As part of Budget 2012, Chancellor George Osborne revealed the Government’s plan to expand its funding for digital Britain, including money for further broadband infrastructure, alongside a tax credit for the digital entertainment industries, extending it beyond the film industry and into video games, animation and TV productions.
While outlining an unsurprisingly austere budget macro-economic outlook, he reaffirmed the commitment to produce a UK that ‘rewards work’, is ‘aspirational’ and ‘unashamedly helps business’. Growth forecasts remain limp, at just 0.8% this year, he predicts 2% next year and 2.7% in 2014, with structural debt abolished by 2016.
However he did announce a cut in the top tax rate from 50% to 45%, and a cut in the corporate tax rate from 25% to 24%, with two further cuts to leave it at 22% by 2014. This will make the UK’s corporate tax rate amongst the lowest in the world, which Osborne says will stimulate investment.
Osborne told the Commons that the tax credits given to the UK film industry generated £1bn last year, and announced plans to match this achievement in the other entertainment industries, such as TV, animation and video games. The plan is to drive both domestic and international investment, and ensure that programs such as Wallace and Gromit continue to be produced in the UK – an announcement that was greeted with patriotic cheers.
The video game industry will also be a surprise beneficiary. The UK has had a longstanding history in the video game business, through classic game studios such as DMA design (who created Lemmings and Grand Theft Auto before being purchased by Rockstar Games), Codemasters and Bullfrog, and dominating personal computer gaming with the Amiga systems in the 80s and early 90s. The Americans and Japanese have taken over and dominated since. While the details surrounding the tax credits have not been revealed, newer UK companies such as Mind Candy, Mediatonic and Frontier Developments, will certainly benefit in a sector which is worth approximately £2.5 billion a year to the UK’s economy.
He reaffirmed the Government’s long standing goal to make the UK Europe’s tech centre by boosting its spending on digital infrastructure. The goal is still for reach 90% super fast broadband penetration, the rest supplemented by mobile options.
Osborne went a step further, claiming that the Government’s new goal is to be ‘better than Europe’ comparing its broadband plans to Singapore and South Korea’s high speed internet infrastructure. Osborne described broadband as a cornerstone of any government business policy because "that’s what a modern industrial policy looks like."
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As a result, the government will be rolling out ‘ultrafast broadband’ to the UK’s 10 major cities, including locations such as Belfast, the major northern cities and Birmingham and Bristol, to name a few.
The government will also supplement this with £50m to be spent on rural broadband to bridge the digital divide.
‘Ultrafast broadband’ has no technical definition, but the Government has used it in the past to describe BT’s high speed broadband product, BT Infinity, which could potentially reach speeds of 300MBit/s. The average broadband speed currently in the UK is 7.6MBit/s. BT is currently upgrading its national broadband network and wants to reach the 90% target by 2014 with government assistance.
EXPERT REACTION:
Chris Hardy, regional director, UK public sector at McAfee
"As expected, the outcome of today’s Budget was received with mixed reactions. The economy continues to underperform, with figures for both the deficit and unemployment reaching record highs. Promises made on increasing the tax-free allowance for the lowest paid and a lower tax rate of 45p has been hailed as good for business and for the economy as a whole.
"The Government’s ambition for Britain to become ‘Europe’s technology centre’ and promised funding of ultra-fast broadband and WiFi in major UK cities is a critical step in ensuring that the UK remains a competitive player in the world market. However, with increased connectivity and access to public services online, this also presents new opportunities for cyber criminals, as more consumers access potentially unsecure networks.
"While individual departments, such as the HMRC have invested in additional staff and intelligence to protect against cybercrime, this is not yet standard practise. With such emphasis on super-connected cities and better online access for citizens, this promise must be delivered in line with a nation-wide education and awareness programme for safety online. It is not simply about defending government systems but also about the whole supply chain."
Julian David, director general of Intellect UK
"This is exactly the call to arms which we wanted to hear from the government to put the UK on course to be the leading technology hub in Europe. However, to turn this vision into a reality we will have to go much further than today’s announcements on the creative industries and broadband and take some real action to optimise the full potential of the entire UK tech sector. We have to be world leaders not only in the creation of new technology but also its use and exploitation.
There are three things that will have to be achieved to meet the government’s objective for the UK to be Europe’s technology centre:
1. Across the economy we have to make the best use of the most up to date technology to reverse our declining productivity and boost our competitiveness.
2. Optimise the massive export potential of the UK’s technology companies large and small.
3. Make sure we are using technology in a way that enhances the lives of everyone in the UK from cradle to grave."
Phil Smith, CEO, Cisco UKI
"What’s most important from a business perspective for this Budget, is that the Government continues to take steps to create an environment in which start-ups and small businesses can grow. There is without doubt a need for the government to develop new sources for long term growth in the UK and this has already led to a significant focus on the efforts of small to medium-sized enterprises, particularly those working in the area of technology-enabled innovation.
"There has been much talk in the last year or so about technology innovation and the need to stimulate the British tech economy, particularly by promoting innovation and entrepreneurship within the tech sector. High profile projects such as TechCity in East London crystallise the ambition, particularly from the Government, for the British tech economy to bloom and act as a torch-bearer for the rest of the UK PLC as it drags itself out of a flat economy.
