Select Committee on Treasury Written Evidence

Memorandum submitted by the HCI Alliance

  This response is on behalf of the HCI Alliance, an alliance of BT, Intel and Microsoft, which has been working with the government since mid 2003 on Home Computing Initiatives. The HCI Alliance is a representative body providing the neutral voice of the HCI industry, promoting the benefits of HCI in a non-partisan way and continuing to work with Government to iron out issues and challenges relating to HCI (for example salary sacrifice). It is not a regulatory or controlling body.

  The announcement in the budget that the tax exemption that underpins the Home Computing Initiative is being withdrawn without any consultation and with immediate effect came as a complete shock and disappointment to the HCI Alliance and to the country as a whole. This initiative has been viewed by all parties as an excellent example of how the government and private sector can work together in partnership to fulfil the government's policy objectives.

  HCI has been delivering successfully against its targets and has been widely acclaimed by many countries outside the UK who are adopting similar models in support of their digital strategies. Its abolition at the stroke of a pen will wipe out the good work that has been achieved over the last two and a half years; and the potential that a modified HCI has to continue to contribute to the Digital Britain of the future.

    We urge the government to delay implementation of the Budget change until a full review, assessment and consultation can take place.

  This is essential as a Regulatory Impact Assessment was undertaken in October 2003 specifically because of the anticipated impact on the PC market that would result from HCI. The removal of this initiative will have a similar impact on the market as well as the loss of jobs, livelihoods and businesses. A consultation period will allow all the relevant facts to be put forward by all parties and a considered view taken on the way that HCI can be modified and improved to continue to contribute to the government's policy objectives.

  HCI has always been about much more than computers and technology. The Office of the e-Envoy's business plan of July 2003 identified low levels of home PC penetration as a key weakness of the broader UK e-economy, and made the correlation between high home PC ownership and high levels of internet access. Other policy drivers included e-Government, e-business strategy (including work/life balance), skills and learning, and social inclusion. HCI has successfully contributed to all of these policy areas, demonstrating the value of an employer-provided benefit to all employees particularly those with the poorest access to technology. It also supports the future success of the Government's "Transformational Government" agenda and investment.

  We genuinely don't recognise the reasons given for abolishing this initiative: that its job is done; that there will be £300 million tax lost in fiscal year 2006-07; that the initiative has been abused; that it is not focused on those with the poorest access to IT. An HCI Alliance snapshot survey in November 2005 identified that HCI is reaching its target audience. Of the total of 477,000 people who have acquired computers through HCI schemes in 2004 and 2005: 60% work in industries typically seen as "blue collar"; and 75% of the take-up has been by those who pay the standard rate of marginal tax or lower. HCI overcomes many of the problems that inhibit access to IT: lack of access to credit, fear, antipathy, affordability, technophobia, relevance of computing and more; and many people taking up HCI are doing so to get a computer for an older relative or relation who is unemployed. The cost of PCs may have dropped over the years but access to credit is still a problem for many low and medium earners, and HCI offers an affordable way of acquiring a computer for this audience.

  Whilst the tax exemption has been in existence since 1999 it has only been available to employers in any real sense since early 2004 following the formation of the public/private partnership between the Office of e-Envoy and the HCI Alliance, and the subsequent introduction of the DTI's implementation guidelines that clarified and simplified HCI implementations. As with all new initiatives it has taken a while to get off the ground but the last year particularly has seen HCI become the fastest growing benefit in the UK behind company cars, pensions and private health insurance. Evidence from employers and employees is that this is a genuine win/win for all—bringing benefits including increased ICT skills, individual learning opportunities and family education, as well as opening up new opportunities for personal and job development.

  The OeE's Consultation document of 8 October 2003 acknowledged that the financial case for HCI was clear and that the macro-economic benefits more than outweighed the lost tax revenue. On page 10 of this document it stated ". . . and the costs to the Exchequer are—as they were when the legislation was introduced—offset by the potential benefits to the wider economy" and on page 16 ". . . the reduction in NI contributions and reduced personal income tax is effectively offset by increases in business tax generated through growth in the consumer PC market and productivity gains and benefits to the wider e-economy.". These financial considerations haven't changed today—and we would welcome the opportunity to understand the numbers and costs put forward as part of this budget. Our own calculations show that there are small positive tax gains for the Exchequer even before the loss of the broader macro-economic benefits from HCI in terms of a higher skilled and more productive workforce.

  If there is evidence of abuse, we would welcome understanding what this is and helping to eradicate it—the HCI Alliance has recently approached the DTI to agree with them a revision to the eligible equipment guidelines precisely because technology is moving so fast that the boundaries of eligible equipment are blurring with each day and the original guidelines are open to interpretation.

  This initiative has had the unanimous and vociferous support of industry, employers organisations and the unions. The HCI Alliance has spent the last two and a half years working closely with the TUC, which has been an active supporter of HCI and has actively linked its growing union learning and skills work with promoting HCI. Brendan Barber participated at the press launch of the DTI's guidelines in January 2004; an HCI flyer was produced and distributed to 250,000 union members; and numerous workshops have been run with Union Learning Representatives all over the UK. In a statement made in the second anniversary press release on 19 January 2006 Brendan Barber particularly emphasised that "experience has shown that when a business implements an HCI scheme demand for learning services and training rises significantly".

    We are committed to working with the Government on this and will do everything possible to ensure a beneficial outcome for all.

  A review and consultation period will ensure that the danger of "throwing the baby out with the bath water" is minimised, and that the potential of HCI is not lost. At a time when the Government is clearly committed to skills, education, productivity and online access for all, HCI still has much that it can deliver in support of the achievement of these policy aims.

  If after consultation the Government remains convinced that HCI should be abolished, then we would propose a period of two years before the tax change is brought in. This will allow current schemes being developed—including the DTI and DWP schemes—to be implemented; and would allow the HCI industry time to plan its demise in a more orderly manner.

27 March 2006

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