Autumn Budget 2024: Good for public sector IT consultants; not so good for private investors
Reeves promises government investment, but tax increase may discourage private sector
The Chancellor of the Exchequer’s much trailed Autumn Budget 2024 proved somewhat mixed for the tech sector.
Rachel Reeves’ assertions that tech investment in the public sector will help improve services and productivity were somewhat offset by tax increases that are likely to discourage business investment and employment.
Overall, both government spending and borrowing will increase, but the boost to public sector capital spending, overall, is somewhat modest. The lion’s share of extra spending – £25.7 billion over the current financial year and next year – will go into the NHS, with more than £2 billion ear-marked for “NHS technology and digital improvements to increase productivity”.
Indeed, IT services firms will note the number of times that Reeves suggested in her speech that investment in new technology will help improve the public sector’s productivity, which has flat lined over the past 20 years.
“Today, we are setting a two per cent productivity, efficiency and savings target for all departments to meet next year by using technology more effectively and joining up services across government,” she said.
In addition, technology investment will be at the heart of the modernisation of HMRC and improvements to public services.
Reeves added that the UK had “fallen behind in the race for new jobs in new industries and new technology,” but claimed the government’s National Wealth Fund would “invest in the industries of the future, from gigafactories, to ports to green hydrogen” (green hydrogen remains a distant prospect, thought to give fossil fuel firms an excuse to continue business as usual – Ed.)
However, she had little specific to highlight in terms of investment or incentives for the technology sector.
On the tax side, investors in technology start-ups will chafe at the increases in capital gains tax, increasing from 20% to 24% – a lower increase than pre-Budget speculation had indicated. Basic rate taxpayers enjoying a CGT windfall will see the amount they pay increase from 10% to 18%.
Moreover, employers are facing a steep increase in National Insurance contributions, with both the employers’ rate increasing and the threshold slashed.
However, business owners were pleased to hear that Business Asset Disposal Relief, also known as Entrepreneur’s Relief, which gives a tax break when selling assets, remained in place.
The rate will go up by 1.2% to 15% from April 2026, but the bigger issue is the cut in the threshold from which it will have to be paid: from £9,100 to £5,000. This is forecast to raise £25 billion per year by the end of the decade.
That comes with another significant increase in the National Living Wage (aka, minimum wage) of 6.7%, to £12.21 per hour. Apprentices’ minimum wages will increase from £6.40 to £7.55.
The Chancellor also signalled her intention to equalise the minimum wages for over and under 21-year-olds, with a rise for under-21s from £8.60 to £10 per hour.
Altogether, these measures represent a big increase in the cost of employment, particularly for the young, apprentices and staff requiring training.
Finally, one of the biggest breaks on investment in the UK, especially in the data centre sector, remains the high cost of power – one of the highest in the world, while increasing scarcity is also a problem as power stations are closed.
Reeves therefore earmarked an extra £3.9 billion in 2025-26 for various projects intended to decarbonise industry, including contracts with 11 green hydrogen producers, and £2.7 billion of funding to continue the development of Sizewell C nuclear power station.
Computing says:
The biggest surprise in this Budget was what was not included. The tech industry was more of an afterthought, with few measures directly aimed at the important datacentre and research sectors – and, unlike past Conservative Budgets, nothing at all about artificial intelligence.
The £240 million intended to help 2.8 million people back into the workforce was welcome, though, especially if it helps people retrain to work with new tech.