

"Those caught by IR35 cannot claim training against their tax, unlike the consultancies they’re competing against. IR35 makes self-assessment virtually impossible," he said.

Other IT-related measures in the Budget included:

  • Brown also announced that a three year programme of spending on "IT capital" (buildings, technology and computers) would be raised to £1.7bn.
  • The guarantee of £100m in public sector research contracts for "technology intensive" companies

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This was first published in March 2005

 

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