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Last Updated: Tuesday, 28 March 2006, 11:34 GMT 12:34 UK
Pulling the plug
By Jonathan Duffy
BBC News Magazine

The offer of cheap computers subsidised by the government sounds too good to be true - and it soon will be. Yet it was a key plank in efforts to bridge Britain's Digital Divide. So why is the chancellor switching it off?

After six years of dutiful service, Karen Cheeseman's home computer is cracking under the pressure of everyday family use.

Now, though, the mother-of-two is looking forward to the delivery of a plush new model - with 500GB hard disk, 20-inch flat screen - thanks, in part, to Gordon Brown.

Karen, 43, is one of thousands of people to take advantage of the government's Home Computer Initiative (HCI) - an employee perk that allows computers to be bought out of gross rather than net salaries, and paid for in weekly instalments. Savings can be up to 50% of the shop price.

But anyone hoping to follow in Karen's footsteps will probably be disappointed. In a surprise move in last week's Budget, Mr Brown pulled the plug on the scheme - just as it was beginning to get into its stride, say its backers.

The way the scheme works does benefit higher earners more
Vivien Quinn, director, HCI Alliance
Among those who will miss out are hundreds of thousands of public sector workers in London who'd been expecting to join the cheap computers scheme in the coming months.

Why was the government funding tax breaks on home computers in the first place?

The HCI scheme was launched in response to concerns about Britain's "digital divide" - the growing gap between those who have access to, and the skills to use, information technology, and those who don't.

Since 2004, hundreds of employers, including Royal Mail, BT and Tesco, have registered with the scheme.

Take-up among employees has been healthy - almost 480,000 computers have been sold through HCI, as well as peripherals such as printers, scanners and webcams. Even palm-held computers are available.

The scheme was supposed to benefit the low-paid
But that ends next week. And Mr Brown's surprise announcement is expected to prompt a last-minute rush before the gates slam shut on 6 April.

Karen Cheeseman, a customer services operator for Lakeland Limited, the kitchen accessories firm, will be among the last to benefit, after getting her order in on Saturday.

"We'd been thinking about a new computer for some time, but with a family and all the household expenses there are always other things that are more important."

A 43-year-old mother-of-two, who is moderately at ease with computers, she says the PC will be particularly helpful to her son, 13, who has an interest in IT.

Under the HCI, she'll pay about 6 a week, over three years, for the Acer desktop - saving more than 30% on the marked price.

As part of the package, her employer requires her to take part in as a six-month online training course to improve her IT skills further.

Take-up was slower than anticipated
Well-off workers accounted for 25% of take-up
Those on minimum wage could be ruled ineligible
Scheme was too complicated for some employers
The Treasury says it is closing down the scheme because it has benefited too many higher rate tax payers (who saved proportionately more). It plans to shift the focus on improving internet access for the unemployed and pensioners.

But that's not the experience at Lakeland, where Karen works, and where less than 1% of workers who've signed up for the cheap computers scheme are top-rate tax payers.

In other companies, though, it is a different picture. And HCI's director, Vivien Quinn, has admitted it was failing to reach those on the minimum wage.

But she denies the perk was being abused by the middle-classes. Even so, with computers now widely being used as home "media centres" - playing DVDs, downloading music and watching TV - should the government be funding discounts of such equipment?

"The way technology is going, the functions are blurring. 'Media centre' computers are becoming mainstream," says Ms Quinn.

"The government makes it quite clear that in order to be part of the Digital Age you need to be attracting people to make the leap in a way that fits with their lifestyle."

Production line
60% take-up of the scheme was by 'blue collar workers'
Jeremy Smith, a top-rate tax payer who works at Kent County Council, saved almost 400 on a package he bought through the scheme in December, which included a laptop and iPod.

A member of the TA, who has served in Iraq, Mr Smith says both pieces of kit will be useful when he travels abroad as a reserve. And it comes in handy when one of his twin teenage sons is occupying the family desktop.

"I can certainly see the argument [for abolishing the scheme]. Like everybody else, I work for a living. Why should I be eligible for a tax-free computer? I don't think I've really got an answer for that."

Ms Quinn concedes the scheme does benefit higher earners - who save 40% tax, rather than the 22% standard rate. But she says it is flexible enough to adapt.

"We're asking for a stay of execution for the scheme, so we can have a reasonable discussion about how it might change."

Add your comments on this story, using the form below.

