Barely a Budget

As anticipated the budget delivered by Alistair Darling postponed major decisions on spending cuts until after the May election, with Mr Darling warning in his speech that the 2011 spending review would be the “toughest in decades”. Assuming that he is in the post to conduct it of course.

The apparently wealthy remain a key target, along with the usual rises on alcohol, tobacco and petrol, although the latter will be staggered over the next year. A 1 point rise in National Insurance was also confirmed.

High rate tax relief remains on pension investments which is some good news, along with the increase in the stamp duty threshold to £250,000. As the majority of IT contractors will already be on the housing ladder and above this threshold, it is unlikely to affect many. Stamp duty rates from £250,000 now rise from 0% to 3%, so many contractors may have to settle for a lower selling price when they come to move to compensate. If you are fortunate enough to be looking to buy a home worth over £1million, expect an increase from 4% to 5% in stamp duty.

Small Companies’ Corporation Tax has also been frozen at 21% for 2010, but personal income tax remains a minefield with staggered changes to Personal Allowance, and the introduction of a new 50% tax band for those earning in excess of £150,000, in addition to the National Insurance amendments. Most underplayed has been the penalty for tax evasion of up to 200% where there is an offshore element. It is not clear to me whether this is set to target those offshore funds commonly invested in by some umbrella companies used by contractors.

Limits on Individual Savings Accounts has been increased in line with inflation, meaning the contribution limit for ISAs rises to £10,200, of which £5,100 can go into a cash ISA , leaving contractors a safe haven to keep their savings from HM Revenue and Customs in this tax efficient investment option.

There was very little in the budget to help the IT industry, although System Integrators and outsourcers can expect to pick up work as the government plans to reorganise back office functions, moving thousands of civil service jobs out of London. A total of £11 billion is to be cut from public sector spending, £4billion of which is to come from the back office including IT costs to be reduced by 2012/2013, and £600 million expected to be cut from the failing NHS National Programme for IT.

The Chancellor did however reiterate his commitment to ‘Digital Britain’ and the universal domestic broadband, which is to be funded by the 50p broadband tax on landlines, supporting the rollout to rural areas across the UK.

Whilst the Budget seems to have focused on wringing the most money from the smallest section of the voting population, a politically shrewd move in an election year, to shore up the economy and plug the gap in public spending, we are at least seeing definite signs of recovery in confidence in the private sector. We anticipate further equilibrium between the demand for skills and supply of contracts across all IT and Business Systems disciplines, and a reduction in the reliance our industry has had on public sector projects. Whilst little has been done again to proactively aid the entrepreneurial small business, we are reminded of the greater economic cycles at work that should effect an increase in new business and IT development, and a steady improvement of rates.

Martin Pite, Team Manager, Vector Resourcing