Darling Warned IT Budget Cuts Could Cost Billions

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Groups have called for budget support to UK digital media companies – while government IT pros fear losing their budgets

Unless the chancellor takes action in his budget to support innovation in digital technologies, the UK could risk losing billions in annual revenues, according to industry groups and vendors.

According to a report from the National Endowment for Science, Technology and the Arts (Nesta), Attacking The Recession, the government should use the recession to reshape the economy around high growth areas such as digital media.

The report states that unless investment in areas such as green technology, digital media and healthcare are addressed in the budget, the UK could lose around £44bn in potential revenues.

“Failure to invest aggressively in growth sectors will not only cost an annual £44bn in lost revenue to British firms, it will also harm the UK’s global predominance in these sectors,” the report claims.

UK chancellor Alastair Darling is set to announce his budget on Wednesday.

In a separate policy statement released today by the government, Building Britain’s Future – New Industry, New Jobs, business secretary Lord Mandelson, said the world’s economy is set to double in size after the recession creating new opportunities for British business. “Global competition is getting tougher and technological change is happening faster. We can’t afford to stand back as other countries invest and skill-up to win in high-value markets and sectors,” he said.

The Conservative opposition party is calling for the budget to include more investment in training for future technologists, scientists and engineers including £350 million to provide funding for 25,000 new Masters Degrees in science, technology, engineering and mathematics.

Shadow Chancellor George Osborne warned that without urgent action “we are going to lose the next generation of engineers and scientists”.

Nesta is calling for a £1 billion high tech start up fund to help provide financing and credit for innovation. “Previous industrial interventions in the 1960s and 1970s ignored demand and focused on unsuccessful attempts to pick winning firms rather than new growth areas. The Government must invest in areas where future demand will drive next generation technologies,” said Nesta’s chief executive Jonathan Kestenbaum.

According to Jon Moulton, founder of venture capital fund Alchemy and angel investor, the Government should use the Budget to give support for high-tech start-ups. “One only need look at the stimulus package announced by President Obama to see how far ahead the US is planning in areas such as renewable energy. We have to do the same and extend it to biotech and digital media,” he said. “It will incentivise entrepreneurs to go and find solutions to the challenges we know are coming our way. Doing so will create new jobs and will also bring much needed private sector investment back to the table.”

Nesta said the potential loss to the economy from not investing in digital technology specifically could be up to £6 billion.”Our figure compares the difference between a scenario where the UK is a leader in the development of digital technologies in the creative industries with one where our growth comes predominantly from traditional media,” the report states.

In a survey released last week, application virtualisation specialist Citrix said that 63 percent of government IT professionals are concerned that they will lose funding in the budget.

According to Citrix, a third of public sector respondents said any cuts would be felt in large-scale project investments, while one in four thought staffing costs would be affected.

“Much of the private sector has already had its IT budgets slashed, so any public sector funding cuts will come as little surprise,” said Steve Ash, UK Government manager at Citrix. “However, I’d urge organisations to be careful when deciding which areas of investment should feel the pinch. IT directors need to use their budgets wisely and their technology creatively as their department can actually improve productivity and bring about cost savings for the whole organisation in the longer-term.”

Speaking in February former chief executive of systems integrator LogicaCMG, now an advisor to the UK Treasury, said the government will cut billions of pounds of IT spending in its Spring budget.

Treasury adviser Martin Read said that the government wants to reduce the estimated £30bn it spends on IT and back-office services although he would did no say by exactly how much.