Share and share alike: Why the Budget let down ecommerce

The UK government's stated aim is to make Britain the most attractive place in the world for ecommerce. So did Gordon Brown's Budget help or hinder this dream? Sally Watson takes a look inside the red case

This year's Budget, according to Gordon Brown, was built on the realties of the UK's new economy.

"We will meet and master a new tide of unprecedented technological change," he told a packed House of Commons, "by continuing to remove the old barriers to business investment and by continuing to expand employment opportunity for hard-working families."

You can't fault the theory. But how far did the Chancellor go in practice?

Much of the debate leading up to Tuesday's announcement surrounded share options and National Insurance payments. With the Internet sector relying on share schemes to attract employees, many in the industry had built up hopes on tax breaks and an updated system.

But they were disappointed. "The Chancellor seems to have completely missed the point for ebusiness start-ups," said Steve Gilder, tax partner at PricewaterhouseCoopers (PwC).

"The capital gains regime of 10 per cent is helpful for dot-com founder shareholders but most dot-coms reward their employees with options. After this budget it looks as if these options will be taxable at 52 per cent on employees who contribute to the capital growth of the business."

Despite tax breaks for approved share schemes and an increase (to 15) in the number of staff who can join the Enterprise Management Incentive (see 'Brown's brave Budget words for British e-economy' http://www.silicon.com/a36480 ) the majority of dot-com staff have been left on the shelf.

"Passive shareholders who add nothing but their capital will pay just ten per cent," said Gilder. "This is not the way to help the UK become the dot-com capital of Europe because businesses will locate their management teams and employees in places like Belgium which have a much more advantageous tax regime for employee option holders."

His view is echoed by John Browning, co-founder of the entrepreneurial group, First Tuesday, who said: "People who earn shares with their talent and their sweat get a worse deal than those who buy them with cash.

"The Budget was fine for investment companies - but unless I'm missing something I don't see that as a core issue," Browning added. "The Budget had an unfortunate air of the civil service about it."

E-minister Patricia Hewitt refused to confirm whether she will support the calls for a cut in share option tax, but said she is in talks with the Treasury. "We all recognise the importance of share options, particularly to technology start-ups," she told Silicon.com. "I'm glad Gordon Brown has opened up the door to consultation - there's got to be a solution."

But it wasn't all bad news. Brown's move to create a 100 per cent allowance for small businesses on investment in computer hardware and software has been widely welcomed. And it will be SMEs that benefit most from the Budget, with a cut in capital gains tax on business assets helping to bring investment into the sector.

Fiona Cockburn, corporate tax manager at PwC, welcomed the decrease: "The capital gains tax relief is useful because the taper system was over ten years in the pre-budget announcement - which is useless to dot-coms. The one to four year relief is more realistic."

But despite these highlights, this week's Budget has left many in the high-tech sector feeling disappointed. PwC's Gilder said: "Gordon Brown has done almost nothing for dot-coms and has left Britain at a serious disadvantage."

According to Gordon Brown the Budget aimed to make "Britain the best environment for ecommerce and catch up with America as swiftly as possible".

But it seems he still has some way to go yet.