The UK has achieved world leader status in payments innovation, and the government must use its Autumn Budget as a hub for global fintech development, according to stakeholders.
Key to the development is the governments’ desire to continue fuelling innovation within the financial inclusion space, as a challenging economic period endures for many businesses and consumers.
Prior to the budget’s announcement, Tony Craddock, Director General of The Payments Association, shared the trade body’s hopes for the budget, including the creation of a ‘payments alliance’.
This alliance would focus on fostering the UK as a leading ecosystem for payments innovation, and would require collaboration between the government, regulators, and the industry itself.
So how did the statement turn out? Supporting businesses and pushing for tech growth were central talking points of Chancellor of the Exchequer Jeremy Hunt’s speech to the House of Commons yesterday.
One notable pledge was a £500m commitment to fund innovation centres across the country, following the launch of ‘supercomputing centres’ in Edinburgh and Bristol. The Chancellor also discussed AI, the rapidly growing tech which PM Rishi Sunak sought to address at a recent summit.
For Alisa DiCaprio, Chief Economist at R3 and former Chair of the FinTech Committee at the US Department of Commerce, it is of paramount importance that the government meets its commitments and doesn’t lose pace with supporting fintech innovation.
“The UK government must take a proactive approach to innovating the UK’s financial markets or risk falling behind its peer economies,” DiCaprio explained.
“Since the Chancellor’s Spring Statement, there has been positive progress in accelerating this journey – such as the passing of the Financial Services and Markets Act and launch of the digital securities sandbox.
“However, it is vital that the government doesn’t rest on its laurels and continues to recognise the role that technology will play in maintaining the competitiveness of the City. The introduction of smart regulation and standards will be key in creating the right environment for financial services to innovate with technology.
“We’ve seen first-hand the benefits that tools such as DLT can bring to the financial sector, so we urge Westminster to begin moving the needle on targeted regulatory measures that can give market participants the certainty they need to apply this technology at scale. With competition rising from Europe and elsewhere, this will ensure that the UK stays ahead of the curve.”
Of paramount importance to many commentators has, unsurprisingly, been the cost of living crisis that has been biting into the wallets and bank accounts of countless British consumers for many years.
The Payment Association’s Craddock observed that this has been compounded by the fact that many UK residents remain unbanked and so face financial exclusion – up to 1.1 million according to Financial Conduct Authority (FCA) estimates.
“We would encourage the government to prioritise funding for innovation in financial inclusion services, particularly under a model that includes innovators in partnership with the third sector,” he said.
“Of course, it’s been a difficult time for business as well, and that’s all the more reason to be on the same page from a policy point of view under the manifesto, especially as a general election looms ever-closer next year.
“The UK is the most influential nation in payments, a status that was achieved through innovation, which we need to double down on in order to weather the storm.”
“Through the two pillars to helping those that need help and enabling those that can build more intuitive payments systems to do so, we can ensure a more inclusive payments community in the UK.”
For Craddock and the Payments Association, consumer education around using the latest education technologies is vital. This would be particularly useful for the ‘financially excluded and vulnerable’, and ensuring that ‘we bring them with us into a new technological era that affects all our lives’.
Relieving costs of living pressures was a key objective of Hunt’s budget, although maybe not in the same way payments stakeholders have hoped. The Chancellor’s main area of focus was on tax cuts, as he repeatedly noted that the UK tax burden for consumers is the highest it has been in decades.
For employees, the main rate will be cut from 12% to 10% from 6 January 2024, the national living wage will rise from £10.42 per hour to £11.44 and small businesses will get a tax break to offset machinery, IT and equipment investment against corporation tax.
In his speech, Hunt empathised support for SMEs – particularly those involved in research and development (R&D) projects – by cutting the tax rate for loss making companies from 25% to 19%.
Commenting on the Chancellor’s approach to SMEs, Jonathan Andrew, CEO of Bibby Financial Services, welcomed the permanent adoption of 100% full expensing on qualifying capital spending.
“Particularly given the current turbulent market conditions, this will give SMEs a massive confidence boost and underpin their resilience,” he continued.
“It presents an opportunity for SMEs to do something different to stay ahead of the competition, whether by investing in cutting edge equipment that improves productivity or by pivoting their business offering.
“In our most recent research among SMEs, 65% of respondents told us they would like to see the next government implement tax incentives to support them. Today’s announcement is a welcome indication that politicians are responding to their needs.”
Tax breaks, benefits reforms and wage rises caught the headlines across much of the UK media. Although mentioning support for SMEs and investment in AI, fintech developments were largely unmentioned in Hunt’s speech.
However, the Chancellor was keen to emphasise that his budget contains over 110 financial measures, too many to fully explain to the Commons, and so government proposals for fintech could be unveiled over the coming days and weeks….