Yesterday, Rishi Sunak, the UK’s Chancellor of the Exchequer, presented the UK Budget. Many critics have said that the budget may be politicised as the Conservative party are looking to strengthen their hold on the government. FinTechs have a very unique position in all of this, and today we wanted to look at how good the Budget is for FinTechs.
Everyday at #DisruptionBanking we receive a lot of feedback from the market about latest regulation, government policy and other current affairs. Yesterday was another one of those days, and we are delighted to be able to share with our readers the feedback of some of the most influential people and organisations involved in FinTech in the UK today.
But before we do that, perhaps a small recap of what the most important elements of The Budget.
From the Gov.uk site the most important points to highlight include the following:
- To balance the need to raise revenue with the objective of having an internationally competitive tax system, the rate of Corporation Tax will increase to 25%, which will remain the lowest rate in the G7. In order to support the recovery, the increase will not take effect until 2023. Businesses with profits of £50,000 or less, around 70% of actively trading companies, will continue to be taxed at 19% and a taper above £50,000 will be introduced so that only businesses with profits greater than £250,000 will be taxed at the full 25% rate.
- Capping the amount of SME payable R&D tax credit that a business can receive in any one year at £20,000 (plus three times the company’s total PAYE and NICs liability).
- The £375 million UK-wide ‘Future Fund: Breakthrough’ will invest in highly innovative companies such as those working in life sciences, quantum computing, or clean tech, that are aiming to raise at least £20 million of funding.
- Reforms to the immigration system will help ambitious UK businesses attract the brightest and best international talent.
- A new Help to Grow scheme to offer up to 130,000 companies across the UK a digital and management boost.
- Launching a review of Research & Development tax reliefs to make sure the UK remains a competitive location for cutting-edge research.
- Plans for at least £15 billion of green gilt issuance in the coming financial year, to help finance critical projects to tackle climate change and other environmental challenges, fund important infrastructure investment, and create green jobs across the UK.
Glint – reintroducing gold as money
Jason Cozens, Founder & CEO of Glint, says: “The government’s stratospheric borrowing throughout the pandemic hasn’t just proven to be the death of cash; it’s nailed the coffin lid firmly shut. Over £400bn has been borrowed to get through the pandemic; this needs to be repaid sooner or later and once again the financial impact is likely to be unequal across society. An increase in borrowing and national debt will only further devalue cash and our savings.”
“Historically low interest rates, which may yet fall into negative territory, rising inflation and borrowing that has spiralled out of control have all punished consumers and savers in recent years. Unfortunately, the worst is yet to come. It’s no wonder that more consumers, savers and private investors are flocking to alternative currencies and turning their backs on traditional financial institutions. Government-backed currencies have proven to be unreliable stores of value, so consumers are searching for an alternative currency that is less prone to losing its purchasing power over time.”
“This is one of the main drivers in the increased appetite for alternative currencies such as cryptocurrencies and, increasingly, gold – at Glint, we’ve seen a 40% rise in clients looking to spend, save and share real gold over the last quarter. Although the value of gold can decrease, which means it’s purchasing power can also fall, it still holds a strong reputation as a safe haven in times of uncertainty.”
Previse – whose smart tech analyses financial data:
Previse Reacting to the Chancellor’s mentioning of the UK Infrastructure Bank in the Budget, Paul Christensen, CEO at London-based fintech Previse says:
“The environment is critical to sustainability, but banks and businesses can also work towards an ESG-oriented strategy by supporting sustainable finance. The chronic problem of slow B2B payments is crying out for a solution. Banks, fintechs and businesses can work together to deliver this. By paying suppliers immediately, businesses can help Britain’s SMEs stay afloat. Banks can put their money where their mouth is when it comes to ESG by providing the funding alongside fintechs, who provide the technology to make instant payment possible.”
Untied, the UK’s personal Tax App:
Kevin Sefton from untied says fiscal drag will help the government’s tax take whilst keeping allowances the same:
“Effectively, the government is increasing its tax take by relying on inflation while keeping allowances the same. Multiple thresholds have been fixed up to 2026, including those relating to income tax, VAT, inheritance tax, pensions lifetime allowance and capital gains tax. “Fiscal drag” relating to these taxes will result in a £21.7bn benefit to public finances over the next five years, and £9.1bn in 2025/26 alone which would be sustained each year even if allowances then move in line with inflation.
“The biggest tax increases are in corporation tax, which will generate nearly £48bn over the next five years, and £17.2bn in 2025/26 alone.
“Looking to identify the greatest beneficiaries is a bit like describing a mythical creature. They will be smaller capital-intensive businesses that take advantage of some of the apprentice employment opportunities, make the most of the capital allowance changes (offering 130% “super deductions”), will be able to benefit from support for buying new software, will be able to borrow at low cost / receive funding from the FutureFund Breakthrough, send management on the new training programmes and will have profits that remain at the lower rates. In turn they will sell software which others want to buy with funding, have been shut for an extended lockdown so get a larger grant, and also sell food which remains at a lower VAT rate.”
