By Ryan Weeks on 24th November 2016
Hammond springs surprise by abolishing autumn statement, declares support for FinTech firms.
Chancellor Philip Hammond’s first (and apparently last) Autumn Statement contained some encouraging sounds for the alternative finance sector. The new Chancellor announced the commissioning of an annual “State of UK FinTech” report, containing key metrics for investors. He has also committed an extra £400m to the British Business Bank, and announced that a green paper on competition within consumer markets will be brought forward to Spring 2017.
Alternative finance providers have been somewhat spoiled by the major fiscal announcements of recent years. What with the launch of the Innovative Finance ISA, mandatory bank referral scheme, changes to bad debt relief rules and so on, barely a budget has passed without some new piece of positive legislation being passed. Mr. Hammond’s inaugural Autumn Statement broke that trend, but the sector's biggest players will nevertheless be heartened to have heard him making the right kind of noises. Mr. Hammond wasted no time, for example, in suggesting that the UK is leading the world in the field of “disruptive technologies”.
The Autumn Statement policy paper outlined the government’s intention to support investment in UK FinTech, saying that the DIT (Department for International Trade) will provide £500k a year for FinTech specialists. As noted above, the paper also announced the launch of an annual “State of UK FinTech” report on key metrics for investors.
The FCA, as part of its post-implementation review of the “crowdfunding” sector, has pushed for the standardisation of key investor metrics on a number of fronts. While the Treasury’s newly commissioned report would appear to be focused on gathering key venture capital metrics, portfolio performance (on both an industry-wide and platform-by-platform level) will surely be paramount for venture capital firms with an interest in the alternative finance space.
We also learn that the government will "launch a network of regional FinTech envoys, and has agreed with the Joint Money Laundering Steering Group that they will modernise their guidance on electronic ID verification to support the use of technology to access financial services”. Eileen Burbidge, partner at Passion Capital, was named as a special FinTech Envoy to the Treasury in July of last year.
The British Business Bank (BBB) – a government entity designed to promote greater competition within SME finance – received an extra £400m in venture capital funds. These are intended to unlock up to £1 billion of new investment in “innovative firms planning to scale up”.
The BBB’s modus operandi is to invest alongside the private sector via carefully vetted distribution channels. In its efforts to support access-to-credit for SMEs, for example, the bank has invested tens of millions of pounds alongside private investors on such marketplace lenders as Funding Circle and MarketInvoice. Its venture investment partners include such well-known names as Dawn Capital and Passion Capital.
The Treasury also announced a review to identify barriers to access to long-term finance for growing firms, which will be supported by an advisory panel led by Sir Damon Buffini, former head of the private equity firm Permira.
The statement included the announcement that a green paper on competition in consumer markets will be brought forward to the Spring of next year. The review is not specifically focused on financial services, but rather on consumer markets in general. According to the statement: “… where markets fail and competition isn’t strong, consumers may not get a good deal. Where this is the case, this government will not hesitate to step in to strengthen competition.”
It’s also worth noting changes to the Social Investment Tax Relief (SITR) scheme. From 6 April 2017, the amount of investment that social enterprises aged up to 7 years old may raise through SITR will increase to £1.5m. But the government is also introducing new measures to ensure that the scheme remains targeted:
“Certain activities, including asset leasing and on-lending, will be excluded. Investment in nursing homes and residential care homes will be excluded initially, however the government intends to introduce an accreditation system to allow such investment to qualify for SITR in the future. The limit on full-time equivalent employees will be reduced to 250. The government will undertake a review of SITR within two years of its enlargement.”
Changes to SITR will be relevant for such platforms as ThinCats, which launched its Community Chest offering in July of this year, allowing investors to lend to social enterprises through the platform. All loans in the Community Chest come with SITR or Community Investment Tax Relief (CITR) attached. These provide investors with tax reliefs of 30 and 5 per cent respectively.
As always, a number of alternative finance providers have shared their thoughts on the statement.
James codling, co-founder and managing director of VentureFounders:
“It is great to see the government acknowledging the challenges faced by UK scale-up businesses, especially in the tech innovation sector. By investing £400m in VC funds, it is making financing more accessible to the companies that have the potential to scale and significantly contribute to the UK economy as they begin to mature. By being able to secure long-term investment rather than having to sell young to international market leaders, UK scale-ups can continue to grow and challenge these leaders, ultimately providing greater returns to their investors and the UK economy overall.”
Aamar Aslam, CEO of Funding Invoice:
“The announcement from the Chancellor today that £1 billion is due to be invested in the UK’s tech start-ups via the British Business Bank is undoubtedly good news for the London market, but also the growing number of start-ups based across the UK. Giving start-ups the chance to grow at a sustainable pace through expanded venture capital funding is a welcome move.
Max Chmyhsuk, co-founder of Fleximize:
"Innovation is a clear theme of this autumn statement, with the Chancellor stressing the need for long-term investment in the industries of the future and in digital infrastructure. The injection of a further £400m into the British Business Bank can only be seen as a welcome move to unlock further funding for Britain’s pioneering startups."
Ed Molyneux, CEO and co-founder of FreeAgent:
“There’s not much good news in the Autumn Statement for small business owners - and especially for contractors. Despite the Chancellor announcing more funds to develop management skills, a rise in venture capital funds through the British Business Bank and an increase in rural rate relief, there’s actually very little to be cheerful about.”
“London is currently the world’s largest centre for fintech with investment growing faster here than anywhere in the world. In 2015 it generated £6.6bn in revenue, attracted £524m in investment and employed 61,000 people. The Autumn Statement provided the government with an opportunity to support this industry and protect the UK’s role as a global leader in financial services.”
Now in its sixth year, the AltFi London Summit returns on 18th March 2019 to 155 Bishopsgate. Last year proved to be a crucial turning point for the key players building the future of finance. Leading platforms launched oversubscribed IPOs, digital banks proliferated and mainstream financial institutions started their own disruptive propositions. With 2019 certain to be another landmark year, more questions will be asked by regulators with investor interest in disruption also poised for more rapid growth.