Chancellor looks to tech sector to drive recovery

Box of delights? Smaller public sector suppliers are among the Budget winners, while large IT services firms are likely to lose out because of the lack of money available for big government IT projects

Last week’s Budget, and the associated Operational Efficiency Review (OER), was one of the most significant for IT professionals for many years. We asked industry experts for their views on the good and bad news, and look at how the Budget will help the UK’s beleaguered economy to recover by cutting public spending or making more money for businesses.

How IT can help the UK save money

The OER estimates that there are £3.2bn of annual savings to be made in public sector IT spend, about half of which come from better collaborative procurement. And a further £4bn could be cut from back-office spend, some of which would be enabled by IT.

The head of the IT section of the OER, former Logica chief executive Martin Read, has been the first to admit that his figures are vague, saying in the report that total government spend on IT could be anywhere between £12.5bn and £18.5bn.

But despite previous efficiency programmes in recent years, such as the Gershon report, Read believes more can be done. The OER found that the fragmented nature of the public sector means IT is not always used in the most efficient way.

“Devolution of delivery can provide greater responsiveness in the provision of services, but unchecked proliferation of separate back-office operations and IT systems and processes can and does lead to significantly increased costs,” says the review.

Read recommends tighter auditing of IT spend, strengthened governance of large IT projects, improved co-ordination to stop overlap between departmental projects, and greater standardisation of IT systems across the public sector.

But the review met with opposition in local government.

One council IT leader told Computing he was concerned that the “salami slice” approach to efficiency was shortsighted and not conducive to long-term savings.

“There needs to be investment in IT to drive innovation in the way public services are delivered in the long term –­ this review demands short-term savings, which does not encourage that approach,” he said.

Flexible working, more online services, and shared services were all identified as long-term money-saving schemes that required short-term investment.

A similar near-term investment in skills would help co-ordinated procurement and provide long-term savings in central government, said John Higgins of technology trade body Intellect.

“Departments need to collaborate much more to ensure there is standardisation and that solutions can be re-used,” he said.

“Senior responsible owners in charge of projects need to be better selected and better skilled, and chief information officers need to be empowered to be able to choose proven standard solutions to common needs.”

But too much standardisation could endanger the agility of local government IT departments, warned Steve Palmer, president of public sector IT user group Socitm.

“These programmes always need to be delivered in partnership with central government and we can do better on our information sharing there, but a one-size-fits-all approach doesn’t work,” he said.

However, a co-ordinated public sector e-procurement system will help achieve a government target that 80 per cent of public sector purchasing be delivered by a central procurement service.

How IT can help the UK make money

Alistair Darling’s focus on the technology and creative sectors as industries that will lead the UK out of recession led to Budget measures that will please many tech firms.

An indication that taxation of innovative activity will be lightened is perhaps the best news and will give rise to more intellectual property in the UK, according to Peter Cussons, tax partner at PricewaterhouseCoopers.

“This would bring the UK up to speed with regimes such as Belgium, Luxembourg and the Netherlands –­ putting the UK at the forefront of the larger EU economies,” he said.

And a doubling of the capital allowance rate to 40 per cent for this year will bring forward investment in the UK’s broadband infrastructure from communications firms.

But advisory body the Broadband Stakeholder Group is concerned this will not be enough to ensure the timely and widespread availability of next-generation broadband.

“More needs to be done to extend availability beyond urban areas,” said a statement from the group, highlighting recent research which suggested the long-term benefit of state intervention could greatly exceed the costs.

Such a digital framework is vital to foster smaller firms in the creative and technology industries, which are reliant on high-speed broadband.

Better news comes in the form of a £750m strategic investment fund for tech startups, which will provide protection at a time when the recession is laying waste to many firms that could be drivers of future growth.

But technology trade body Intellect wanted more, calling for a public-private venture capital partnership that would be a successor to 3i.

“Downturns can spark great innovation, particularly in the technology sector, but finance is needed to turn that innovation into the jobs and growth of the future,” says Intellect’s response to the Budget.

And the commitment to a universal broadband speed of just 2Mbit/s has disappointed critics such as analyst Ovum, which said that broadband strategy should be much more ambitious to future-proof Britain against losing firms to more digitally enabled countries overseas.

“Other nations are formulating plans for deploying speeds in excess of 50Mbit/s, and it is this scale and ambition that was lacking from the Budget,” said Matthew Howett, senior analyst at Ovum.

Further financial and teaching support for science, technology, engineering and maths will go some way to plugging the skills gap so consistently referenced in the technology sector.

See page two for a breakdown of the Budget's technology winners and losers