Autumn Budget and Spending Review 2021: Innovate Finance Response

Commenting on today’s autumn Budget and Spending Review announcements by the UK Government, Janine Hirt, CEO of Innovate Finance, said:

"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, and we welcome the Chancellor's commitment to do exactly that. 

“It included further action on a number of the recommendations of the Kalifa Review, which will support further innovation by FinTechs across the UK: the announcement of seed funding for a Centre for Finance, Innovation and Technology (CFIT), progress on the scale-up visa, and extension of R&D tax credits for data and cloud computing. Additional funding for the British Business Bank to invest in regional business angels and patient capital provides a further stimulus to investment in high-wage, high productivity FinTech jobs in clusters across the UK.

"The extension of R&D tax credits and the changes to the visa system outlined through the Scale Up Visa both demonstrate that this Government is backing the role of UK FinTech companies in fuelling economic recovery and providing financial support for SMEs. These are welcome interventions that remove barriers to recruiting the best talent and will enhance the flow of innovation in the long run.

“This Budget also recognised the importance of FinTech in enabling people and small firms to better access finance across the country. An extension of the Recovery Loan Scheme – which Fintech lenders are a key part of – and the raising of the bank levy allowance for challenger banks will accelerate more innovation in the banking sector.

“Alongside today’s positive tax and spending commitments, Innovate Finance now looks to the Government and regulators to set out a joined-up regulatory roadmap for financial services innovation and competitiveness, to ensure we keep pace with technology and overseas competitors.

“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. We now need the Government to accelerate work on introducing a new UK regime for the regulation of crypto assets and an ambitious plan for extending open banking across financial services and alongside a digital ID. 

“This year is seeing record levels of investment in UK Fintech, widespread adoption of digital services by consumers, and new products and services, including ones that address societal challenges like financial wellbeing and climate change. Government has helped create the environment for this success. Today’s Budget provides further support, but we must keep up momentum if we are to maintain our position as a global leader.”

Kalifa Review & SME Lending

Innovate Finance is delighted to see adoption of a number of measures we and our members have called for:

Implementation of the Kalifa Review of UK FinTech: 

In February the Government published Ron Kalifa’s independent review of priorities to support the UK’s FinTech sector. The Chancellor announced a number of measures to implement the Review when he opened UK FinTech Week in April, including commitments to a scale up visa, export support, work on a Central Bank Digital Currency and an FCA scalebox to support FinTechs as they grow.  Today Rishi Sunak announced further action on the Kalifa review:  

• The establishment of a Centre for Finance, Innovation and Technology (CFIT) to tackle barriers to growth and accelerate the UK FinTech sector. This will provide a new and much-needed source of data and insights across the UK, working with the national network of FinTech clusters and convening FinTechs to develop solutions to societal challenges. We look forward to supporting the establishment of CFIT and working with the new organisation.
  
• Extending R&D tax credits to data and cloud computing, incentivising greater investment in new products and services including AI, open banking and Software as a Service (SaaS).
• Further confirmation on the introduction of scale-up visas, enabling fast growing firms to access global talent and skills.  We look forward to seeing further details, and our members will be keen to ensure the definition of ‘scale up’ allows for some qualitative flexibility rather than just a mathematical formula based on annual growth.  The announcement of a Global Talent Network to bring highly skilled people to the UK in key science and technology sectors will also be welcomed by our members - we look forward to working with this new concierge service launching  in prime areas for FinTech talent as it launches next year in the Bay Area and Boston in the US, and Bengaluru in India.
• A review of the Pension Charge cap to unlock institutional investment in UK growth firms.  This was another recommendation in the Kalifa Review of FinTech and should pave the way for UK pensions to invest in British scale-ups. The Review identified the funding gap for FinTechs and today’s announcement of an  additional £150m funding to co-invest with business angels outside London, will increase the supply of early stage funding for start-ups.

Small business (SME) lending: 

Extension of the Recovery Loan Scheme for an additional six months is welcome news for alternative lenders, who prior to the Covid crisis had taken over from the biggest banks as the main lenders to small businesses.  This will enable them to continue to meet the needs of SMEs for working capital and investment for growth.  The reduction in the guarantee  level from 80% to 70% makes sense as the economy starts to recover from Covid. 

FinTech lenders still face disadvantages compared to the big banks, both in disproportionate capital requirements and in accessing lower cost wholesale funding. We urge the Government and the Bank of England to look at ways of addressing these too, so as to increase the amount of capital available to lend on to small firms. We hope some of the extra funding for the British Business Bank will enable it to develop an initiative that helps alternative finance providers access cheaper wholesale funding, enabling them to compete on a level footing with the established banks.

The Bank surcharge levy has always hit FinTech challenger banks disproportionately, reducing their ability to reinvest profits in growth. Rishi Sunak’s increase in the allowance to £100m profit (up from £25million) is a welcome move that will accelerate investment by the financial services innovators themselves, as well as making them more attractive when seeking external funding.