On November 18, 2022, the Chancellor of the Exchequer, Jeremy Hunt, presented the long-awaited Autumn Statement.
Cloaked in controversy following the disastrous mini-budget in September, some had nicknamed the Autumn Statement, the “memorial service for Trussonomics”. Suffice it to say the expectations of the public were low and businesses were nervous.
While much of the initial few moments were spent assuring listeners that the UK was not the worst hit by macroeconomic conditions, many are frustrated, stating that the facts were misrepresented. One report went so far as to call it “one of the most dishonest political statements in living memory.”
Opening the statement with a confirmation of the worsening recession, Hunt proceeded to remind listeners of the “unprecedented headwinds” facing the economy. He stated that the priorities for the statement were “stability, growth, and public services.”
Growth is projected to be the worst of the G7 countries, with the Bank of England predicting a decline of 1.5% for GDP growth. Hunt told the House of Commons, “Growth forecasts have fallen here – but fallen further in Germany.”
Additional support through tax cuts and living wage increases were announced, and tax brackets extended to encapsulate a higher percentage of higher earners.
However, among the additional measures, cuts to surcharges of bank profits were also made, dropping from 8% to 3%. This change, which Hunt conveniently left out of his speech, could result in extensive tax savings for banks, which some say could have been used to support individuals.
Reactions from the fintech community since the announcement have been divided.
UK as the “next Silicon Valley.”
Perhaps the most significant announcement for the fintech sector was the Chancellor’s pledge to make the UK the “next Silicon Valley.”
Following the vision of former Chancellor and now Prime Minister Rishi Sunak, Hunt announced renewed interest in pushing the fintech sector, combining the UK’s ‘tech and science brilliance’ with ‘formidable financial services.
He stated that financial services and digital technology were two of the five “growth industries” that he felt would drive the UK to post-Brexit success.
While plans to push these industries are yet to be released, many remain positive. Janine Hirt, CEO of Innovate Finance, said, “We welcome the Chancellor’s ambition to “turn the UK into the world’s next Silicon Valley,” and his commitment to combining the UK’s leading financial services sector with our world-class research and innovation, foster greater competition, and unlock growth through smart regulatory reform.”
“This should help cement the UK as the global leader in fintech. We look forward to seeing further plans from the government in the coming months.”
R&D cuts, but fintech innovation could be critical
However, some remain cautious in their positivity. Many of the steps announced by Hunt could work against a growing fintech sector. The changes were said to reduce the risk of fraud, but some worry that they could damage innovation.
Despite announcing an increase in the R&D budget, cuts to the deduction rate of R&D tax credits for SMEs reduced by as much as 40%, and credit rates went from 14.5% to 10%.
“I’m supportive of the change in approach the new Chancellor has taken. Taxing those with broad shoulders is preferable in a market where the less privileged are going to be hardest hit,” said Sho Sugihara, CEO and Founder of Pave. “However, I am concerned that R&D tax credits are being reduced. At times of uncertainty, you need innovators willing to take risks and serve marginalized consumers in sectors like credit. This cut risks stifling innovation from UK businesses when we need it most.”
The cuts, in addition to raising corporation tax, could stunt startup growth and limit the ability to develop innovative solutions, possibly working against the long-term growth promised by Hunt.
SMEs hit hard
Additional measures were also announced, such as a £13.6 billion support package to help companies with business rate bills. While the support was welcomed, some felt it might be too little to help smaller businesses and start-ups significantly.
“The promise of a £13.6bn package of business rates is unlikely to plug the gap and will raise concerns considering all that’s been removed without warning,” said Chirag Shah, CEO of Nucleus Finance. “While some SMEs may feel some relief in this promise, the finer detail needs ironing out to ensure this finance is easily accessed and trickles down to all those struggling to keep their doors open.”
Cross-sector SMEs, making up 99.9% of all businesses in the UK economy, have been among the hardest hit by worsening macroeconomic conditions. Faced with increasing challenges, confidence among business owners, although optimistic earlier this year, has crashed.
“Rising costs, economic uncertainty, and the impact of Brexit are all taking a toll on SME confidence,” he continued.
Fintechs have faired comparatively well, and existing community lenders have helped drive growth. However, many turned to the government, hoping for long-term support in the Autumn statement.
“Whilst specialist lenders like Nucleus Commercial Finance are providing significant support to help keep businesses’ business dreams afloat,” continued Shah. “Businesses are looking to Government to provide a long-term plan to lead them through the dark days of the recession.”
While the UK still awaits plans to bring the “Silicon Valley” vision to fruition, the fintech sector is now seen as critical to helping the economy weather the continued recession.
“Fintech in the UK was forged in adversity – rising from the global financial crash and growing through the pandemic,” said Hirt. “By creating value and responding quickly to customer needs, Fintechs will continue to increase their role in the economy by providing better, cheaper, and easier products to consumers, which will support us all through the cost of living crisis.”
Despite the cuts in R&D, Hirt was positive, calling for increased regulatory support for the sector.
“Alongside the fiscal measures announced today, we look forward to seeing faster progress on the Government’s regulatory reforms, including regulation to enable open finance, digital ID, and creating the framework for the UK to be the global center for digital assets.”
“Growth through investment and exports is more critical than ever. Smart regulation can help both, enabling innovation, improving competitiveness, and attracting international entrepreneurs.”