Brown's Budget places IT at the heart of delivery of public service modernisation

Chancellor Gordon Brown's Budget last week placed IT at the heart of government efforts to modernise public services and help...

Chancellor Gordon Brown's Budget last week placed IT at the heart of government efforts to modernise public services and help achieve billions of pounds in efficiency savings.

He also highlighted the importance of IT investment at the heart of the UK economy and announced measures to encourage more research and development.

The type of expenditure qualifying for research and development tax relief will be expanded to cover software, and the Department of Trade and Industry has published new guidance to clarify the definition of R&D. These measures received a cautious welcome from IT professionals and suppliers.

Capital allowances for small and medium-sized enterprises investing in equipment, including software and hardware, were also extended from 40% to 50%.

Turning to Whitehall, Brown announced a merger between the Inland Revenue and Customs and Excise. The success of the project will depend heavily on the ability of two departments with a troubled history of IT projects being able to merge their systems.

The findings of a year-long efficiency review led by Peter Gershon, former head of the Treasury's Office of Government Commerce, into how new technology can make government procurement more efficient, will be revealed in the government's spending review in the summer, according to the chancellor.

Philip Virgo, strategic adviser to the Institute for the Management of Information Systems, said Brown's reference to the Gershon review in the statement was a turning point for the role of IT within UK government and the economy.

"This is the first Budget where the whole of the delivery is critically dependent on IT," he said. "The rest of the stuff is small beer."

Andrew Bell, technology industry leader at professional services firm Pricewaterhouse-Coopers, said changes to the definition of R&D would help company IT investment qualify for tax relief.

"The new R&D definition said software enhancements do not have to be earth shattering, but do have to show an advancement," he said. "In our experience, lots of companies, particularly the smaller ones, have been put off claiming for R&D tax relief."

But Brown's tax incentives were dismissed as too cautious by others in the IT industry.

Intellect, the trade association for the UK IT, telecoms and electronics industry, expressed its disappointment that the chancellor had failed to increase the effective R&D tax credit rate and said that it still failed to act as a real incentive.

"This Budget has left us seriously concerned about the outlook for the UK as a base for research, development and innovation," said Tom Wills-Sandford, Intellect's director of campaigns.

However, Intellect welcomed the chancellor's plan to produce improved guidance in support of the tax credits.

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