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Budget offers little to cheer the IT industry

Nick Huber

IT users and suppliers were left disappointed by last week's Budget, despite Gordon Brown's promise of enhanced tax incentives for research and development and lighter regulation for business.

Business and IT groups were hoping the Budget would include tax incentives to encourage investment in broadband and measures to help UK companies compete with low-cost services from overseas.

On the positive side, the chancellor announced plans to extend the R&D tax credit for medium-sized companies. And following criticism that rules governing the R&D tax credit are too complicated, the government has promised to hold a consultation on the subject in the summer.

This consultation will gather evidence on the R&D activity of UK firms and examine how R&D tax credits can support growing firms.

IT suppliers group Intellect welcomed the chancellor's plan to deliver greater consistency in the R&D tax credit and called on the government to ensure that software is included in the definition of R&D that qualifies for tax relief.

"The Budget is halfway to getting it right for the knowledge economy," said Intellect director general John Higgins. "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."

David Roberts, chief executive of IT directors' group the Corporate IT Forum, said the Budget failed to offer measures to help businesses fill current gaps in business/IT skills.

"Considering the importance of IT to all businesses and all consumers, I find it surprising how little there is in this Budget that helps towards making IT less expensive for everyone," he said.

However, Roberts welcomed the announcement of further financial incentives for employers using the Home Computer Initiative. The scheme allows employers to take out tax-free loans for computer equipment to be used by their employees at home.

Ian Smith, Oracle managing director UK and Ireland, applauded Brown's commitment to improve the skills of the UK workforce, boost knowledge-based industries and reduce red tape.

The government said it would 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 often.

"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 from £30bn to £100bn or more."

IT highlights from the Budget

  • Review of R&D tax credit; credit extended for medium-sized firms
  • A further £25m of funds per year between 2006 and 2008 to provide IT for schools in deprived areas
  • Guarantee of £100m in public sector research contracts for "technology intensive" companies
  • In education, Brown said older pupils would get the opportunity to lease computers for home use
  • The government has made £2bn in IT-driven savings and expects to hit the target of £21bn savings by 2008, as recommended by the Gershon Report.

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