Mixed Budget bag for technology

Chancellor Gordon Brown introduced a new 50% capital allowance rate for small companies investing in plant and machinery, but has not extended the popular 100% first-year allowance on technology purchases.

Innovation and technology have long proved to be popular buzz-words in Brown's Budget lexicon, and despite the loss of the technology-specific allowance, 2004 was no exception.

He used the opportunity to remind companies of the new guidelines for R&D tax credits set out in his December pre-Budget report. And if the IT industry was saddened by the loss of the 100% capital allowance, it might be soothed by the estimated £6bn the government plans to spend on its own administrative systems over the next four years.

Brown's shock announcement that Whitehall would cut 30,000 jobs in the next four years and relocate thousands of civil servants from London to the regions is based on an ambitious investment programme in "back office technology".

In his Budget speech, Brown explained, "By cutting in real terms the administrative budgets of departments, by reforming procurement both nationally and locally, by unlocking productivity gains from technology and workforce improvements, departments are to achieve... annual efficiency savings of 2.5% a year, boosting effective front line service delivery by £20bn a year by 2008."

Various executives from software houses such as Microsoft and consultancies been seconded to Whitehall during New Labour's seven years in power and they have obviously had an influence on a Chancellor who is feeling the pressure to cut overheads and reduce borrowing.

Technology salespeople can make impressive promises, but the10-year history of the EDS-Inland Revenue relationship is a testament to good intentions gone wrong. Faced with the implementation of self assessment, the merger with the Contributions Agency, the move to "eGovernment" and constant changes in direction, EDS struggled to deliver working systems on time. The 10-year contract costs more than doubled to £2.4bn, with some £533m estimated to have resulted from extra work required by the current government.

Coincidentally the government has already earmarked £4bn for the Revenue's Aspire project - the IT services contract awarded to Cap Gemini Ernst & Young, the successor to EDS. But with the EDS example in mind, Aspire's future is open to question - the Aspire tender was awarded on the basis of a Revenue-only service, and will now be expected to cope with Customs' computer systems as well.

Given the lamentable performance of legacy EDS systems and the ill-fated NIRS2 contributions systems implemented by Accenture, the possibility beckons that the new unified tax agency will scrap its existing kit and come up with a newer and faster distributed system that will deliver better returns on Gordon Brown's technology investment. Business software developers will be living in hope for the next year or so.

Overseeing this technology-driven efficiency drive will be a new head of the Office of Government Commerce.The man who came up with the strategic plan the Chancellor issued alongside his budge, Sir Peter Gershon, is stepping down and being replaced by his deputy, John Oughton.

In addition to the 2.5% savings on administration set out in Brown's Budget speech, the OGC will implement a new approach to procurement designed to realise £3bn in procurement savings to 2005/06 and a further £3bn by 2007/08.

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IT vendors are bracing themselves for a spending spree as small businesses make the most of the 100% FYAs until the end of March. These were introduced in the 2000 Budget and cover:

Computer hardware, peripherals and network cabling
• WAP and 3G mobile phones and PC cards, and also "set top boxes that are connected to televisions and are capable of receiving and transmitting information to and from data networks", and
• Software or the purposes of the items listed above

Related items

• REV BN 38 Increase in rate of first-year capital allowances for small businesses
• 100% IT tax break soon to disappear
• MPs question Revenue's Aspire IT project choice
• Cap Gemini E&Y beats EDS on tax IT contract
• Revenue's IT auction turning into a farce
• Tax system up for grabs from 2004
• MPs express concern over NIRS2 arrangements
• Revenue blames New Labour for spiralling EDS costs
• Missing Revenue IT performance targets costs EDS £2.5m