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Although the UK’s largest financial institutions are winners from the UK Chancellor’s budget announcement on Wednesday, others are concerned that it undermines the country’s burgeoning fintech sector.
After a week of media leaks, which proved controversial within the UK’s political class, Rishi Sunak outlined his autumn Budget.
The Budget included a commitment to review the 8 percent banking surcharge levied on bank profits, which was introduced in 2016 by the then Chancellor, George Osborne.
Sunak, who took over the role in 2020, said in his Budget statement to UK parliamentarians on Wednesday that this will be cut to 3 percent from April 2023.
This is intended to soften the hit that financial institutions will take from the rise in corporation tax from 19 percent to 25 percent, which comes in at the same time.
“The banking and finance sector makes a significant contribution to the UK public finances and we welcome the Chancellor’s announcement that the bank corporation tax surcharge will be reduced to partially offset the planned increase in corporation tax,” said David Postings, chief executive of UK Finance.
Postings pointed out that the banking sector will still see an increase in its total tax rate and will continue to be taxed at a higher rate than other sectors of the UK economy.
“Given the overall tax position of other global financial centres, we urge HM Treasury to keep the banking and finance sector’s total tax rate under active review,” he said. “This will ensure the UK continues to be an attractive place to do business, is globally competitive, and enables the sector to support the economic recovery and the net-zero transition.”
Postings also said that the increase in the bank surcharge annual allowance to £100m will also help to support healthy competition in the sector.
According to Sunak: "Small challenger banks are improving banking competition which is good for the sector and good for consumers.”
“This is a good sign of progressive thinking to create the right environment in which fintechs can flourish,” said Samantha Seaton, chief executive at Moneyhub, a Bristol-based open finance platform.
So has fintech been a winner?
This Budget presented an opportunity to advance the key recommendations set out by the Kalifa Review earlier this year to boost the growth of the UK fintech sector, said Janine Hirt, chief executive at Innovate Finance. “We welcome the Chancellor's commitment to do exactly that.”
Speaking at FinTech Week in April 2021, Sunak had namechecked fintech as a driving force for the UK economy, stating: “If we can capture the extraordinary potential of technology, we'll cement the UK's position as the world's pre-eminent financial centre.”
According to Hirt, the budget “included further action on a number of the recommendations of the Kalifa Review, which will support further innovation by FinTechs across the UK", highlighting the announcement of seed funding for a Centre for Finance, Innovation and Technology, progress on the scale-up visa, and extension of R&D (research and development) tax credits for data and cloud computing.
Now, the government and regulators need to set out a joined-up regulatory roadmap for financial services innovation and competitiveness, to ensure that the UK can keep apace with technology and overseas competitors, Hirt continued. “The rapid development and adoption of new services and products means that there can be no let-up in government activity to maintain the UK as a trusted centre for financial innovation.”
For Hirt, what now needs to happen is for the government to accelerate work on introducing a new UK regime for the regulation of crypto-assets and a plan for extending open banking across financial services and alongside a digital identity.
In terms of the commitments made to enhance fintech, there are areas that could be tweaked, according to Seaton.
“The Chancellor has regularly cited the strength of the UK’s fintech sector and the importance of maintaining a competitive edge,” Seaton told VIXIO. “But the government must now also make sure it builds up the entire country as a fintech hub, not just London!”
For example, only £150m has been put aside for the British Business Bank’s regional UK angel investor programme. “That figure needs to be much higher to really make a difference,” according to Seaton.
“More resources are required to help fintech start-ups and other small businesses outside of London to access the early-stage funding they need to get off the ground, grow, and support our economy,” she said.
In London itself, there have also been concerns that the Budget will not hit the spot for the fintech industry.
“The Treasury’s leak machine can, once again, be commended for doing a truly great job,” said Louise Beaumont, chair of the open finance and payments working group at techUK, who was less optimistic about the move.
Noting the Chancellor’s previously positive rhetoric about the UK’s fintech industry, Beaumont told VIXIO: “There was diddly squat in this regard for FinTech which is, after all, the engine room of financial services innovation and competition.”
“Would the big banks have started offering digital services had it not been for Monzo, Starling, and Revolut? I think we all know that we’d still be inking cheques and counting coins,” complained Beaumont.
Cloud nine for R&D?
Meanwhile, Julian David, the chief executive of techUK, talked up the possibilities that the budget offered for R&D.
“The Chancellor’s plan to reform the R&D tax credit system to allow businesses to better utilise data and cloud computing services is a major upgrade to the UK’s support for research and development, marking a major step toward boosting UK productivity,” he said, noting that the trade association has been calling for some time for an extension of tax reliefs to cover cloud computing and data costs.
The new regime recognises the way companies use technology to transform their businesses in the modern world, according to David. “In particular, we can see that smaller businesses that use cloud computing and data-driven technologies have increased their annual turnovers in excess of £250,000.”
