The UK Government announced its Autumn Budget and spending review this week and the fintech industry was captured by chair of techUK's Open Finance and Payments Working Group Louise Beaumont’s article in CityAM that blasted Chancellor Rishi Sunak's plans
to slash the bank profit surcharge levied on the UK's biggest banks from eight percent to three percent, describing the action as an act of "self-flagellation" that would significantly damage the UK's fintech industry.
Sunak's budget statement also revealed that digital banks stand to pay six percent more corporation tax and miss out on the surcharge reduction, as it is only levied on profits over £25 million. "High growth, high investment companies usually operate losses,
hence they are missing out," stated Beaumont. “This means that digital banks would seem to be facing a tax rise of six per cent compared to the one per cent facing the established banks."
She added that the disparity casts a dark shadow on previous Government rhetoric on the importance of innovation, competition, and the continuing development of the UK’s fintech industry. For instance, in April 2021, Sunak highlighted that “we can capture
the extraordinary potential of technology, we’ll cement the UK’s position as the world’s pre-eminent financial centre.” In its entirety, the fintech response has been mixed, with many supporting some aspects of the Autumn Budget, and others remaining critical
of decisions. Finextra has taken a deep dive into these sentiments.
Ahead of the Budget release
Prior to the release of the Budget, the outlook from fintech firms appeared to be positive, especially when considering the announcement of the £3 billion set aside for the “skills revolution.”
Fintech companies welcomed this potential investment. For instance, Mark Creighton, CEO of Avado commented: “The news of this investment is a crucial first step in repairing the UK capability chasm. Businesses across the country are seriously lacking the
inherent capabilities needed to grow and prosper in our ever-evolving economic landscape. For too long, investment in adult skills has been left to employers who have plugged the gaps left from college and tertiary education costing businesses, students and
the economy millions of pounds a year.”
Other organisations shared a similar positive attitude over what this focus on skills will mean for digital development. Nick Thompson, CEO of DCSL GuideSmiths commented: “This budget acknowledges the importance of the future of the digital and software
development sector, as it is now clear that many businesses now rely on digital transformation and app development for their growth and survival – especially as we work towards recovering from the pandemic. The UK economy’s recovery will rely on businesses
being able to access skilled talent when they need it in order to grow and scale, something that DCSL GuideSmiths has seen over the past few years’ time and time again.”
Michel André, CIO of Banking Circle also commented on the influence the Covid-19 pandemic has had on this push towards digital skills: “It’s no secret that the pandemic has forced organisations across all industries to make big changes to digitalise and
futureproof their organisations. As a result, tech budgets are increasing, but so is the skills shortage. In fact, we recently surveyed CIOs and CTOs across Europe and found a staggering 99% of FinTechs and 100% of Banks reported a tech skills gap. The investment
in post-16 education and opportunities for those wanting to enter high-value sectors like tech will help plug the gap, empowering businesses and individuals alike.”
Extending the recovery loan scheme
After the announcement of the Budget, the decision to continue the Recovery Loan Scheme (RLS) received mixed responses from fintech firms. Launched in April 2021, the RLS provides financial support to businesses across the UK as they recover and grow following
the coronavirus pandemic and Sunak has now made the decision to extend the programme for another six months.
On this, Simon Cureton, CEO of Funding Options added: “This may be an unpopular opinion, but I don’t think the Chancellor extending the RLS is a good thing. The optics may look good for the government as it suggests the helping hand remains outstretched
for small businesses, albeit on reduced terms, but just look at the limited take-up so far. The alternative finance community in particular is not blind to the notion that the RLS scheme is the Enterprise Finance Guarantee (EFG) scheme repackaged and renamed.
It’s too early to judge perhaps, but there’s little doubt EFG is not regarded as a resounding success and I fear RLS faces the same fate.”
Yet, Catherine Lewis La Torre, chief executive at British Business Bank said that this extension will provide “valuable support for smaller businesses as they look beyond the pandemic towards the opportunities available to them in the recovery.”
