IT industry gives Budget nod of approval

The UK IT industry and leading business groups have welcomed the government's £400m Budget tax boost for research and development (R&D).

Chancellor Gordon Brown announced the measure, aimed at improving the innovation and competitiveness of the UK in an increasingly tough global market, in his Budget speech yesterday.

"I have decided, following consultation, that we will legislate, for large companies, for a new volume-based R&D tax credit. It is a £400m boost to innovation and research in Britain and to modern manufacturing in our country," he said.

The tax credits, which will allow companies to make claims for 125 per cent of their total qualifying R&D spending, will be available to 1,500 businesses which collectively spend over £11bn a year on research.

Small and medium sized enterprises (SMEs) have been eligible for the credit since 2000 and this move extends it to larger companies.

Digby Jones, director general at the Confederation of British Industry, welcomed the news.

"This is a significant boost to UK innovation. We would like it increased but this is a good start for a credit that will make a real difference, provided the government sticks with it over the long term," he said.

Industry body the Computing Software and Services Association maintained that the tax credit will make a significant impact in boosting cutting edge technology research.

John Higgins, director general at the Association, said: "The importance of enterprise to the vitality of the UK economy has once again been recognised by the Chancellor.

"While we would liked to have seen an extension to the current three-year scheme which allows SMEs to write off the purchase of IT equipment, we believe this Budget provides a positive basis for future reform."

Other measures to benefit IT in the UK include a £420m direct cash boost to encourage SMEs to put tax and payroll systems online, and the modernising of tax treatment for intellectual property which could save businesses £200m a year.

But reactions were not all positive. The Professional Contractors Group (PCG) warned that its members will find it increasingly difficult to operate in the UK.

"What is certain is that the one per cent increase in National Insurance rates for employers, employees and the self employed will hit all small businesses including our members very hard," said Jane Akshar, chairman of the PCG.