Budget Bad news for ebusiness in the UK

April 3, 2008

Growth in the online sector has been rapid. We’ve seen the meteoric rise of billion dollar companies such as Facebook, YouTube and MySpace. Following the changes to the CGT regime – explained below - confirmed in last Thursday’s budget, what affect will this have on this important and high performing sector and the UK economy? City law firm, Fox Williams LLP, surveyed over 500 clients and contacts operating in the ebusiness and wider technology sector to determine what they thought of these changes.

The ebusiness group at Fox Williams commented that “the key message from our survey is that the changes confirmed by the Chancellor will seriously reduce entrepreneurial activity in the online and technology sector. These sectors are heavily reliant on attracting entrepreneurs to fund and start the Facebooks of tomorrow. Our clients our telling us that these changes are bad news for this sector. They are also saying that they would look at locating outside the UK to take advantage of more attractive tax regimes. These business are incredibly mobile so there is real risk of an exodus of online businesses from the UK.”

In 1999 Tony Blair said that the “British entrepreneurs can lead the world in exploiting e-commerce. But to achieve that goal, we need to work together. British industry needs to be ambitious in responding to the challenge of e-commerce. British government needs to put in place the right framework and lead by example. And the British people need to have the confidence and skills to exploit these opportunities. If we do this, together, we can truly make Britain the best place for e-commerce anywhere in the world.” The message has been repeated numerous times by the Government. With the changes to the CGT regime, the Government is seriously reneging on its promise to make the UK the best place for e-commerce in the world.

Two of the biggest names in the online sector have recently announced that they are leaving the UK. Yahoo is moving its European HQ to Geneva and Google have set up its engineering headquarters in Zurich. Whilst these moves may not be directly related to the changes announced by the Chancellor, it does highlight a worrying trend that the UK may not be quite as attractive to the online and technology sector as it used to be.

“The signs are that the economy is slowing down and the credit crunch continues to take hold. These changes could not have come at a worse time.

As a result, we are unlikely to see new entrants to market in the same way that we have in the last few years. Start-ups are going to find it more difficult to raise money to grow and more mature businesses will struggle to meet the high prices that have been paid in the past by the likes of Google when buying YouTube and will be less inclined to sell. All in all, this is not good news for this sector.”


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