The fintech/altfi trade-off facing Phillip Hammond ahead of the Autumn Statement

By Daniel Lanyon on Wednesday 23 November 2016

OpinionSavings and Investment

Today’s Autumn Statement will be the Chancellor’s first major moment and the UK’s first budget event since Brexit but will he favour the disruptors or the big banks, asks Daniel Lanyon.

The Chancellor Phillip Hammond will today deliver, five months on from the Brexit vote, his first indication of his major economic plans for the UK in the Autumn Statement.  Those in the alternative finance and fintech world will be paying close attention as Hammond faces a somewhat of a trade-off.

In what used to be a general re-calibrating of growth and borrowing estimates, the Autumn Statement has in recent years become more and more a mini-budget itself with some notable policy announcements.

While his predecessor George Osborne was notably keen on the nascent alternative finance industry and made lots of positive noises suggesting ongoing support from government, not mention new legislation such as the IFISA, Hammond has been somewhat more hushed in his tone.

Yes, he did come out in support of Nutmeg’s £30m capital injection last week claiming the UK to be the ‘global capital’ of the fintech and alternative finance industry. But, nonetheless Hammond faces a trade -off and his reticence to so far match Osborne’s enthusiasm could be evident that he is less keen on supporting the industry’s growth.

Could this be because the Chancellor wants to see a return to health for the major banks, who are not just struggling from secular disruption from fintech and alternative finance providers but also facing a huge amount of political uncertainty in a post-Brexit Britain.

Not only this but new figures published in November show that the total tax contribution of the UK banking sector climbed to £34.2bn in the year to 31 March 2016, reflecting a 9.3 per cent increase on the corresponding figure for 2014 (£31.3bn).

UK banks paid just over half of the total tax contribution at £17.4bn - 50.9 per cent - while foreign banks contributed £16.8bn, 49.1 per cent.

The increase in the sector’s total tax contribution was almost entirely driven by corporation tax and the bank levy. Employment taxes remained flat, however, and made up £17.8bn or 52 per cent of the overall total. Foreign banks account for 29.3 per cent of employees but 54.5 per cent or £9.7bn of employment taxes.

Commenting on the report, chief executive of the British Bankers Association Anthony Browne emphasised how this was putting pressure on banks’ balance sheets.

“HMRC’s own data and PwC’s independent work both show that the tax take from banks is at its highest level since 2006. This comes at a time when banks’ revenues are under increasing pressure due to a tough economic environment and uncertainty.”

“It is more important than ever that the UK remains a competitive place to do business for both domestic and foreign banks, with a propionate and stable tax environment. This matters because banking is the UK’s leading export industry, employs over half a million people right across the UK, two thirds of which are based outside London.”

The amount of irrecoverable VAT paid by the sector has increased significantly since 2011 due to increases to the rate as well as increased investment across the sector in IT and infrastructure, he adds.

At the same time Hammond is also faced with staggering deficits in budgets and as Shaun Port, Nutmeg CIO, says “Nobody yet knows whether Philip Hammond – as yet an unknown quantity – will continue with austerity or loosen it.”

“Mr Hammond has talked about infrastructure investments, and abandoning Mr Osborne’s deficit target. Some hope he’ll use government cash to invest in UK transport infrastructure, support exporters, or bankroll UK research and development. This would be pro-growth – but the impact might not be felt for years to come,” he adds

This clear trade off is likely to most keenly expressed between the challengers for the banking and financial markets and the challenged incumbents who are growing tax receipts. 

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