Budget ‘compelling vision’ to deliver stronger economy, says financial industry

UK Finance, which represents around 300 UK financial services firms, described the plans outlined in the chancellor’s latest budget as a ‘compelling vision’ for a stronger British economy.

Taxes

The trade association welcomed Rishi Sunak’s announcement that the bank corporation tax surcharge will be reduced to partially offset the planned increase in corporation tax.

“This move recognises the importance to the UK of an internationally competitive sector which supports growth, jobs and innovation across the UK,” said David Postings, chief executive, UK Finance. “At the same time, the increase in the bank surcharge annual allowance to £100 million will also help to support healthy competition in the sector.”

But the organisation pointed out that the banking sector would see an increase in its overall tax rate and would continue to be taxed at a higher rate than other sectors of the economy.

“Given the overall tax position of other global financial centres, we urge HM Treasury to keep the banking and finance sector’s total tax rate under active review – this will ensure the UK continues to be an attractive place to do business, is globally competitive, and enables the sector to support the economic recovery and the net zero transition,” added the chief exec.

Commenting on the Budget, Karim Haji, UK head of financial services at KPMG, said: “The Chancellor sent a muted message to the City that he has its back whilst also protecting the Treasury’s purse. Whilst banks might be reassured that their overall tax bill remains largely stable, there will be some disappointment at the lack of broader simplifications and the fact the sector still faces multiple sector-specific tax regimes. Challenger banks will be relieved by the shelter provided by increasing the annual allowance for the surcharge to £100m mitigating the potential impact of the tax rises for this group.”

He added that while the move to extend R&D tax relief to cloud computing and data costs could be welcomed by the financial industry, the benefits of this could be limited and depend on the detail around that is considered R&D and where activities are located.

Support for businesses


As part of the Autumn Budget, the government announced a new £1.4 billion Global Britain Investment Fund, designed to help spread economic opportunities more evenly across the UK by supporting investment in the UK’s life sciences, offshore wind, and automotive manufacturing sectors.

“With the announcement of a £1.4 billion fund to promote inward investment, the extension of Help to Grow - which provides tech education and software discounts - and the expansion of tax relief to cover cloud and data costs, the Government has shown that it understands the needs of the six million SMEs in the UK,” said Mariano Dima, president and board director at FinTech Soldo. “Many still remain exposed post-pandemic. Innovation and digitalisation hold the key to their full recovery, which will in turn stimulate economic growth and support a reduction in the UK’s public debt.”

The government also pledged £1.6 billion for the British Business Bank’s regional funds, which provide debt and equity finance to SMEs, and £150 million to the Regional Angels programme, which aims to reduce imbalances in access to early-stage equity finance across the UK.

“The banking and finance industry continues to deliver an unprecedented level of support to help businesses of all sizes through these difficult times,” said UK Finance’s David Postings. “The Recovery Loan Scheme (RLS) is providing businesses with the finance they need to continue to rebuild and we welcome its extension until the end of June 2022.”

Extension of the Recovery Loan Scheme

But Paul Christensen, chief executive of Previse, claimed that the cost to pay back most loans outweighs the benefits for small businesses.

“The government’s extended Recovery Loan scheme will actually cripple the smallest businesses by leading to a mounting wall of debt. In reality, it amounts to nothing more than a token gesture,” he said.“We need loans that are paid back in line with SMEs’ balance sheets and offer flat fees. This is the only way to deliver small businesses sustainable cash flow.”

Simon Cureton, chief executive of business finance marketplace Funding Options, agreed that the extension of the RLS was not a good move.

“The optics may look good for the government as it suggests the helping hand remains outstretched for small businesses, albeit on reduced terms, but just look at the limited take-up so far,” said the chief exec. “The alternative finance community in particular is not blind to the notion that the RLS scheme is the EFG scheme repackaged and renamed. It’s too early to judge perhaps, but there’s little doubt EFG is not regarded as a resounding success and I fear RLS faces the same fate.”

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