Budget 2018: Tech Industry Reactions

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Reaction to chancellor’s proposed digital tax, extra funding for industrial strategy, full fibre connectivity, and cyber defence

The tech industry has given its reaction to this year’s Budget unveiled by the chancellor Philip Hammond on Monday.

The Budget 2018 was notable for the tech industry as it included a number of strategic announcements and extra funding for the sector, including cyber defence, the UK’s industrial strategy, and the so called “digital tax” on big name tech firms such as Amazon, Facebook, and Google, to ensure they pay their fair share of tax.

Tech’s reaction was mostly positive for the digital tax initiative on mainly US-based firms, which makes the UK one of the first major economies in the world to impose such a measure. But at least one expert has warned of a possible retaliation by the United States.

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Expert reaction – Digital tax

“The new digital services tax is interesting as it appears to be an outcome of the recent quarrels that have shaken relationships between European regulators and tech giants – Uber, Google and Facebook to name a few,” Antoine Baschiera, CEO and co-founder of ratings agency Early Metrics.

“If the tax hinders the growth of these tech leaders, it may also give an edge to smaller tech companies and newcomers,” Baschiera added.

But another expert called the measure long overdue.

“The Government’s crackdown on tax-dodging digital companies is long overdue,” said Richard Stables, CEO of Kelkoo. “Google and Amazon have been avoiding tax payments which has given them an unfair edge over the competition. Online retailers’ financial advantage over bricks and mortar competitors is not the reason for the struggle and failure of traditional high street names – that is down to the inability to meet consumer demand for a coherent online strategy and user experience.”

“Retailers who have failed to compete in recent years should be focussing on the mistakes made in terms of marketing and tech upgrades rather than desperately searching for a scapegoat to cover their backs and avoid the ire of shareholders,” said Stables.

But at least one expert issued a note of warning, and said that the United States may retaliate.

Chris Denning, head of international and corporate taxation at MHA MacIntyre Hudson, said that the new digital services tax runs the risk of US retaliation, but the UK may be seen as leading the way in taxing multinationals fairly.

“The specific details of the digital services tax will follow further consultation but we already know the types of businesses it will apply to, such as search engines, social media platforms and online marketplaces who derive value from their user bases,” said Denning. “This tallies with the government’s previously expressed views on the types of companies such a tax should apply to, and on what basis.”

“This tax is clearly aimed directly at US technology companies,” Denning added. “When the news sinks in across the pond it could raise the possibility of retaliatory measures from the US government. Dragging the UK into an acrimonious quarrel with one of its largest trading partners is perhaps not what the Chancellor intends.”

“The other side of the argument is that the UK will be seen as leading the way, as with previous measures such as the diverted profits tax and the hybrid mismatch rules,” he added. “Once the UK introduces the tax it is may be thought inevitable that other territories will follow. So any non-levelling of the playing field this may create from UK’s perspective will be hopefully short lived.”

Another expert commented on the overall investment in infrastructure improvements.

“Overall, today’s budget has been good news for UK businesses, with pledges to empower infrastructure, slash business rates for retailers and drive uptake of digital skills,” said Nick Felton, SVP at MHR Analytics.

“Whilst the introduction of a new digital services tax will sound alarm bells for some in the tech sector, we are yet to hear the specifics of how this measure will work, other than it will be targeted exclusively at larger organisations,” said Felton.

“What is clear is that with Brexit on the horizon next year, many organisations are preparing for a period of uncertainty, with research suggesting that two thirds are considering boosting IT spending as a precautionary measure,” he said. “There needs to be more detail in the budget small print about how companies can prepare for these challenges, by boosting technical capabilities and putting data at the heart of financial planning and sustainability.”

One expert welcomed the digital tax as a way to “level the playing field” for all.

“The combination of a £1.5 billion investment in the high street and a 2 percent tax on large digital firms, in my opinion, is one of the most aggressive efforts to ‘level the playing field’ between online and offline retail in recent times,” said Jeremy Gilman, SVP Strategy at DMI.

“UK retailers should be viewing these actions as somewhat of a gift,” said Gilman. “Not only is the Government paying to redevelop the high street in a mould of modern live-work-play experience centres, but it is also adding a new tax to some of the high street’s biggest threats in retail; Google, Amazon, Facebook.”

“With that said, UK retailers should leverage this opportunity to double down on their investments in connected commerce, delivering seamless online-offline experiences that meet customers wherever they are and deliver on the changing needs of today’s consumers,” said Gilman. “This will require hyper localised marketing, store hours and experiences, customer engagement, merchandising and inventory management and fulfilment – more than likely all converging on consumer mobile devices.”

