Gordon Brown’s announcement in the Budget that he was scrapping tax relief for employees who buy home computers through the payroll was not merely a shock to business – at least two government departments were taken by surprise.
The departments of Trade and Industry and Work and Pensions were implementing the scheme for their staff. Alan Johnson, the trade and industry secretary, last month agreed that his department should offer the scheme to staff. DTI employees had just a week to apply before the chancellor killed off the initiative.
The DTI put a brave face on the Budget move, saying some employees could still benefit from the scheme’s tax break, providing they got their paperwork done before the April 5 cut-off date Mr Brown had set. Officials said the chancellor had told Mr Johnson about the Budget move – estimated to save £100m-£150m – although the cabinet rarely discovers budget details before the day.
At the Department for Work and Pensions, the invitation for companies to tender to the scheme for the ministry’s 115,000 staff closed on March 17. The DWP said yesterday: “In the light of the Budget, we’re having a rethink.”
Under the scheme employers purchased home computers for their staff. Because the employees repaid the money over time through earnings, the scheme was classified as a loan until it was paid off and was therefore eligible for tax relief.
Businesses reacted furiously to the scheme’s demise, predicting thousands of job losses.
The home computing industry, which had no warning that the scheme, launched in 2004, was to be axed, fears that up to 50 businesses will now fold.
“There are about 2,000 individuals working in this industry that Gordon Brown has just signed redundancy notes for,” said Simon Dawson of Red PC, a company dedicated to setting up the scheme.
The CBI, the employers’ body, is writing to the chancellor to protest the move, which it claims runs counter to the government’s professed aim of improving employees’ computer literacy. About 1,250 employers, including private and public sector bodies, offer the scheme to staff. Sir Digby Jones, CBI director-general, said: “I thought the days had gone when the government announced on-the-hoof policy in the Budget.”
The Treasury defended the move yesterday, saying there was a “lot of evidence of abuse of the scheme”. Some staff used it to buy iPods and Playstations as well as conventional computers, the Treasury said.