The Budget: The UK is open for business, but not for IT

What has the Chancellor done for the digital sector?

The Chancellor's 'radical' Budget does little to help the UK's domestic IT sector

Chancellor George Osborne's red Budget box might now resemble the world's most expensively-pimped iPad case, but does it hold much for the UK's technology sector, or for its digitally enabled businesses – beyond the £13bn of central government IT cuts already announced, which will be a blow to providers?

First, the big picture. Osborne delivered the first Tory Budget since 1996 – one described by the FT as "radical" and by The Guardian as a "huge transfer of resources from poor to rich" – with its predicted focus on creating what he called a "high wage, low tax, lower welfare" economy.

But the promised focus on technology, the Internet of Things, and more, was replaced by fulsome praise for Iain Duncan Smith's Universal Credit IT system, which has been described as "unworkable" by government spending watchdogs. Perhaps separate technology announcements will be forthcoming from Number 11 in the next few days.

The Chancellor said he will cut £12bn from benefits payouts and find an additional £5bn from clamping down on tax avoidance, despite the monies lost to tax avoidance and fraud being several orders of magnitude larger than losses to benefits fraud. Several technology companies have been among those criticised in recent months for paying little or no UK tax on UK profits.

Also as predicted, Osborne introduced a new national 'living wage', replacing the minimum wage, which will rise from £7.20 an hour to £9 an hour in 2020.

Growth forecasts for the UK economy stood at a marginally reduced 2.4 per cent. But was this a Budget of creating new opportunities and the promised digital innovation? Certainly the rhetoric was there.

"We don't build enough, train enough or invest enough. We will be bold in reforming education, reforming welfare, delivering infrastructure, building the Northern Powerhouse… This is a big Budget for a country with big ambitions," he said. But despite the grandstanding, little detail about infrastructure investment – vital to help the UK's digital economy – was announced.

A plus for employees was the Chancellor's introduction of a new levy on businesses to promote in-work training and apprenticeships, much of which will involve new technologies. However, he also removed housing benefits for most 18-21-year-olds.

Osborne promised that the NHS will receive £8bn in additional funding, which (alongside direct patient care) will aid internal NHS initiatives to roll out new technologies across the health service, such as NHS England's recent assistance to a number of healthcare innovators.

Which brings us to the 'i' word.

It has been a tradition since the days of Harold Wilson for politicians to talk up Britain's outstanding talent for technology innovation – indeed, Wilson went as far as creating a new position, Minister for Technology, to stoke up the proverbial "white heat".

But while zones such as Tech City/Silicon Roundabout, et al, have done much to foster digital start-ups in recent years, create networking opportunities, and cross-pollinate new ideas – particularly where they concern open data sets – two outstanding problems remain in the UK's digital sector.

The first is simple: size. The UK is a small, complex set of islands that is ideologically offshore from mainland Europe. At the first opportunity, fledgling digital enterprises flee the UK to the US West Coast, not because they're unpatriotic, but because the English-speaking domestic market there is five times larger. Despite the cloud, signing major IT deals still relies on face-to-face interaction.

The second is a 'funding gap' for high-tech ventures. It's relatively easy to find seed capital and angel investment in the UK, and in the City it's possible to secure massive private-equity funding – for construction projects, for example – especially when offshore, non-UK-taxpaying investors are protected by bailouts that come, indirectly, from the long-suffering British consumer.

What's missing is the vital piece in between: medium-size funding – of the order of $10m, for example – which can be found easily in Silicon Valley's portfolio investment culture. Little in this Budget addresses that problem.

Many startups have long called for a cut to corporation tax, which Osborne delivered with a reduction to 18 per cent. He will also reduce the bank levy over the next six years, and replace it with a surcharge on profits.

The aim, presumably, is to increase lending to businesses, which – if that is the end result – will aid startups at the lower end of the scale. But unless banks throw money at risky businesses in a bid to reduce their short-term profits, the likely long-term outcome is UK-based banks making their offshore, 'shadow system' transactions ever more opaque and harder for Whitehall to track.

None of which addresses the funding gap that needs filling for the UK's IT sector to flourish domestically. However, the Chancellor did announce a cut in National Insurance contributions to £3,000 for small businesses.

But, of course, startup digital businesses don't just need support at the beginning of their useful lives; they need a supportive financial environment and business culture in the long term in order to flourish. Again, the Chancellor's ideological focus on banking does little to tell the UK's digital innovators that the government is on their side.

With the UK's long-term future in Europe (not to mention its internal structure) currently in question, the domestic market may actually get a whole lot smaller in the medium term for the UK's high-tech businesses.