FS industry responds to the 2021 Budget

After bracing for a series of tax rises - many of which did not materialise - the financial services industry has broadly welcomed the measures set out by chancellor Rishi Sunak in his spring Budget.

Support was promised for jobs, digital skills and high growth companies, which are likely to benefit the FinTech and financial services industries as they adjust to the post-pandemic and post-Brexit landscape.

However, some industry figures warned that the chancellor’s package of tax and investment measures could have gone further, with many seeking longer-term reassurances over the status of the UK as a world hub for FinTech and financial services innovation.

Here’s a roundup of reaction to the key measures:

FinTech talent Visa

The introduction of an unsponsored Visa scheme for high skilled migrant workers is likely to be beneficial for the sector, with the chancellor intending to bolster the UK’s status as a global FinTech hub.

Daumantas Dvilinskas, chief executive and co-founder at TransferGo praised the move as a “step in the right direction” but urged the government to go further in providing long-term reassurances.

"True innovation comes through diversity of thought and background, and as a migrant myself, the budget was missing this final piece: a reassurance to foreign talent that there is a home for them in the UK FinTech community.”

Elsewhere, Jed Rose, general manager at FinTech Airwallex said the fast track visa scheme would be “crucial” for talent retention in the FinTech sector, as more than two fifths of Britain’s FinTech workforce are migrants.

“Attracting and retaining world-class tech talent accelerates the UK’s ability to innovate in the business banking sector. Losing access to global talent would be a huge blow for UK-based FinTech companies,” he explained.

However, Rose said that the Budget should have placed an even greater focus on FinTech initiatives.

“The Government needs to quickly develop a unified strategy for the FinTech community and work with the relevant stakeholders to implement it. From progressive regulation and incentives to a focus on talent and tax efficient vehicles, the UK needs to appeal to fast growth companies. At a time when Brexit and Covid-19 have drastically altered the business landscape, the UK does not want to lose its position in the market,” he warned.

Julian David, chief executive of trade body techUK said "The Chancellor has also listened to calls from the tech sector to enable the best and brightest talent to come to the UK through a new fast track visa scheme as well as supporting domestic retraining with additional financial support for both apprenticeships and traineeships.”

Rafa Plantier, head of UK & Ireland at Open Banking platform Tink said the fast track visa scheme represented a “golden opportunity” for the UK to lead the way in FinTech development.

“We must continue to nurture our start-up culture but, crucially, we must also give high growth UK firms access to the global talent they need to flourish internationally.

“To make this happen, it’s vital that not only should the UK have access to people with the right technical skills, but also to those who have spent time with ambitious, rapid growth businesses from around the world — and who can bring this experience to bear on the UK fintech sector.”

Contactless limit

The financial service and retail industry welcome the chancellor’s move to raise the legal limit for contactless payments to £100 later this year.

David Postings, chief executive of UK Finance said: “This is a great move for customers and will allow them to use contactless to pay for higher value transactions like their weekly shop or filling up their car with fuel.”

He identified this Budget measure as evidence of a “true Brexit dividend” as it would not have been possible if the UK were still bound to EU regulation on payments.

Postings added that UK Finance would be working closely with the payments sector and retailers ahead of the increase, to ensure that staff and systems were prepared for the change.

Digital skills

Sunak also announced the creation of ‘Help to grow: Digital’ scheme, which is aimed at helping thousands of SMEs to upgrade their capabilities and create new highly skilled digital jobs across the UK, including the UK’s financial technology sector.

Julian David, chief executive of trade body techUK said the measure was a “significant intervention”.

“Research by techUK and our members have shown that this kind of support is in high demand and we stand ready to do our part to ensure this scheme is delivered successfully.”

Likewise, Paramjit Uppal, chief executive and founder of AND Digital said: “It’s encouraging to see initiatives to support the technology sector in today’s budget. Matching public money with private sector venture capital through the Future Fund: Breakthrough will provide a catalyst for growth, supporting innovation and enable sustainable scaling up as the economy begins to recover.

"It’s great to hear of more investment in digital and tech skills to come. Supporting youth and employment in the tech sector will be particularly important as we look to rebuild the economy, a revamped Kickstart scheme and more incentives for businesses to take on apprentices and support young peoples’ development is a good place to start.”

National Infrastructure and Tax Relief

David from techUK also welcomed the creation of a £22 billion National Infrastructure Bank, which will have a remit of supporting digital investment, as well as a proposal to review Research and Devlopment (R&D) tax relief.