“Digital will be at the core of the future of the high street – the question is whether today’s retailers will get out ahead of it or be replaced by others that do,” he concluded.

Expert reaction – Cyber defence

Meanwhile other experts have commented on the additional defence spending, which includes extra money in the budget for the UK to combat cyber warfare.

“We champion any government that commits to plugging the growing cyber skills gap in the UK,” commented John “Lex” Robinson, anti-phishing strategist at Cofense.

“Just earlier this year, MPs accused the government of lacking urgency in its work to tackle the shortage of skilled cybersecurity workers – and with nation state attackers still posing a serious threat to our critical infrastructure – now is the time to address this,” said Robinson.

“The issue of a skills shortage is being compounded by the ever-changing cybersecurity landscape and the fact attacks – and those behind them – are becoming more sophisticated, complex and diverse,” said Robinson. “It is clear that more needs to be done to attract, engage and retain cybersecurity talent, and the government must play a role to allow organisations the freedom to make this happen.”

Another expert welcomed the government’s recognition of the need to bolster our cyber defences to ensure national security.

“Against the current backdrop, and in an age of blended warfare, securing a country’s digital assets from cyber attack has never been more important,” said Russell Haworth, CEO of Nominet. “The Government has been open about the fact the UK is no exception and threats exist which are trying to undermine the national interest.”

“Unfortunately, governments around the world have been drawn into a new arms race and investment is required to keep pace,” said Haworth. “For this reason, the announcement of further investment into cyber capabilities should be welcomed by anyone who lives or works in the UK. With the Internet now so deeply interwoven into critical national infrastructure, business and the daily lives of the people who live here, it is important to invest to remain relevant and resilient.”

Expert reaction – Industrial strategy

Aside from the digital tax and cyber security, this year’s budget also included an announcement of an additional £1.6bn for the government’s Industrial Strategy, which it unveiled earlier this year.

“The uncertainties surrounding Brexit and the country’s weak productivity growth are a black cloud looming above British businesses,” said Jordan Morrow, global head of data literacy at Qlik. “In recent Budgets, the Government announced investments in a number of technologies to drive productivity and growth in the UK: Osborne highlighted the power of big data, while Hammond announced billions of pounds of investment in AI.”

“Today is no different, with the Chancellor proclaiming that we can solve the productivity challenge if we embrace the future, announcing a further £1.6bn in new investments for the modern industrial strategy and £150m for fellowships to attract the brightest talent from around the world,” said Morrow.

“However, to truly reap the benefits of the Fourth Industrial Revolution, the Government must ensure that it not only attracts the best technical expertise and invests in technological development, but empowers the entire nation to feel more comfortable with data and the technologies that will underpin the future of work and ensure that the UK is a thriving technology innovator,” said Morrow.

“With just one in five UK workers confident in their ability to read, understand and communicate with data, British businesses aren’t currently in a position to harness the opportunity presented by these new technology investments,” he warned.

Meanwhile another expert pointed to the potential of emerging technologies to transform the way we live our lives now.

“The potential of emerging technologies such as blockchain, artificial intelligence and quantum computing to transform the way we live and work has been heralded for some time now and it’s great to see the UK government committing to funding their development,” said Ian Smith, Founder and CEO of Gospel Technology.

“This commitment will ensure that the UK continues to lead the innovation and development of these technologies and ensure that we can all enjoy the benefits of the innovation that surrounds us without worrying about the exposure of our sensitive information,” said Smith.

“As we move into the digital-first age, it is essential that the technologies that underpin how we work together have been designed for the world we live in,” he added. “At the moment, many businesses still rely on technologies designed for an age where things happened differently. A commitment to these emerging technologies is a commitment to more secure and productive experiences for businesses and the general public and that is excellent news.”

Expert reaction – Rural connectivity

Finally one expert weighed in the government’s aim to drive full fibre connectivity into rural areas.

“Rural connectivity has always been the missing part of the puzzle,” Paul Stobart, CEO of ISP Zen. “For years infrastructure investment has been driven by the need to improve connectivity in big towns and cities, and this investment will go a long way to righting that imbalance.”

“But the Government can’t stop here if it wants to fulfil its pledge of making access to high-speed broadband a legal right for everyone by 2020,” he added.

“In order for the country to use new technologies to grow and prosper we need to continually invest in the areas that will enable this and broadband is at the top of that list,” said Stobart. “We certainly hope that this investment is a catalyst for a more digitally harmonious Britain.”

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