Chancellor George Osborne has delivered major breaks to technology businesses in today’s Autumn Statement.
He is cutting the main corporation tax cut to 21% from April 2014, claiming this will be the lowest rate of any Western economy.
Osborne also announced a 10-fold increase in first year capital allowances – from £25,000 to £250,000, and while that might not be sufficient to encourage tech start-ups to invest heavily on hardware and on-premises software, rather than SaaS, it could help non-tech SMEs invest in technology.
Tech companies may be the beneficiaries of other measures announced in the Autumn Statement including a 25 percent increase in budget for UK Trade and Investment, which promotes UK companies overseas, and a new business bank with an initial £1 billion funding.
Incentives to investment in small-cap UK companies and, AIM-listed companies, could further boost innovative software and IT services companies.
Large systems integrators are likely to feel the squeeze as the government continues to cut central government departmental budgets – with a 1 percent spending reduction next year and 2 percent the year after. This ‘will disproportionately affect back office spend’ said Richard Holway, founder of analyst TechMarketView, as front line staffing is prioritised.
While maintaining and improving services will depend on technology innovation, budgets will be squeezed, meaning opportunities for outsourcers, but also the prospect of new and potentially risky forms of contract making an appearance.
The Autumn Statement was notable for Osborne’s announcement that a previous attempt at innovative financing of government contracts, the Private Finance Initiative, was ‘discredited’ and would be replaced.
The squeeze on departmental spending and the focus on back office cuts is also likely to strengthen the drive to open standards and smaller bite-sized contracts, as the government seeks quantifiable, direct business benefit for every pound of taxpayers money spent.