UK Spring Budget 2023: the fintech sector reacts
It’s that time of year again. The UK has Budget fever, with Chancellor Jeremy Hunt outlining how the government will help boost the country’s productivity and economic growth, with fintech set to play a pivotal role in achieving this.
Beyond the headlines, there are nuggets of optimism for the UK’s buoyant fintech sector – investment zones, more research and development (R&D), “returnships” and university talent pipelines. But does the Budget go far enough?
FinTech Futures has heard from a number of UK-based fintech leaders on how the Spring Budget affects the sector, and we’ve collected some of their thoughts below.
Spread the love
Starling Bank CEO Anne Boden believes London – as a fintech hub – should “spread the love”, including wealth and jobs, throughout the UK to places such as Greater Manchester and Wales, “areas with a deep pool of tech talent”.
“We’re pleased to see the Chancellor recognise this in his 12 new investment zones,” Boden says.
Making it easier to invest in people and technology is also welcome, Boden adds, singling out the new scheme designed to encourage over-50s back into work. Additionally, she believes allowing firms to write-off the full cost machinery and IT “will give businesses a significant incentive to invest and will support additional job creation”.
Currencycloud chief strategy officer Aleks Stefanovski believes many start-ups will be disappointed by yesterday’s Spring Budget.
“The government had hoped it could build on the momentum gained through the rescue of Silicon Valley Bank UK over the weekend. I’m not sure it’s achieved that,” he says.
The new, temporary three-year policy for near-full capital expensing, although framed as a natural extension of the super-deduction tax incentive, is hamstrung by its short timeframe.
This will encourage firms to “cram in” investment in the near-term, Stefanovski believes, “rather than plotting it out as part of a long-term, sustained strategy”.
And although Hunt tried to portray his new “enhanced” R&D tax credit “as a win” for the UK’s innovation economy, “in reality it will only partially offset the damage done by his changes in last November’s Autumn Statement”, Stefanovski says.
“The bottom line is most start-ups will still find it much harder to claim R&D tax credits than before this government took over,” he adds.
Tech sector growth lever
GoCardless UK managing director and chief customer officer Pat Phelan says there were some “welcome measures” in the Budget, including “returnships” and the previously mentioned investment zones.
“But we didn’t hear much about a huge lever for growth, one which, after his efforts this weekend, the Chancellor clearly believes in: our ‘world-beating’ tech sector.”
Phelan believes that if the UK is to maintain its lead in the fintech space, “we must grasp every opportunity to create the right environment for UK tech to thrive”, including pushing through the changes announced last year to improve the Seed Enterprise Investment Scheme.
Phelan adds the UK needs to keep up momentum in open banking, “which is at a critical juncture in its development and now used by over seven million people”.
Corporate digital bank Neo CEO and co-founder Laurent Descout says ensuring the UK remains a key fintech hub should be a “key priority” for the government.
“In recent weeks, we have seen positive moves such as the Prime Minister and Technology Secretary’s commitment to enhancing the UK’s position as a science and technology superpower by 2030 through its new framework which commits hundreds of millions worth of investment in innovation.”
This new framework, coupled with the Chancellor’s additional R&D support for small and medium-sized enterprises (SMEs) and commitment to additional investments for tech hubs near UK universities, is “great news” for the tech industry, Descout says.
From 2021 to 2022, spin-outs from UK universities created more than 56,000 jobs and almost £6 billion of investment, and this investment will help ensure this success continues.
“As a fintech with an office in Cambridge, we have seen first-hand the innovation taking place at UK universities and welcome the Chancellor’s support,” Descout says.
Spring has sprung
Equifax UK chief data and analytics officer Paul Heywood believes the Chancellor and the Office for Budget Responsibility (OBR) “presented a less bleak picture of the nation’s economic outlook than shared last year”.
“While there is unlikely to be substantial growth in 2023, the fears of recession that have dogged the first quarter of the year appear to be receding.”
Heywood says businesses will welcome plans to restore tax relief for those reinvesting into research and development, “however, there is little in the Chancellor’s plan to tackle high borrowing costs for consumers and businesses”.
Attention will now shift to the Bank of England’s base rate decision next week, Heywood says, though there seems little chance of an easing of climbing borrowing costs.
“Regardless of next week’s rate decision, the credit sector will continue to ensure borrowers can access the credit products they need and support any consumers who find themselves vulnerable in the current economic situation,” Heywood adds.
Innovation, innovation, innovation
Payoneer’s senior vice president and Europe head James Allum believes the Budget is a “temperature check” for the short-term future of economic growth in the UK tech sector.
“Rising inflation has detracted some investment away from tech as investors pursue short-term profitability,” Allum says, and fintechs are focusing on raising funding to survive rather than innovate.
As a result, we’ll see fewer risky products enter the market, Allum believes, in favour of platforms which are targeted at solving real problems for customers in a tough economic climate.
Innovation labs have dropped off amid uncertainty and doubt as businesses focus on data-based decision making. “The industry will need the backing of private and government investment to weather the storm and continue to innovate as much as possible.”
Despite this, there’s still plenty of room for optimism as private investment in tech continues to grow. “The difference will be in where this funding is being spent. It’s about investing it in a way that protects the industry and its customers,” says Allum.
Allum thinks that firms will turn away from doing something “ground-breaking”, with investment channelled into solving the specific issues facing the sector and lowering risk.
“There are positive measures being put in place to allow the UK tech industry to flourish in the longer-term and digital businesses should maximise these to survive a tough economic climate.”
Additionally, planned government-backed fintech hubs will help enable the industry to keep innovation at the industry’s core.
“The hubs will be key to unlocking the best talent and thinking about innovation in the long-term and this is where the UK needs to invest,” Allum says. While the market is “mature”, there are opportunities to consolidate amid “industry-wide burnout”.
“These hubs are a good step towards encouraging the next generation who will drive the future financial innovation needed for the UK is to meet its ambitions of becoming the global hub for fintech,” Allum says.
Additionally, Allum hopes the newly formed CFIT will be a “driving force for greater collaboration” between the Bank of England, regulators and the UK government to reduce barriers to growth for the UK’s already flourishing tech and fintech ecosystems.