IT industry sees silver lining in Budget cuts

Public sector-spending cuts and tax breaks could encourage IT innovation, according to trade bodies and tax and information security experts

The government will reduce its departmental budgets by one-quarter as part of drastic public spending cuts aimed at setting the UK economy back on its feet.

Chancellor George Osborne announced the planned public spending reductions of £31.9bn a year by 2014-15 in his emergency Budget speech on Tuesday.

"Once [NHS and international aid outlays] are taken into account, the Budget figures imply that other departments will face an average real cut of around 25 percent over four years," Osborne said.

The plans include a freeze in public sector pay for two years, unless the individual earns £21,000 or less.

Departmental spending on IT projects has been targeted by the coalition government for savings, and the Treasury has already earmarked £95m in IT cost cuts. On Tuesday, Osborne said the final departmental breakdowns will be announced in the spending review on 20 October.

The budget reductions will account for 77 percent of UK debt consolidation, with the remaining 23 percent coming through tax increases. "The coalition government believes that the bulk of the reduction must come from lower spending rather than higher taxes," Osborne told the parliament.

The public spending cuts could benefit the British IT industry, UK tech trade body Intellect argued.

"Departments will undoubtedly be looking for innovative ways to save money which minimise the impact on the front line," said Intellect in a statement. "Now is the time for the ICT industry to make robust business cases to demonstrate that, used intelligently, ICT can be used to generate wider savings in the public sector."

Entrepreneurs will benefit from a capital gains break, Intellect suggested. The 10 percent capital gains tax rate for entrepreneurs, which applies to the first £2m of qualifying gains made over a lifetime, was extended to the first £5m of lifetime gains in the new Budget.

In addition, tax rates for small businesses will be dropped to 20p in the pound, from 21 percent, in a move that was welcomed by SME support group the Forum of Private Business (FPB). "I think many small business owners will be pleasantly surprised by today's Budget," said FPB chief executive Phil Orford in a statement.

The Recruitment and Employment Confederation welcomed the Chancellor's plan to lower corporation tax by one percent, from 28 percent to 27 percent. "The reduction in the rates of corporation tax and small business tax will certainly make Britain a more attractive place to do business," said Recruitment and Employment Confederation chief executive Kevin Green. "This will bring new jobs to our economy."

Osborne confirmed that the government will not institute a 50p-a-month tax on phone lines that was proposed and rejected during the last government. The tax was intended to pay for super-fast broadband in rural areas, but was dropped from the Digital Economy Bill in April. Instead, private companies will be encouraged to invest in rural digital infrastructure, the chancellor said.

PricewaterhouseCoopers (PwC) said that scrapping the broadband tax did not solve the problem of funding the rollout of fast broadband in rural areas.

"Scrapping broadband tax will be favourably met," said the audit company's UK technology lead Barry Murphy. "However, it does not solve the issue of rural broadband, which without some form of subsidisation will remain in the dark ages — whereas urban broadband is and will attract investment and competition."

Tony Dyhouse, cybersecurity programme director for the government-funded Digital Systems Knowledge Transfer Network (DSKTN), said that while there was a risk that austerity measures could siphon money away from information security, the Budget could also stimulate innovation.

"Against a background of austerity, there will be more demand for cost-effective, innovative solutions, and hopefully academics and policy makers will work more closely with business to develop these," said Dyhouse. "This could stimulate both economic growth and improvements in the area."