However, Cureton contended from an alternative finance (altfi) perspective: “Similar to the scrutiny and debate regarding the previous support packages and their accessibility by the broader alternative finance community, accreditation of the altfi lenders
for the RLS has again been slow. The reality is that it feels half-hearted and it continues to hamper a sector in fintech that has so much potential to provide competitive and innovative financial products long into the future.”
Cureton then mentioned: “It is imperative the economy returns to competitive and fair market-based lending sooner rather than later. A negative by-product of the government loan schemes has been the reliance on incumbent banks, which has kept the altfi community
in the cold. Starved of access to the cheaper credit offered by the BoE’s Term Funding Scheme, the SME finance market is distorted in favour of the banks. Following the constructive Kalifa Review, it makes little sense to perpetuate an uneven playing field.
I would have liked to have seen initiatives resulting in my digital alfi lender colleagues being brought into the fold, to do what they do best, facilitate loans quickly, securely and at scale.”
Small business support
The mixed response to the extension of RLS mirrors the attitude towards actions for small businesses.
Oliver Prill, CEO of Tide stated: “Although we welcome the Chancellor’s interventions to help business in the wake of the pandemic, including the £150m fund for small businesses in Scotland announced today, small businesses, which total 5.6m across the UK
and form the economy’s backbone, aren’t out of the woods yet and we were disappointed by the lack of small business-focused policy, particularly for those without a premises, in the Autumn Budget Statement.”
Prill continued to say that “official data shows that the number of small businesses dropped significantly, by 6.5%, between 2020 and 2021 as a result of Covid-19, and while we also saw a start-up boom, the government needs to do more help small businesses
to thrive, with a regulatory framework to help them thrive and not hinder them. Small businesses should not be forgotten.”
Lewis La Torre once again had a contrary opinion, stating: “The package the Chancellor has announced today enables us to build on our range of programmes to support sustainable economic growth by increasing the supply, diversity and demand for finance for
UK smaller businesses.”
This positivity may be in part because of the support the British Business Bank is able to provide through this Budget. Lewis La Torre notes that the Budget has enabled them to expand their budget to over £4.9 billion in financial commitments and loans,
including £1.6 billion to provide investment funds for the Devolved Nations, and the North, Midlands, and South West of England, £150m to invest alongside business angels across the UK, and resources to provide 33,000 Start-Up Loans over the next three years.
Paul Christensen, CEO of Previse, added from the perspective of the UK being transformed into a ‘science and technology superpower’, that: “The government should stop treating AI as a buzzword and put its money where its mouth is to create real solutions
for the very real problems that SMEs face – like slow invoice payments. A third of small businesses worry about repaying Covid loans. Releasing funds locked in the £23.4 billion in late invoices owed in the UK would support small businesses’ cash flow and
contribute to economic recovery – at no cost to the taxpayer. When the technology is accessible and ready to help it is ridiculous that 99% of the private sector is chasing late payments from the other 1%.”
Pensions
Nick Richie, director of wealth planning at RBC Wealth Management, poignantly commented that the Budget was more about “prosecco than pensions”. “Private investors will breathe a sigh of relief that feared increases to capital gains tax and a reduction in
pension tax relief haven’t materialised. But while paying less for sparkling wine will be welcome news for many, the freezing of income tax thresholds and increase in national insurance announced earlier this year means household incomes continue to be eroded
in real terms. Individuals should seek advice to understand the impact of rising inflation and interest rates on achieving their financial goals. There are still a number of tools available that can help investors maximise their return on investment at a time
when it matters most.”
Contrasting this, Andy Butcher, branch principal and chartered financial planner at Raymond James said: “A long overdue review into institutional pension scheme assets in a bid to unlock funding for Sunak’s ambitious transport infrastructure pledges is welcome
news, and will hopefully lead to more bullish returns for defined benefit pension funds. Untying the billions locked in these schemes will not only help unplug the funding gap, but have a significant, tangible impact on levelling up goals, as well as generate
better returns for pension scheme members. Although, this long-overdue reform is likely to still take a significant amount of time to implement.”
