Budget 2018: No tricks and few treats for fintech and alternative finance

By Daniel Lanyon on Tuesday 30 October 2018

Editor's PickAlternative LendingDigital BankingSavings and Investment

The Chancellor Philip Hammond unveiled a Budget aiming to please voters and avoided anything meaningful for firms disrupting finance.

The UK fintech and alternative finance industry has got used to successive Budgets whereby the Chancellor - both Philip Hammond and his predecessor George Osborne - announced rafts of measures to boost and nurture the nascent industry alongside the broader tech/start-up world.

As digital banking challenger Tandem’s CEO Ricky Knox said, yesterday's Budget was more “a windfall for ordinary people” following increases to the National Living Wage to £8.21 and the personal allowance bracket growing to £12,500.

“We’re looking at people earning the living wage taking home around £700 a year more and saving over £100 of tax on their basic income, as of April. This is back to basics stuff and a real windfall for ordinary people,” Knox added.

Yesterday’s budget saw little to catch the attention of disruptive firms except perhaps a £1.6bn pot for R&D into new technologies such as AI and a new digital services tax which will levy a 2 per cent charge on cash made via UK users on profitable and large tech giants with revenues over £500m from April 2020, expected to raise £400m a year.

Could this derail or bring forward the much vaunted launch into fintech by the likes of Google and Facebook?

Alex Neilson, investment manager at robo adviser Investec Click & Invest says the new digital services tax will either squeeze the profit margins of tech giants such as Amazon and Facebook or the products and services they provide will have to become more expensive to satisfy investors.

“Whilst this is likely to please those calling out such companies to pay their fair share of taxes it is yet unclear how this will be received by a public who could in future end up paying more for those gadgets and services they take for granted,” Neilson said.

Schroders' senior European economist, Azad Zangana says that introducing the tax before an international agreement is in place could be seen as targeting specific companies from certain countries, and could risk a tech “backlash”.

There were  some bullish tech/disruption related policies, if not anything strongly directed at the industry, aimed at promoting investment and entrepreneurialism.

Hammond has increased the investment allowance to £1m for the second year - from £200,000 - for the next two years. Toby Ryland, corporate tax partner at H W Fisher & Company, says there will be some businesses that would probably prefer the Treasury leave the investment allowance alone in the first place, however.  

“Having said it wouldn’t change two years ago, Chancellor, Philip Hammond, has increased the investment allowance to £1m once again - from £200,000 - for the next two years.” 

"This may well simply be an attempt to encourage businesses to invest in machinery and other equipment in order boost productivity. But, equally, Brexit uncertainty has been holding back investment and Mr Hammond clearly wants to give it a shot in the arm by raising the tax relief again in case Brexit turns out worse than anticipated. Whether it works is however, is another matter."

Sam Smith, CEO of finnCap, says the extension of the entrepreneurs’ tax relief announced at last year’s Autumn Budget was a good move despite some measures to tighten the definition and scope of the policy.

“Making the relief available only to entrepreneurs who have owned their business for over two years should help promote a stronger commitment by owners to their businesses and encourage them to plan for the long term.”

“With Brexit imminent, we need to incentivise our nation’s entrepreneurs more than ever to help create wealth and build a dynamic economy, both crucial elements in supporting our vital public services and benefiting the UK as a whole.”

Niels Turfboer, managing director of Spotcap, added that it was not surprising to see support of the tech and innovation sectors in the Budget.  

“The focus on supporting these industries are very much in line with comments made by Hammond while at the annual IMF meeting earlier this month. There he stated that the UK would be a “natural global home” for new and innovative financial services. And with Brexit around the corner these signals will play a role in shaping perceptions of the future of the UK’s financial technology and fintech sectors."

This year’s Budget also contained details on a new Enterprise Investment Scheme (EIS) fund structure that will be introduced from April 2020 offering generous tax relief for investing in risky start up firms which could boost investment into fintech firms.

The Budget didn’t go far enough to support the future of UK SMEs, however, according to ArchOver CEO Angus Dent who says that  continued investment is needed as a lifeline for struggling SMEs and savers.

“The Chancellor’s reduction of business rates is music to the ears of SMEs around the country. This time last year, the Chancellor announced the expansion of the National Investment Fund for business – and if that doesn’t ring any bells, you aren’t alone. A definitive step forward like reducing business rates is long overdue – particularly for small retailers struggling on the British high street. But this isn’t enough to cure a decade of difficulty for UK SMEs.

“The best way to prove this would be to announce a mini-budget focused on advancing SMEs in a still-struggling economy. The Chancellor desperately needs to convince the rest of the world that the UK is still a competitive place to do business – or he risks putting the future of UK businesses in jeopardy.  

Hammond also missed out on dropping in a blockchain reference to the chagrin of Alex El-Nemer, director of cryptocurrency and blockchain enterprise Nexus.

“This budget was notable for the absence of any additional detail around how blockchain technology could help solve the Irish border issue - a policy suggested by the Chancellor himself just weeks ago. Whilst the proposals for extra investment in infrastructure and support for digital skills are welcome, the lack of imaginative thinking around how technology can smooth the Brexit transition was both striking and disappointing.”

“Businesses are already braced for market uncertainty next year, and the ongoing and increasing fraught negotiations, particularly around how to avoid a hard border have only added to this problem. Moving forward, the government must recognise the vital role technology like blockchain and cryptocurrencies can plan in promoting transparency and opportunity, as well as making organisations more accountable to the public."

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