Budget 2020: What’s the fintech impact?
Rishi Sunak, the UK’s Chancellor of the Exchequer, has announced his first Budget this week.
Rishi Sunak, chancellor of the Exchequer
With only a month into his new role, Sunak outlined a £30 billion fiscal injection into the UK economy.
Ostensibly to counterbalance the effects of the ongoing coronavirus outbreak and resultant market instability, Sunak also aims for his first Budget to boost the fortunes of small and medium-sized enterprises (SMEs).
Prior to the chancellor’s Budget, the Bank of England (BoE) announced an emergency cut in interest rates from 0.75% to 0.25%.
The cut, in response to the growing disruption created by the coronavirus, comes after years of ultra-low interest rates.
FinTech Futures has gone through Sunak’s new Budget to pull out what measures may impact the financial services industry going forward.
Coronavirus
The Budget has been dubbed the “Coronavirus Budget” due to its arrival during the global outbreak of the disease.
Sunak dedicated a majority of his speech to battling the economic effect of the coronavirus, stating that the National Health Service (NHS) in the UK would receive the millions and billions it may require.
Sunak added that banks would be encouraged to offer loans of up to £2 million, guaranteed by the government, to SMEs, to help them recover from any losses incurred due to the virus.
“The government will not charge businesses or banks for this guarantee, and the Scheme will support loans of up to £1.2 million in value.”
Businesses with fewer than 250 employees will not be required to pay sick pay themselves, with the government covering the cost of employees in self-isolation or recuperating.
The chancellor, who has a background in the financial services sector, also announced government support for start-ups, with £130 million set to be allocated to the extension of start-up loans.
The government has also announced its extension of the British Business Bank’s Start-Up Loans programme to the end of 2021-22 and £200 million in funding.
John Ellmore, director of Know Your Money, says that the government’s move to support the self-employed offers “some much needed assurance to those that make up the expanding gig economy,” and adds that the emergency support to help businesses implement self-isolation measures is welcoming. However, the announcement left Ellmore with more questions.
“We are still left wondering as to what the long-term solution will be. Should the Coronavirus outbreak worsen, just how much assistance can the Government realistically provide to help businesses and their employees?” queries Ellmore.
“Let’s not forget the financial challenges that self-isolation can also pose to workers. It is estimated there are 2,000,000 people in the UK with no sick pay who may not be able to afford two-weeks of self-isolation.
“For those who find themselves in this position, I’d advise speaking with non-profit organisations such as Citizen’s Advice to ensure they are on top of their finances.”
Entrepreneur relief
Sunak announced earlier this year that he planned to scrap tax relief on entrepreneurs who sell their businesses, causing a stir among London’s founders. The measures were initially published in the 2019 Conservative manifesto.
According to research, the tax break costs the UK economy up to £3 billion as entrepreneurs pay 10% on lifetime gains up to £10 million, half the 20% capital gains tax for others.
Sunak announced that he planned to scrap tax relief on entrepreneurs who sell their businesses.
The relief has also been criticised as being exclusive to a particular demographic. A study from the Resolution Foundation found that in 2015-16 white men in their 50s were the main beneficiaries of the tax relief, taking up 82% of those affected.
Short of scrapping the relief measures, Sunak states that he would be paring back on the scheme, reducing the threshold from £10 million to £1 million.
“In response to evidence that Entrepreneurs’ Relief has primarily benefited a small number of very affluent taxpayers and done little to generate additional entrepreneurial activity,” the Budget states.
“[A reduction] will ensure that enterprising small business owners will continue to benefit, leaving over 80% of those using the relief unaffected.”
Paul Christensen, CEO at Previse, says that while the lower threshold for entrepreneur’s relief is “undoubtedly a welcome step in the right direction,” more needs to be done.
“The government needs to find new ways to incentivise start-ups and addressing the well-documented issue of slow payments is an obvious way to do so. It would also be a more sustainable method of encouraging entrepreneurship than tax relief.
“Businesses – particularly small ones – often fail because they have to cover their own expenses while waiting to be paid for the goods or services they provided. It doesn’t need to be this way.”
A fintech sector review
The Budget announces a review of the UK fintech sector led by Ron Kalifa, vice-chair of WorldPay and non-executive director at the BoE, to “support growth and competitiveness in the sector”.
The government has also states that it will convene a summit looking at what further data needs to be made accessible to make it faster and easier for SMEs to shop around for credit.
Additionally, it will also extend funding for the Fintech Delivery Panel, as well as touring the regions and nations of the UK to showcase its “diverse range of fintech firms”.
