Budget analysis: A broadly positive response from the tech industry

With tax breaks and incentives and apprenticeship schemes likely to give the sector a boost

Today's Budget was billed as a Budget for growth, with Chancellor George Osborne differentiating it from October's Comprehensive Spending Review in those terms.

"The last Budget was about rescuing the country's finances, while this Budget aims to establish stability and reshape and help grow the economy," he said.

But will the Budget help grow industry and the technology sector in particular?

Several key industry spokespeople think that it will.

Tax breaks for tech industry

Niki Dixon, head of technology for financial advisers Grant Thornton, said that there were several pleasant surprises for the tech sector in the tax breaks announced in the Budget.

The Dyson consultation into how to boost innovation in the economy has only just closed and yet the tax credit recommendations made within that were upheld by this Budget.

Osborne's announcement of an increase in tax relief for research and development from 200 to 225 per cent was the result.

"I was impressed that the Treasury had moved so quickly on the back of the Dyson report," said Dixon.

However, Tom Wills-Sandford, deputy director of IT body Intellect, said that this tax relief was targeted at the SME industry and that had there been more money available he would have liked to have seen the breaks extended to larger corporations.

He also explained that unless the goverment has pre-approved the tax breaks they would need to be signed off by the European Commission. "This could take until the end of the year," he said.

Grant Thornton's Dixon added that the second pleasant surprise for her was the increase in tax relief for entrepreneurs from 20 to 30 per cent.

Individual investors will also be able to invest twice as much in businesses (with the threshold being raised from £0.5m to £1m) and benefit from these breaks.

In addition, the amount that Venture Capital Trusts can invest while still benefitting from tax relief has been increased from £2m to £10m. Dixon argues that this should significantly stimulate growth of smaller tech companies.

However, there were some disappointments according to Dixon, with Osborne's tax simplification plans overlooking the IR35 tax rate, which will remain in place. This is a tax that many in the IT industry argue penalises freelancers unfairly.

Dixon also explained that the doubling of entrepreneur's relief from capital gains from £5m to £10m will have little impact, because very few make gains of more than £5m. "This was a headline grabber and will have little practical effect," she said.

Public sector IT

Although the broader announcements made in the Budget, such as the Corporation Tax reduction, enterprise zones and funding for science and innovation, may provide incentives for multinational technology companies to set up in the UK, Massimiliano Claps, research director at analyst firm Gartner, said that he was surprised that there wasn't mention of how IT can help deliver efficiency savings within government.

"There have been several government reports looking into this, these include the recent NAO report, the ongoing Public Accounts Select Committee report, and a report from the Institute for Government, all of which looked at how IT can help reduce spending in government, yet Osborne made no mention of it.

"This isn't a good sign for the Cabinet Office or the government CIO because it may mean that their ICT strategy isn't given backing by central government."

Small businesses

The move to reduce the main rate of Corporation Tax over the next three years from 28 to 23 per cent will be welcomed by all sectors of the industry, although the Federation of Small Businesses said it was disappointed that there was no mention of how the small business rate of 21 per cent would be affected.

Similarly, the reintroduction of enterprise zones across the country will be welcomed, with the government announcing that 21 new zones would be created in areas that include Leeds, The Black Country, Solihull and Sheffield.

These zones will provide superfast broadband to small and medium businesses, as well as 100 per cent discount on business rates for five years.

Training

Technology and IT is an area that benefits from apprenticeships, with several schemes having been launched in recent months including an e-Skills Boot Camp launched last month and several schemes from IBM and BT launched late last year.

Osborne announced that a further 50,000 apprenticeship places would be made available. This is in addition to 80,000 more work experience places, meaning 100,000 places will be available over the next two years. This might help provide industry with young people that have skills required for business IT.

In addition, the government will expand the University Technical Colleges programme to establish at least 24 new colleges by 2014.