Zedra, a global provider of Active Wealth, Global Expansion and Fund Services:
Commenting on how the Budget could help fill the fintech skills gap and keep world class talent in the UK, Adam Dunnett, Director at ZEDRA, said: “On the theme of recovery, the Chancellor is looking to lay some foundations so the UK emerges as the leading global hub for international business in a post-pandemic and Brexit world. Headline reforms will be made to the UK’s R&D tax schemes – with the government looking to widen the scope to cover data and cloud computing costs – together with a review of the qualifying EMI share scheme to further support growth and international innovation.
“For fintech specifically, this includes a new fast track visa to help fill the skills gap and encourage world class talent to continue to work in the UK. It is seen as a turning point for the sector, and is intended to reduce bureaucracy when hiring. In theory, it will allow the sector access to a diverse pool of talent so the UK fintech scene can hire the best people and continue to be a leader for innovation and entrepreneurialism.”
RBC Wealth Management:
Commenting on the Budget announcement and potential future tax rises, Dean Moore, Managing Director, Head of Wealth Planning at RBC Wealth Management International, said: “From a private client perspective, fiscal drag on personal allowances and IHT thresholds will have a limited impact, with the key areas of pension tax relief, annual and lifetime allowances, IHT rates and continuing ability to make substantial gifts and CGT remaining unchanged.
“This was essentially a “feel-good” budget while the UK economy remains in recovery mode, but there’s no getting away from the debt that COVID has created. It was clearly positioned that with a projected £2.1trn UK public sector net debt burden, there will be tax rises to come, and the areas previously flagged as being a focus of tax increases are still in play. The budget reinforces the need for investors to get their house in order and to make use of the current gifting allowances and CGT rates, especially when considering legacy and next generation planning. There is a lot to consider and think about as a family and we will continue to work with clients to support these discussions and provide solutions. Above all, it is important to remain forward looking and vigilant in regards to the tax rises which we believe will come down the track, and to seek financial advice where appropriate. Having an unexpected window of opportunity shouldn’t be a cause to celebrate, rather it should prompt clients to seize this opportunity. The budget statement in the Autumn and some darker clouds loom on the horizon.”
Commenting on the Budget, Charlie White-Thomson, CEO, Saxo Markets, said: “The Chancellor managed to combine to good effect a very difficult message of – whatever it takes, with the importance of rebuilding the country’s finances. The wartime analogies underline the severity of many of the underlying economic statistics. This as he rightly pointed out will have to be managed by generations to come. In general, I believe he provided a good dose of optimism which will be a key foundation of the road to recovery. Future budgets will need to have a greater focus on how we pay for this.”
Isabelle Jenkins, Leader of Financial Services at PwC UK, said:
“The Chancellor’s announcement today that the UK corporation tax rate will increase from 19% to 25% from April 2023 had been trailed in recent days, even if the single increase was unexpected.
“With this in mind, the banking sector was watching closely to see whether the Government would recognise the potential detrimental impact such a move would have on international competitiveness for banks operating in the UK if the 8% banking surcharge currently in place is retained alongside this increase in the headline rate.
“The sector will therefore welcome the recognition of this issue by the Chancellor in his speech and the clear indication that the Government considers the overall tax rate for banks will be too high if there is no action taken. We await the outcome and proposals of the Government review which is expected to be announced in the Autumn.
“Today’s announcement is made against a backdrop where the competitiveness of the UK for banks is under considerable pressure. A recent PwC survey looked at the tax burden for the banking sector in an international context and showed that, on a comparative basis, the effective tax rate for a model wholesale banking activity, taking into account both taxes borne and collected, was already some 13% higher in the UK than in New York.
“The banking sector will be hugely important to credit creation in the coming months in generating growth as the UK economy starts to recover from the pandemic. The Government’s clear recognition of the need to review the bank surcharge is therefore to be welcomed.”
Sue Kukadia, Head of immigration at Mazars, comments on new fast-track visas for the UK following the Budget
“The Chancellor has announced a fast-track visa for highly skilled migrants in the Budget today, in a move which will especially be welcomed by fintech companies such as Monzo and OakNorth, which contribute £11 billion to the UK economy each year.
“The Belfast Telegraph has reported that the UK has a 10% share of the global fintech market and attracts more fintech investment than the next four European countries combined. Around 42% of the UK’s 76,500 fintech workers come from overseas, and the new visa rules aim to consolidate and build upon the UK’s strong position in the market.
“The scheme will open in March 2022, and the Government will set out more details this July- but it is clear that the Chancellor recognises the importance of competing for talent on a global scale if the UK is to flourish in innovative, fast-growth sectors.”
The quotes in our story today have been kindly provided to us by our partners and we hope that this overview of how the market has reacted to the UK Budget will in turn help our readers gain a better understanding of how things are evolving in the UK.
Following on from shrinking by 10% in 2020, the hope the Chancellor is giving us, is that the economy may be back to where it belongs by 2023… Not long to go yet, then.
Author: Andy Samu