UK companies went on an IT spending spree in the run up to Christmas, brushing aside last minute fears about the millennium bug. According to the latest Computer Weekly/Kew Associates survey of IT spending, Q4 1999 IT spending rose by 18% - growing faster than any time in the last two years. Overall IT budgets grew by 13.4% in 1999. IT budgets this year are forecast to advance 18%, to £60bn and will be close to £70bn in 2001.
Quarterly growth in IT spend closely mirrors changes in UK gross domestic product. But the Office of National Statistics said last month that preliminary Q4/1999 figures suggested "some weakness in computing services". If this is confirmed, the CW/Kew findings could mean that the Q4 spending spree went mainly on hardware, software and salaries.
The headline figure of 18% growth forecast this year reflects strong spending on internet related services.
Together, these three Internet related categories will rise from 9% of overall spend in 1997 to just under 13% in 2001.
Among the various types of computer hardware, spending on portable PCs is growing fastest: 25% in 2000 and 25% in 2001. However, UK businesses are still wedded to desktop systems: spending on portables is still less than one-third of that on desktops, though the gap is set to narrow in 2001.
Growth in spending on both PCs and servers stand at 9% in 2000, but are expected to surge next this year, with server spending growth rising to 18% in 2001.
The survey shows that, for most companies, the years of big spending on Y2K remediation were 1998 and 1999.
Other Y2K effects suggested in the survey include:
Overall figures show that, across the whole economy, spending on permanent staff takes up more than a quarter of all IT budgets (27%), with contract staff adding a further 3% on top. The proportion of IT budgets spent on permanent staff declines slightly over the five year period (1997-2001) but the absolute figure grows from £11bn to £18.2bn.
Hardware made up 27.5% of the average 1999 IT budget, though this is set to fall to 26.4% this year.
Software makes up 14% of all spending, and the trend is rising - from 12.3% in 1997 to a projected 14.6% of all spending in 2001. By software category, applications form the biggest segment of software spending (5.3%) and fastest growing. Spending on applications will grow 23% in 2000 and is set to rise 31% thin 2001.
Computer services - from consultancy to facilities management to maintenance - make up around a quarter of all spending.
Sector by sector trends
It is still the retail, finance and computer services companies which dominate UK expenditure on IT. Together they accounted for 38% of all IT spending in 1999.
IT spend per employee is highest in computer services (£14,376 in 1999) and high in banking and finance (£10,758). However, despite its large overall spend, the retail, wholesale and catering sector spends well below the £2,143 average spend (£1,118). Only the energy and water utilities are in the same league as financial companies in terms of IT spend per employee (£10,198).
Construction, traditionally the industry with the lowest IT spend per employee, still trails the rest (£564) - but its IT budgets are growing faster than any other sector. Last year construction spending on IT grew 23% which it is set to repeat this year. Only the retail/wholesale sector predicts similar growth level.
In manufacturing - in particular metal goods and engineering firms - there is a clear trend to heavier IT capitalisation. Together the three sectors representing heavy industry will account for 16.6% of all IT spending in 2001, compared to 15.7% in 1997. However, during the same period the average IT spend per employee will more than double, from £1,617 to £3,318.
The health service, another sector that traditionally spends well below average, spent £878 per worker last year. But growth in the IT budgets of hospitals and GP surgeries is still below the national trend, at 14% this year and 12% in 2001. No part of the public sector is expanding its IT budget as fast as the national average, although education will be close this year with 15%.