UK Budget 2021: A bright future for the UK FinTech ecosystem?

United Kingdom

On the 3rd of March 2021, Chancellor Rishi Sunak announced the latest UK budget. However, it came hot on the heels of the ground-breaking Kalifa Review into the UK’s flourishing FinTech industry. The Review highlighted that the UK is primed to become a world-leading FinTech hotspot, with a 10% current global market share and more investment in 2020 than the next five European countries put together (see our article on the Kalifa Review here). As the UK FinTech landscape looks set to blossom in the coming year, it is important to consider what impact the recently announced budget could have on the sector.

In this article, we will cover aspects of the budget that are most relevant to FinTech, such as:

  • New fast-track tech visas to encourage skilled immigration to support growing FinTech scale-ups;

  • The ‘Help to Grow’ scheme targeted at SMEs to boost technological knowledge;

  • Contactless spending limit increase to £100;

  • Recovery Loan Scheme to replace existing COVID-19 government lending programmes;

  • Corporation Tax rise to 25%; and

  • Expansion of the Furlough Scheme and Self Employed Income Support Scheme to retain talent.

Fast-Track Tech Visas

In line with a specific recommendation from the Kalifa Review to streamline the immigration system in support of the tech sector, the Chancellor announced that a new fast-track visa will be introduced to plug post-Brexit gaps in the UK technology industry. The move is particularly targeted towards FinTechs and will allow employees with job-offers from recognised UK ‘scale-up’ businesses to apply for more accessible visas. This would allow employees to benefit from simplified rules without the strict requirements facing a sponsor organisation. The Innovator Visa will also be revamped to make it easier  for those with the skills and experience to found an innovative business to obtain a visa. This move could be a welcome boost to the industry, allowing for accelerated growth by offering opportunities for highly skilled employees and innovate entrepreneurs to prompt further innovation in the UK FinTech space.

Help to Grow Scheme

The 2021 Spring Budget also expanded upon the existing Help to Grow scheme, with plans to establish a digital platform to offer free technology advice to businesses. The scheme is primarily aimed at allowing SMEs to become more competitive and productive. Businesses will have access to leading technology advice through the provision of 12-week programmes, and bosses will be eligible for 50 hours tuition from leading UK business schools and support from experienced industry mentors. Furthermore, some organisations could receive discounts of up to 50 per cent (up to £5,000) for new software to boost productivity. This could be particularly beneficial for the FinTech sector, allowing them to collaborate and work with SMEs to showcase and partner on their business propositions.

Contactless Spending Limit Increase

In another tech-focused budget development, contactless spending limits are set to be raised from £45 to £100. The pandemic prompted a stark uptake in contactless purchases, with findings from market research organisation RFi Group establishing that 73 per cent of customers in the UK are now using digital banking every week. Therefore, the contactless limit increase could further support this increasingly digitised approach to UK finance. This could be a welcome move for the FinTech sector by making contactless purchases more attractive and practical. However, as of yet, no firm date has been put in place for the change so the increase may not be implemented until later in the year.

Recovery Loan Scheme

Additionally, a new Recovery Loan Scheme will be introduced to support companies that have suffered due to the coronavirus pandemic. Set to replace the government’s previous Bounce Back Loan Scheme (BBLS) and Coronavirus Business Interruption Loan Scheme (CBILS) loan programmes which both paid out over £70bn in support, the Recovery Loan Scheme will offer sums between £250,000 and £10m up until the end of 2021. The government will also provide an 80% guarantee on loans obtained through the scheme. Some FinTech companies became accredited providers of the original BBLS loans, including Starling Bank and Funding Circle. The announcement of the new scheme set to last until the end of year could prompt some other FinTech businesses to get involved, either as providers or recipients.

2023 Corporation Tax Rise

Perhaps a less welcome update comes in the form of a future rise in corporation tax, increasing from the current 19 per cent to 25 per cent in 2023. By 2023, it is predicted that the economy will have largely recovered from the pandemic with less pressure facing businesses. It is important to note, however, that many organisations will not be negatively impacted by this tax increase. This is because, in the words of the Chancellor, as “corporation tax is only charged on company profits, any struggling businesses will, by definition, be unaffected … I’m protecting small businesses with profits of £50,000 or less, by creating a Small Profits Rate, maintained at the current rate of 19%. This means around 70% of companies – 1.4 million businesses - will be completely unaffected.” An additional protection comes in the form of a ‘taper’ above £50,000, which means only those organisations with profits exceeding £250,000 will come under the 25% full tax rate. Therefore, it appears that only the biggest organisations will pay the price. For some large FinTech organisations, this will not come as welcome news. Yet, as the UK’s FinTech market consists of many more small companies and new start-ups, on balance this tax increase may not be as much of a concern for the wider industry.

Expansion of the Furlough Scheme and Self Employed Income Support Scheme

Lastly, another part of the budget that could be viewed favourably by the FinTech sector involves an expansion of the Furlough Scheme and Self Employed Income Support Scheme. A recent article by our Employment team covers this in more detail (see here), but both schemes will now run until September 2021. Several high-profile UK FinTechs, including banking consultancy 11:FS and card compiler Curve, made use of the scheme in 2020 so this could provide some other organisations with vital ‘breathing room’ to protect jobs in a difficult economic climate.

Our view

Overall, 2021 looks set to be an exciting year for FinTech as the industry continues to go from strength to strength, with relevant measures introduced by the budget enabling further development. Although the ongoing pandemic has caused immeasurable harm to the global economy and our daily lives, it has encouraged the uptake of technology (particularly in the Financial Services sector). The UK seems to be encouraging this by implementing programmes directly targeting FinTech and the wider technology industry, but it remains to be seen whether this will counteract some of the difficulties caused by Brexit and the pandemic in attracting global talent and encouraging consumer confidence.

Co-authored by Laura Craig.