Stamp duty
Stamp Duty concerns the tax paid when properties are purchased on an area of residential land that costs more than £125,000, or commercial land worth more than £150,000.
Yet it also applies to the buying of stocks and shares, under which a .5% duty is paid per transaction, as well as interest in shares.
The government has announced that it would be extending the Finance Act 2018-19 rule preventing artificial reduction of the tax due on share acquisitions when listed shares are transferred to a connected company.
The Budget announces a review of the UK fintech sector.
It will now apply to unlisted shares in the Finance Bill 2020 to prevent further tax avoidance.
Libor
The government has announced that it will be organising a consultation on the potential tax impact of withdrawal from the London Inter-Bank Offered Rate (Libor).
“The government will consult to ensure that where tax legislation makes reference to Libor it continues to operate effectively.
“The consultation will also enable the government to ensure it is aware of all the significant tax issues that arise from the reform of Libor and other benchmarks.”
A new regulatory forum
In response to the Financial Services Future Regulatory Framework Review announced in 2019, the government plans to set up a new regulatory forum involving major watchdogs to “provide industry with a forward-look of upcoming regulatory initiatives.”
This forum will be made up of the BoE, Prudential Regulation Authority, Financial Conduct Authority (FCA), Payment Systems Regulator and Competition and Markets Authority, with HM Treasury as an observer member.
Anti-money laundering (AML)
The government has announced it will be introducing a levy paid by firms subject to the money laundering (ML) regulations.
Banks and other financial institutions will pay the levy to help fund the government’s commitment to tackle ML, jumping off the Economic Crime Plan it drafted last year with UK Finance.
In January, it was revealed that UK financial regulators had issued the most AML penalties in 2019 of any European country, with 12 fines totaling to $388.4 million.
Sunak’s Budget says the levy will “help safeguard the UK’s global reputation as a safe and transparent place to conduct business”. The treasury has committed to publishing a consultation on the levy later this spring.
“The government is right to want to step up the fight against ML but firms covered by any new levy are entitled to ask what it will pay for,” says CEO John Dobson from AML specialist SmartSearch.
“Any new levy should be risk-based, on a sector-by-sector and firm-by-firm basis,” Dobon adds. “Businesses already using reliable, modern AML solutions should not be asked to pay more because others stick with outdated processes that are not up to the job.”
The Budget also mentioned the government will be allocating £14 million to Companies House to “enable it to continue with vital capital projects to help its work tackling economic crime and AML”.
With the Fifth Anti-Money Laundering Directive (5MLD) coming into force this January, financial firms subject to ML regulations are required to “report any material differences between beneficial ownership information held by a client and the details on the Companies House people with significant control (PSC) register.
Presumably the money allocated to Companies House in the 2020 Budget will be used to investigate any discrepancies which remain following 5MLD.
Digital currencies
The Budget mentions it “looks forward to” the BoE’s discussion paper on a potential UK central bank digital currency (CBDC).
“The UK will continue to take a leading role in exploring digital currencies,” the Budget states.
In January, the BoE, alongside the central banks of Japan, Canada, Switzerland and Sweden, teamed up with the European Central Bank and the Bank for International Settlements (BIS) to begin the process of reviewing how a digital currency owned by the UK’s central bank could come into existence.
“The UK will continue to take a leading role in exploring digital currencies”.
The Budget says it wants to “protect consumers and support innovation in cryptoassets” by bringing certain cryptoassets “into [the] scope” of financial regulation.
The government also commits to a consultation “later in 2020” on the “broader regulatory approach” to cryptoassets, including “so-called ‘stablecoins’”.
Traditionally opposed to the blockchain technology which facilitates cryptocurrency, the BoE’s governor, Mark Carney, has more recently promoted the idea of a digital currency.
“[A digital currency] could dampen the domineering influence of the US dollar on global trade,” the governor said last August.
As part of its cryptocurrency and AML commitments, the Budget also mentioned the creation of a ‘Digital Identity Unit’. The unit will make “it possible for people to prove things about themselves without showing paper documents”.
Designed to make it easier to open a bank account, claim benefits or buy a house, the unit will also address calls for the government to promote the uptake of electronic ID verification – something it was asked to do in a consultation last year.
“More secure and cost-effective online transactions will also boost business and the digital economy,” the Budget asserts, adding that the use of technology to combat the “increasingly sophisticated” criminal methods being used “would [also] be a good place to start”.
Reporting by Alex Hamilton and Ruby Hinchliffe
