By Daniel Lanyon on Thursday 23 November 2017
The Chancellor unveiled a trio of good news for financially disruptive firms (and a downgrade to the economic outlook).
The Chancellor unveiled a trio of good news for financially disruptive firms (and a downgrade to the broader economic outlook).
The Chancellor Phillip Hammond’s third Budget contained a considerable boost in backing for fintech and other forms of disruptive technologies.
A reduction in stamp duty for first time buyers alongside the Office for Budget Responsibility’s (OBR) growth downgrade were the biggest takeaways but changes to EIS rules, a new fund from the British Business Bank and other support for a digital ecosystem are welcome news.
While his predecessor George Osborne, the current editor of the Evening Standard, was a huge supporter of fintech, Hammond’s overtures to support the high-growth fintech sector have been more muted...until now.
Probably most importantly the Chancellor is to double Enterprise Investment Schemes (EIS) limits for “knowledge intensive” companies. This means EIS investors can put up to £2m per year into qualifying companies, who in turn can receive up to £10m. While the definition of “knowledge intensive” firms is broad it certainly applies to fintech alongside other high-growth areas such as biotechnology and healthcare.
Alex Davies, founder and CEO of Wealth Club says the Budget has been good for EIS investors and those raising money via EIS such as fintechs.
“It feels like the government has given EIS an extra stamp of approval. Rather than making it worse as we had feared they have actually made it a lot better. Innovative firms (such as fintechs) will hopefully find it easier to raise more money and for longer, whilst the amount investors can put into these types of companies and receive valuable tax relief will double,” he said.
Hammond also made two other moves that many commentators believe will be good for fintechs. Niels Turfboer, Managing Director of UK & Benelux, Spotcap adds that the raft of money set aside in the Budget for new technologies is also a positive.
“The fintech industry is going from strength to strength and the UK Government can play an important part in enabling fintechs to continue to thrive. We therefore welcome Philip Hammond’s promise to invest over £500m in numerous technology initiatives, including regulatory innovation and artificial intelligence, as well as unlock over £20bn of new investment in UK scale-up businesses," he said,
"With this assurance, the government has shown a strong commitment to the fintech sector, which will hopefully help tech companies all around the UK to flourish and grow."
Sacha Bright, CEO of Business Agent, an alternative finance marketplace, says Hammond’s budget will be welcomed by investors and boost P2P and crowdfunding.
“More money to the British Business Bank is likely to feed through to the peer-to-peer (P2P) community and changes to EIS and VCT investments are about trying to encourage more direct investing in genuinely entrepreneurial companies which is what crowd funding is all about.For those investors looking for long term growth in young, entrepreneurial companies the changes should be welcomed.”
“Increased limits could make a big difference and whilst the tap of money from fund managers may temporarily reduce in flow, there appears to be an awareness and support of the role that crowd funding has to play in funding these companies.”
Les Cameron, head of technical at Prudential, provides some warning, however.
“The old adage that the tax tail shouldn’t wag the investment dog should be remembered - the risk being undertaken has got to be appropriate for the client. The tax treatment of EISs is very generous reflecting what should be a higher-risk profile on your investment so it will be interesting to see what measures are introduced to deal with the use of them for low risk capital preservation,” he said.
Tom Williams, CEO, of Certua Protect adds that the long term effect of the investment is good but its likely results may take some time to be fully realised.
“The true measure of a revolution is how it impacts the everyday lives of people. Technology without implementation or relevance to the problem it seeks to fix, means nothing. I welcome this investment into innovation in the tech start-up industry but strongly believe that we must judge ourselves on the end result of how it improves the lives of those who use it,” he said.