Pete Hykin, co-founder at Penfold, shared similar positive thoughts regarding increasing the pension charge cap, commenting that “allowing people greater choice over investments for their pension fund can only be a good thing. By increasing the pension charge
cap, savers will have the opportunity to invest in more expensive assets, such as private equity and infrastructure funds, which have the potential to generate higher returns in the current market environment.”
However, Hykin does note that savers are not engaged enough in their pension and, “raising the cap may, therefore, risk savers being exposed to providers taking advantage and charging them more.”
Sam Seatom, CEO of Money Hub, added further comments on pensions: “the Chancellor froze the pensions lifetime allowance for five years in the March Budget, in a move that effectively decreases its value once inflation is taken into account. And income tax’s
personal allowance is set to be frozen at £12,570 until 2026. With inflation rising and an increased tax burden, we’ll all have less disposable income - in other words, we’ll be worse off!”
Sustainability
From the perspective of pensions, Hykin noted the green advantages of the changes. “It also opens up possibilities for green impact investment to everyday savers, allowing people to invest in funds that may be more aligned with their morals or causes close
to their heart.”
Cureton commented from the SME view: “This was a green-fuelled Budget speech and rightly so ahead of COP26, but we heard little about the practical steps and workable solutions to get SMEs to act. As the British Business Bank report found last week, SMEs
contribute around a third of all greenhouse gas emissions and around half of those from business and industry. Decisions on who gets a contract or gets a form of relief will be based on the green measures businesses undertake, so while there was mention of
relief for investment in green technologies, there needs to be more of a ‘carrot’ alongside the inevitable regulatory ‘stick’. Businesses need that incentive to create more sustainable businesses that lead us to the Net Zero goal of 2050.”
Cureton further added that “the loans would stimulate increased commercial investment in SMEs adopting ESG-related projects, policies and procedures while the lending pool would make affordable funding available for those businesses, simultaneously stimulating
pension funds and other larger funders to provide capital and encouraging alternative lenders to reconsider their own ESG credentials.”
Much of the concerns raised over the sustainability of the Budget are related to changes in housing. Stuart Law, CEO of the Assetz group stated: “We welcome the Chancellor’s package of housing-related investment announced in today’s Budget, particularly
the provision of affordable housing and improved use of brownfield sites. However, given the focus on green grants and the need for housing to become more sustainable in future, the Government must do more to support homeowners during this transition over
the coming months and years.”
Law then explained that while funds have been earmarked to help homeowners with this transition, current packages of support represent a “drop in the ocean” in terms of what is needed to achieve greener homes.
The UK Green Building Council (UKGBC) shared similar concerns, with Julie Hirigoyen, chief executive at UKGBC agreeing: “With the COP 26 conference just days away, the Chancellor’s announcements felt like they were from a different planet and a different
time. Whilst we welcome changes to business rates to incentivize investment in renewable technologies, new research and development funding, and grants for local authorities, there were no big announcements to fill the clear gap that has emerged around decarbonising
existing buildings.”
Furthering fintech
Overall, the response to the budget is extremely mixed. The area that most fintechs seem to be sharing the greatest amount of positivity is around the investments in new skills.
Russ Shaw CBE, founder of Tech London Advocates and Global Tech Advocates said: “This Autumn Budget is wholeheartedly on the side of the tech sector. With the commitment to reskill the nation through a 42% increase in spending on skills and a formal criteria
for the long-awaited Scale Up Visa, the Chancellor has announced a set of proposals that will support the breadth of our sector from startups right through to our unicorns.”
Shaw further added that “after thirty years in the industry, it is most welcome to see tech finally take its place at the top table of government policy. London has been a global tech hub for some time now - but the Chancellor’s commitment to making the
UK a ‘science and tech superpower’ is an extremely promising step towards cementing the entire country’s position as a true international digital leader.”
Todd Clyde, CEO at Token, noted the importance of fintech for British recovery, calling it the “jewel in the crown of the British economy. “It’s a sector that can lead the UK’s post-pandemic recovery. Sunak has been clear that, while careful with people’s
money, he’s not afraid to spend it where it matters - and this includes promoting innovation.”