Emergency Budget Delivers Few Answers for IT Industry

Chancellor George Osbourne delivered what he calls a “tough but fair” emergency budget today, however very little was clarified for the IT and Technology industry which has been left waiting until the Spending Review in October. He has promised to balance Britain’s books within five years with this “unavoidable” budget.

Cuts of 25% over four years were announced for most government departments, which could easily affect many IT projects, and with a public sector pay freeze for two years, Government IT workers will be hit financially. The Government IT spending cuts we are expecting such as £1.7 billion from IT programmes, suppliers and property will be announced in full in the Spending Review, but the Chancellor has taken a hard line already saying only projects with “significant economic return to the country” will be retained. Databases, ID cards and second generation biometric passports are already scrapped with the ContactPoint database of children also on the hit list.

On a positive note, entrepreneurs will see a more generous capital gains regime and steps will be taken to increase bank lending to SMEs. Small businesses will also benefit from a reduction in Corporation Tax from 28% to 24% over the next five years, whilst new businesses outside London and the South East will be exempt from £5,000 NI payments for up to 10 employees.
The 50p per month broadband tax for consumers has been abolished, leaving the communications industry to fund a large part of the national high speed broadband rollout, with some money expected from any digital switchover underspend gained within the TV licence fee.

Other key points include a VAT rise to 20% in January 2011, child benefit has been frozen, tax credits for higher earning families will be reduced, and means-tested pensions will be reintroduced. Alcohol, cigarettes and fuel escaped with no additional duty and Council Tax has been frozen. The threshold for income tax will rise to £7,475 making around 900,000 people tax exempt and saving basic taxpayers around £200 annually. A new levy on banks is set to raise over £2 billion once it has been fully introduced, but Video games companies will not receive the tax relief planned by Labour for their industry.

Even the Royal Family didn’t get escape Osbourne’s budget with a freeze on Civil List payments at £7.9m a year, also to be subject to scrutiny by the National Audit Office in future.

We anticipated a tough budget, but on the whole it does seem to be fair providing it can deliver and reduce the country’s deficit. The real affect on IT and Technology will be known in October, for now the industry is growing and hopefully will continue to do so as there is little in this budget to shatter overall market confidence.