The introduction of a so-called 'Super-Deduction', which will enable businesses to temporarily claim a 130 per cent tax relief on business capital investment, is expected to stimulate £25bn in business in the UK. It is set to benefit capital intensive businesses, such as manufacturers and utilities companies in particular, Portia Pierrel, director, at PwC said.

“This will provide not only an accelerated timing benefit but additional tax relief on expenditure incurred,” she added.

However, David at techUK said the trade body would “strongly encourage that these schemes, including the Super-Deduction, are applicable to the needs of modern businesses who increasingly rely on intangible digital investments in cloud-computing, data and AI tools to boost growth."

Tax rises and freezes

While many companies will be smarting at the prospect of 6 per cent rise in corporation tax on profits above £250,000 (from 19 per cent to 25 per cent), some were encouraged by the delay in introduction of the measure until April 2023, with commentators speculating that this policy could be reversed should the economy bounce back in the next year.

However, the corporation tax rate will be frozen at 19 per cent for smaller companies with profits of less than £500,000, with around 1.5 million small companies set to benefit.

There will be no corporation tax charged on companies with sales of less than £500,000.

However, the industry was largely buoyed by the absence of measures such as an online sales tax which had been mooted in the run up to the budget.

Tim Snaith, partner at law firm Winckworth Sherwood, said: “In a number of ways, the budget did not have the sharp teeth so many feared. There was no mention of a wealth tax, no wholesale reform to the inheritance tax regime, no sign of the increases in Capital Gains tax that were thought inevitable. That is not to say that the door has now closed on these changes; in fact, we think it remains wide open and that the Chancellor will turn his attention to some of them in due course.”

Christian Nentwich, chief executive of FinTech Duco said the budget provided good news for high-growth tech companies.

“At a first glance, the much-feared hike in capital gains tax, which would have seriously put investment at risk, has been pushed out —though the lack of rise in income tax makes one suspect the topic will return. The visa changes for highly skilled workers are positive on the face of it, and unless the devil is in the detail, we at Duco think this is a good, pro-growth budget that will give us confidence to invest and increase headcount.”

Stock market reforms

The chancellor also timed the announcement of reforms designed to boost London's IPO market with yesterday’s Budget.

Christian Gabriel, chief executive and founder at equity management platform Capdesk said the move would boost the city’s status as a startup hub – but said entrepreneurs must proceed with caution.

“It’s positive to see the government taking steps to make London an attractive place to IPO, but startups must exercise caution.

“While new and emerging ways to exit may appear to be a convenient shortcut, staying private can be a smart move in the long run. These methods have yet to be properly tested outside of a bull market, so may not be in the best interests of an earlier-stage business. Factors such as not hitting a valuation target, high compliance costs and volatile share prices can all damage long-term growth.”

Meanwhile, Karim Haji, head of financial services at KPMG UK, said: “The proposals, such as changes to listing rules, may look like tinkering round the edges, but in fact have the potential to provide a timely fillip to the City of London.

“Relaxing the rules on dual-class shares and the minimum level of free float are about providing entrepreneurs and investors with more flexibility and the incentive to raise and invest their capital here in the UK, which in turn helps the economy. When successful UK companies feel it is more beneficial to list in New York or elsewhere, it is very logical to consider how we can ensure London remains a world-class financial market that attracts the best businesses.”

He added: “Of course, a key driving factor in this is Brexit. There now appears to be a willingness to take advantage of the additional flexibility offered by being outside the bloc to boost London’s competitiveness on the global stage.”

Anti-fraud taskforce

Sunak also announced £100m investment in an HMRC taskforce designed to crackdown on rising levels of fraud across the financial system.

However, John Dobson, chief executive at AML specialists SmartSearch, said HMRC would do well to consider the potential of technology to support their investigations: “This is a positive announcement by the Chancellor and more than 1,000 new investigators may go some way to recouping the billions which have been lost to fraud over the past 12 months of the coronavirus crisis.”

“There’s no doubt that extra resources are much in need, particularly as the Chancellor has also announced a new Restart fund for businesses to replace the Bounce Back loans, which was wide open to fraud.”

He added: “But it’s also vital that a significant amount of that £100m investment goes into the systems used by HMRC to find those responsible for fraud. Without the use of the latest digital platforms to run ID checks and verify information on a global scale, these investigators will be in danger of just becoming busy fools.”

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