A private matter

George Osborne is relying on the commercial sector to shore up the economy. Sam Trendall considers whether it's too much to ask of UK Plc

As if it were not apparent enough, last month's Budget made it abundantly clear the commercial sector will carry a heavy economic burden in the coming years.

With the coalition taking an axe to public spending and jobs, chancellor George Osborne is banking on private enterprise to step up and provide economic growth and employment, with the tech industry central to his fiscal gambit.

But industry commentators are questioning whether the private sector can really pick up the slack, especially when public spending has been a mainstay of key industries like IT and construction.

Niki Dixon, head of technology at auditor Grant Thornton, warns that spending cuts will impact on the industry over the next few years.

"With the size of cuts that [Osborne] is envisaging, it relies on the private sector stepping into the breach to provide employment," she adds. "The public sector has been a very good market for the ICT sector. We are seeing in some of our clients the full impact of the cuts has yet to be really felt."

Derek Walton, northern European finance director at distributor Magirus, agrees that the private sector could be over-burdened under the coalition's plans. When asked if commercial businesses could plug the economic gaps, "I think the answer is almost certainly 'no'," says Walton.

"It is difficult to see how [it could], with the size of reduction in the public sector workforce," he adds. "As a consequence, unemployment is almost certainly going to go up. Higher unemployment means less money is spent and growth will be lower. It is that growth that is intended to pick up the slack.

"From a macro-economic perspective, everybody appreciates that something needs to be done about the deficit, but maybe it is being done a bit too quickly."

But, at least the Budget provided UK Plc with a smattering of business-friendly initiatives. The biggest headline-grabber was the cancellation of a 4p hike in fuel duty, with a 1p decline implemented instead.

Dave Stevinson, sales director of distributor VIP Computers, claimed his firm had, from last week, slashed delivery costs.

"We have reduced our headline carriage rate by 26 per cent," he adds. "In these tough times it is our responsibility to help our resellers gain competitiveness."

But Phil Jones, chief technology officer at VAR Shoden Data Systems, claimed the cut in petrol prices is a drop in the ocean.

"I think the entire cost of transport is wrong in the UK; it's cheaper for me to fly to Prague or Barcelona than to travel by train from Bristol to London," he says. "If people can't afford the fuel or train fare to get to work then we have a lack of labour mobility, even with high unemployment.

"Also the infrastructure needs a revamp -- a Heathrow rebuild, high-speed trains, and the like, are all urgently needed. These are all issues that will affect businesses where the salesforce is often on the road, including, of course, distributors and resellers."

Further cutting corporation tax was another of the Budget's business breaks. Rates have now been reduced two per cent, double the previously announced one per cent cut. More one-point cuts will follow each year to 2014, ultimately taking the rate to 23 per cent.

David Galton-Fenzi, sales director of distributor Zycko, says: "Corporation tax breaks were welcome news, as they will result in real cash returns which we can invest back into our reseller base."

Magirus' Walton adds: "Through a combination of [reduced] corporation tax and the new enterprise zones, we could encourage the larger IT companies to base their operations in the UK, rather than Ireland."

But Grant Thornton's Dixon claims the launch of the enterprise zones - largely in the north - would have little import for the tech space. The industry's south east-bias was "self-perpetuating", she explains, with people and companies following each other.

"Most of them are not in the South-east. The real impact upon the sector will be relatively modest," adds Dixon. "When I talk to my clients, one of the biggest challenges they face is finding the right skilled staff. You might get tax breaks, but is there a strong pipeline of skilled people that are available?"

Osborne plans tax revamp to fuel growth >>www.channelweb.co.uk/2036656