I'm gutted about this - I've been in desperate need of a new PC for months now but missed out the last time my employer ran the home computing scheme as I'd only just started working here and was on a probationary period. I patiently waited for six months, only to find out mere days before the scheme was due to run again that it's been axed. This is in the same week I find out my pay has been cut, and I'm a civil servant. Thanks a lot Gordon!
Tim Parris, Edinburgh, UK

Our workplace only allowed us to buy an actual computer (no peripherals), and only one per employee through the scheme, so it's no real loss. My dreams of a flatscreen monitor were short-lived when I found this out, and utterly crushed when Mr. Brown made his statement
Steve, Bristol, UK

I might have been tempted to buy a computer under this scheme (my employers joined last year) but the range of computers on offer was dismal and more expensive that the similar spec item in the shops.
Rachel, Bedford

Although this scheme does marginally benefit higher rate tax payers, it is not as extreme as your article suggests. As the benefit is on gross salary this includes tax and national insurance. Therefore somebody paying 25% tax will benefit from a 36% saving if you include NI but somebody on higher rate will benefit from 41% if you include NI. The real losers are the people who paid above the threshold for 11% NI but not quite enough for 40% tax. They only benefit by 26%. Why shouldn't employees get this benefit? Self employed people are able to set tools for the job against Tax and probably get the VAT back as well.
Richard Phillips, Bristol

A wider issue is what this tells us about the Chancellor's understanding of the impact of his proposals. What has happened with the scheme is surely in line with what one would expect, so why did the Chancellor fail so badly in forecasting the impact that he has had to withdraw the scheme so quickly. What other ideas of his has he also misjudged that are economic or fiscal problems waiting to emerge?
Dave, London

I have to say I had never heard of this offer before today - and was amazed as I would have used it myself - despite being one of the somewhat better paid people. Why would I do so? Mainly because, as with many of these offers, I seem to pay out so much and get so little in return.
Robert Paterson, High Wycombe, Bucks

They've kept this scheme well hidden haven't they? I work for the government and the first I hear of this scheme is the BBC website informing me of its imminent closure! If I'd known about it I would have taken advantage of it, but as I am due to retire soon there isn't any point rushing now.
Alan, London UK

Yet another badly thought up scheme to benefit the rich. The people who could have benefited from a scheme like this are still no doubt across the divide. When will Government stop wasting tax payers' money and the idiots responsible truly be held to account?
Stephen Woods, Nairn, Scotland

It would depended on the company supplying the kit on how good a deal you get. The deal offered by the company my employer partnered with meant it was better for you to go for one of the deals from PC World or even better online from Dell. The idea behind the scheme is good but many computer providers offered over priced low-spec computers and companies did not always ensure that the deal offered was good value. My brother had a good deal with a rail company and my sister-in-law was offered a good deal with Tesco's. As for the higher tax benefits how come all other tax benefits are adjusted to ensure it is worth the same to all except this one?
Andrew Evans, Llanelli, UK

I really did want to join my former employer's HCI scheme as it would have been the only way I could have gotten myself a laptop (not the most pressing need considering I already have a desktop) I'm guessing by increasing access to the unemployed that the Government wants a national rollout of something that Gateshead Council has in the Sage, University-style free internet access (limited to an hour a day though) accessible through your Library card. Most of the people who use the service are University-style people or school kids playing Runescape! I have used the system last year and can confirm it is a great way to afford a home computer. The problem lies with the government's ability to attract non blue collar workers. They should market the offer to specific demographics and not remove an excellent opportunity for this country to keep up to date with Europe. I work in Poland and can say that they have a better infrastructure and understanding of the need for home computing. Change the system so that only low earners can benefit, poor form Mr Brown!
Mark Mills, Birmingham/ UK

I got my mum and dad a laptop and an all in one printer, using this scheme. I don't see anything wrong with it, you need to get some sort of perk working in the council!
Amy Brown, Aberdeen, Scotland

I work for John Lewis and they run this scheme. Had it not been for it I would not have been able to get started with a PC or the internet. It's nice to know that the hard working will be hit where as the unemployed will be able to sit at home on a cheap rate and play games all day
Mark Ramsey, Stevenage

I have seen the HCI scheme being offered as a package including expensive and compulsory computer support and extended warranties. These additional items absorb the entire tax saving and the the computer often ends up costing significantly more than the high street price. Only the computer supplying companies have been the real winners with the HCI.
Yves, London

I always thought this scheme was a rip-off anyway, so I'm not upset to see it go. It does unfairly benefit high-rate taxpayers, and the tax-free prices are usually artificially inflated by compulsory support contracts. I am concerned however at the immediacy of the withdrawal, as my company has spent the last few months preparing to roll-out this benefit along with the Bikes4Work scheme. All those man hours have been wasted at what appears to be the whim of the Chancellor.
Jon, Nottingham

The same scheme was scrapped in the Netherlands a couple of years ago too for the same reason. We managed to take advantage of the scheme (although we paid a lump sum) but we ended up with a bigger more expensive computer than we needed because the lure of getting it tax free is an easy con for the authorised sellers. These days you can get what you need for a couple of hundred pounds so I can't imagine the target audience of poorer people missing out on much of a tax saving.
Jennifer, Netherlands, ex-UK

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