Chancellor Alistair Darling’s Pre-Budget Report this week was welcomed by Intellect, the organisation which represents UK high-tech industries, but the government was warned that more action was needed as the economy tightens.

In his pre-budget statement, the Chancellor announced a £20 billion financial stimulus, which includes an immediate 2.5 per cent cut in VAT designed to boost spending and kickstart the economy.

The Chancellor also announced a £4 billion package of loans from the European Investment Bank to be channelled through UK banks to smaller companies, a £1 billion new Government Small Business Finance Scheme which will lend directly to small business, an extra £1 billion to the Export Credit Guarantee Department to ease short-term cashflow for small exporters and £1 billion of tax cuts.

John Higgins, director general of Intellect, said: “The Pre-Budget Report (PBR) was all about action to help the economy in the short term. While we are pleased to see a nod to innovation and green tech in the PBR, and from Peter Mandelson in yesterday’s speech, we hope that government will build on plans for a high tech, high growth future as well as coping with the present.”

Intellect welcomed the announcement that the government’s Technology Strategy Board would look at how to improve its support for innovation in time for the next budget in 2009, but urges the government to “act decisively here”.

The organisation noted “President-elect Obama has already shown that other countries are planning to act boldly to act and maintain their high-tech sectors, so it is vital going forward that this strategic sector doesn’t just get pats on the back, but also a helping hand in difficult times.”

IT advisory firm Butler Group, said the decision to drop VAT from 17.5 to 15 per cent will challenge businesses and their business management systems, particularly financial management and enterprise resource planning (ERP) applications.

Darling has urged retailers to pass this reduction on as soon as possible, stating it will come into effect next Monday and continue for 13 months.

But Angela Eager, senior research analyst at the Butler Group, warned conforming to the request is not going to be easy for most retailers, particularly in the run up to Christmas.

The VAT adjustment will involve re-pricing goods on retail shelves and Point of Sale systems, as well as making, checking and testing changes throughout the entire inventory, the up and downstream supplier network, Eager warned. Changes will also need to be made through back office systems and related processes such as financials and ERP systems. "As a result, some retailers are expected to struggle and may not be able to think about applying the reduction until next seasons goods arrive," she said.

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