Technology-light budget holds hope for IT start-ups
Yesterday's budget was met with general disappointment from the IT industry, which bemoaned the fact that technology did not feature more prominently in the Chancellor's speech. But a closer look at the full budget report reveals a number of...
The theme of this budget was creating an “aspiration nation,” helping people who work and save to buy their own home, get their first job or start their own business. Osborne has clearly been on an oration course because his reference to “lighting the fires of ambition within our nation” almost brought a tear to my eye.
Beyond the rhetoric, however, is a clear ambition to support small businesses, which after all represent Britain's best hope of a quick recovery after a recession. These include the technology and creative companies residing in Tech City as well as other start-up clusters around the country.
The abolition of stamp duty on AIM shares was particularly welcomed by Tech City and the London Stock Exchange. It is thought that this will incentivise a wider set of investors to back high growth SMEs in the UK.
“Equity is the ideal vehicle for high growth businesses, providing the patient capital required to back unproven but exciting new and disruptive technologies to achieve their full potential. This move will help raise the profile of the tech sector amongst professional investors and pave the way for more UK listings,” said Joanna Shields, CEO of the Tech City Investment Organisation.
It was also announced in the budget that the Business Bank will will deploy £1 billion of new capital by the end of 2014. This includes £75 million of new funding for venture capital through an extension to the Enterprise Capital Fund programme and an expanded Business Angel Coinvestment Fund to support start-ups and early stage companies.
Meanwhile, the extension of the Funding for Lending scheme and the Seed Enterprise Investment Scheme (SEIS), which has been hailed by investors as one of the most generous investment schemes in the world, should make investing in start-up technology businesses much more attractive.
KPMG reckons that this combination of measures amounts to “one of the most supportive sets of public policy in the world if you are a fast growing technology business”.
In order to stimulate the SME jobs market, Osborne announced the creation of the Employment Allowance, which will take the first £2,000 off every company's employer National Insurance bill. This will enable anyone setting up their own business to hire someone on £22,000, or four people on minimum wage, and pay no jobs tax, according to Osborne.
This received a mixed reaction from the IT industry. Although the Employment Allowance may help some companies overcome the hurdle of bringing staff onboard, some commentators were nonplussed at the idea of employing people on minimum wage.
“We don’t need more burger flippers we need more code writers,” said Nic Scott, CEO of HR software provider Fairsail. “If the UK government is relying on innovative companies to provide the rapid growth and investment that will fuel the economic recovery we need it to recognise the value in highly skilled, world class sectors like technology.”
Apprenticeships may be one way to help grow the IT talent pool, and the government has launched a consultation on implementation of the Richard Review, to put employers at the centre of the apprenticeship system and raise standards. But Sumir Karayi, CEO of IT efficiency company 1E, made the point that this does not plug today’s increasing skills gap, and the government needs to do more to enable talent to shine in the UK.
Focusing more specifically on technology, the government announced £15 million to help businesses develop new solutions in cross-platform digital media. The Technology Strategy Board will use the funding to encourage further research and development by SMEs and larger corporations into the next generation of technology solutions.
The Skills Investment Fund will also be increased to £8 million, up from £3 million, each year over the next two years, with the Government matching voluntary industry contributions, to support skills development in the UK digital content sectors.
These are still fairly small numbers, and exactly how the money will be distibuted remains to be seen. Three more 'Catapult' technology and innovation centres are set to open by June 2013, but there is currently no information about what these centres will focus on.
Generally, there was a lack of specific measures around extending technology hubs outside of the capital, encouraging BYOD schemes, and greater cross-department IT strategies that ensure technology is used to improve service delivery and provide joined-up services.
Indeed, the government is squeezing departmental budgets still further, so public sector IT suppliers are likely to have an even harder time securing contracts, although the Small Business Research Initiative (SBRI) has been expanded so that the value of SME contracts increases from £40 million in 2012-13 to over £100 million in 2013-14.
There was also no further commitment to invest in communications infrastructure beyond a reiteration of the government's pledge to give Britain “the fastest broadband and mobile telephony in Europe”. Infrastructure will be boosted by £3 billion a year from 2015-16, but no details have been released about where this money will go.
As TechMarketView analyst Richard Holway points out, however, the fortunes of the tech sector are more likely to be affected by the health of the UK (and global) economy than by tweaking of tax rules. “The best performers will still do really well and those that are failing will fail anyway, but perhaps a little quicker and heavier,” he said.
The best thing that IT companies can do to ensure a successful future, therefore, is to continue innovating and developing solutions that solve real-life business problems both in the UK and abroad. If the government throws a titbit their way now and again, so much the better.