Brown must loosen tax shackles, says high-tech industry

Who'd be Chancellor of the Exchequer? OK, so you get the famous red dispatch box, a nice car and a plush pad in Downing Street, but when it comes to your annual budget statement everyone in the country wants a piece of you. And the technology industry is no exception.

With the Labour government sitting pretty on the largest war-chest Britain has seen for decades and a general election just around the corner (farming crises permitting) Brown is expected to offer concessions to key groups of voters.

In an exclusive straw poll we asked technology leaders what they'd like to see in this week's budget. Top of the list is a hot-topic for the whole of the European ecommerce industry.

Cliff Stanford, founder of Demon Internet and serial entrepreneur, said: "VAT doesn't work for ecommerce. At the moment we're in a mess and we need to sort it out so we can compete with the US."

According to David King Lassman, founder of knowledge management company Connextra, the scrapping of VAT on goods purchased online would substantially increase the volume of ecommerce in the UK.

Alexander Broich, UK MD of online bookstore bol.com, believes the current system is idiosyncratic and discriminatory, and points out that while printed books are exempt, audio and digital books are subject to VAT. "This is a tax on format rather than product," Broich protested.

In June last year the European Commission published a proposal for charging VAT on digital products, but ran up against a series of problems. How would non-EC companies be made to register and calculate VAT? And would countries charging a lower rate of VAT attract more investment than their EC counterparts?

Now the proposals are back at the Commission for further work, and with the UK government waiting for Europe's lead it could be many months before the situation is resolved.

Tax, in general, is a hot topic for UK business. According to the Institute of Directors, the vast majority of companies are over-burdened with red tape and regulation, severely affecting their ability to operate effectively.

Peter Cochrane, former chief technologist at BT and co-founder of ConceptLabs, would like to see the tax system streamlined. He'd also welcome further tax breaks for start-ups, entrepreneurs and small businesses.

Unsurprisingly tax breaks are a recurring theme. For Andrew Bell, partner at PricewaterhouseCoopers, key incentives could be offered to companies wanting to invest in research and development and intellectual property.

"The UK is generally less attractive than a number of other countries in this area, including the US and Japan, which puts UK companies at a disadvantage with companies in these territories," he said.

And it's not all about making the rich richer. The industry is pushing for tax breaks to encourage ordinary users to get online. "We need to get every household online," said Connextra's King Lassman. "VAT presents a significant barrier to the purchasing or upgrading of consumer computer equipment."

Bol.com's Broich agreed, pointing out that firms are rarely encouraged to develop a philanthropic bent. "Many initiatives which private companies try to undertake are taxed, which is a disincentive for them to do anything. Bertelsmann offered free PCs for staff, but tax was payable on this," he explained. "We're not looking for the government to contribute to these initiatives - just not to tax them."

Alex van Someren, CEO of Cambridge-based security company nCipher, is angry about the attitude to share options. "The current schemes for limited groups of managers getting tax breaks are divisive and counterproductive," he claimed. "All my employees are equally important to me and I find it shocking that a Labour administration would offer me an incentive to make my managers richer at the expense of everyone else."

Brown's 2000 budget offered limited concessions, creating government-recognised schemes which offer higher tax breaks to staff. But most companies argue they are too restrictive, allowing only limited options over a long period of time.

King Lassman said: "Taxing employers and employees [on share options] is counter-intuitive and seems to contradict the government's resolve to be a friend to the technology sector."

Wednesday's budget speech is widely expected to be more political than economic. The industry is likely to see some of its concerns addressed, particularly in the form of share option concessions, but realistically no one expects to see all their wishes granted.

After all, even a give away budget can only go so far, and few tears are being shed for those in high-tech.