"This must continue and we need to foster the development of the British digital economy in order to fulfil its potential as a global technology hub. Measures outlined by the chancellor such as Enterprise finance expansion, investment in ultra-fast broadband and encouraging R&D in the UK play a critical part in this and are a positive sign of long term thinking to build a brilliant future for Britain.
Matt Hawkins, Founder and MD, C4L
"The Government’s confirmation today that it plans to roll out high-speed broadband in all parts of the UK is a huge step forward in eliminating the perception of a two-tier system that views urban areas as a ‘nexus of connectivity’ and rural areas as those that are left behind. It’s great to see that the Government is also looking to increase broadband investment into smaller cities, which are usually forgotten about when such investments are made. When it comes to rural areas in the UK, the trouble is that it’s just not profitable enough for most large providers to expand from their established customer base in urban areas to more remote communities. As a result, it’s down to local Government and initiatives such as the rural community broadband fund to reach out to the roughly 25% of the country who aren’t currently covered.
"In order to do this, they need to explore all available technologies for connecting communities, whether fibre connections, wireless transmission or even satellite broadband. These Government initiatives are key in not only ensuring that households and businesses in the area are connected, but it also opens windows of opportunity for future business investment into those areas. But these initiatives can’t help local authorities fund the entire project, and so local authorities should be looking for further investment from suppliers or other businesses that can provide the services and financial support they need. Most importantly, any connection needs to be both fast and reliable: there’s no point in connecting remote areas if that connection can be just as easily severed."
Sid Barnes, executive director, Modis
"The Chancellor’s budget gives important recognition to the vital role of information technology in strengthening the UK economy.
"We applaud his vision that the UK will "become Europe’s technology centre" and commitment to tax relief to promote innovation and grow the UK’s strong gaming enterprise. With high aspirations for the UK’s technological leadership, further thought must also be given to developing a talent pool. A lack of technology skills is hampering progress in information technology – an essential part of working life regardless of the industry sector. In recent Modis research with IT leaders, 27% are already struggling to source quality candidates with IT expertise.
"The £100m investment in superfast broadband is a vital to ensure all UK businesses can operate effectively in the digital age. Premier IT infrastructure is needed to support business operations in every corner of the country – not only for technology hubs from Silicon Glen to Silicon Fen."
Bindi Bhullar, Director, HCL Technologies
"The chancellor’s statement clearly supports his belief that by cutting taxes and embracing innovation, he will be able to turn the UK into what he calls ‘Europe’s technology centre’, and safeguard the British economy from being left behind by countries such as China, Brazil and India. Tax reforms to encourage foreign investment, allied with funding for ultra fast broadband and wireless in 10 UK cities are a good start, but I’d suggest that if the UK is to truly become the technology hub of Europe, then it will need to invest further in ensuring that those most capable of realising this dream have the necessary skills to turn it into a reality.
"I would have liked to see the chancellor truly affirming his commitment to innovation by creating new schemes aimed at ensuring that the next generation of workers, who are those most likely to embrace this new, innovative approach, have the skills they need to allow this to happen. Youth unemployment is soaring, and although the government says it will explore enterprise loans which will allow young people to secure loans to start new businesses, it still does not address the fundamental need for more significant investment in IT skills. With some sources reporting a 44 per cent drop in the number of young people going on to take higher education courses in ICT over the last ten years, and a 53 per cent drop in Computing A-levels taken since 2004, it’s clear that the chancellor’s vision for a technology-enabled Britain, at the centre could be jeopardised if this potential skills gap is not addressed.
"Far from worrying about being left behind by foreign economies such as India, the government should instead look to follow their example, and find local government sponsorship for training and support from high-tech multinational corporations. There are so many savvy young minds who are facing the prospect of long-term unemployment today, and if the government is truly serious about embracing innovation, it should invest in IT skills for the young as a means of creating jobs, and driving Britain out of economic uncertainty."
Tim Kay, technology start-up lead at KPMG
"Technology start-ups in the UK want to be able focus on their product and customers. They want it to be easy to be innovative and take risks. They want to be able to attract and retain talent in a global marketplace. They want to flex their costs in the difficult early days. They want to have an infrastructure in place that supports the UKs increasing reliance on the digital economy."
"The Chancellors budget announcement today has addressed all of these issues and gives the start-up community a lot of reasons to be optimistic. The infrastructure investments are welcome along with the improved R&D tax credits and EMI scheme rules and corporation tax relief for specific sectors. The simplification of the tax calculations for small businesses will help allow them to focus on what they should be doing rather than being tied up in red tape. The consultation on enterprise loans for young people looking at setting up their own business is welcome. The UK is often accused of lacking ambition but anything that can be done to encourage our talented graduates to look at entrepreneurship as a ‘career’ should be applauded."
"As ever there is likely to be scepticism within the start-up community about how quickly some of these measures will can be translated into practice. This can only be overcome by government trying to take a leaf out of the entrepreneurs’ books and execute quickly on ideas to make sure these benefits make a real difference to the people on the ground."
