The Government’s Spring Budget: Headlines & Key Points for FinTechs
Summary analysis
Today the UK Chancellor of the Exchequer, Jeremy Hunt, set out updated tax and spending plans in his first Spring Budget. After the crises and excitement of recent years, this was a relatively low key Budget, with most tax and spending changes already announced in his November Autumn Statement. The headlines focused on the cost of living and efforts to increase labour market participation. More widely, the Chancellor is potentially keeping his powder dry for a pre-election Budget in 2024, when improvements in the economic outlook may give more room for manoeuvre.
For FinTechs the most significant move by the Chancellor was earlier this week, taking rapid action on Silicon Valley Bank to support the tech ecosystem. In terms of tax, there is no change to the headline corporation tax rises that kick in next month but current ‘Covid’ super deductions for capital are replaced by a new capital investment relief enabling full expensing of capital investment. Following lobbying by Innovate Finance and others, restrictions on overseas R&D counting towards SME tax credits have been delayed by a year. A new R&D tax relief will also be introduced for research intensive firms; but for many FinTechs this is unlikely to balance out other planned reductions in SME R&D relief (at least until further reforms to R&D tax relief next year, with a single scheme bringing together SME and large company rules).
The Chancellor announced that he will bring forward in the autumn an ambitious plan to unlock pension investment in the UK's innovative firms. Innovate Finance is delighted to be working with the City of London on this agenda, and will continue to help shape the autumn announcements.
The macro-economic headlines
The Office for Budget Responsibility has updated its economic and fiscal outlook to show a somewhat less gloomy picture for the UK economy than forecasts showed in November.
The latest figures show the UK economy is forecast to contract by 0.2% over 2023. Growth is then projected to hover around 2% every year from 2024 until 2027, which means that by mid-2024 the UK economy will be the same size as it was in 2019. Still, this is an improvement on the November forecast where reaching 2019 GDP levels was not projected to happen until later in 2025.
Price rises are expected to drop sooner than previously thought and inflation is due to stabilise around 1% until 2027. This is in part due to the Government’s continued efforts to support people with energy costs, where it today announced it will freeze fuel duty and continue the Energy Price Guarantee at £2,500 for the next three months. The Government also committed to bringing charges for prepayment metres in line with customers on direct debit to cut the energy premium on the poorest households. To read more about the cost of living crisis and what FinTechs are doing to help, you can find our recently published report linked here.
Unemployment has and will continue to stay low. The Government pushed several initiatives to boost labour market participation, including support for those with long term sickness and disabilities as well as young people in care. The Government has also announced schemes for workers over the age of 50 and reforms to the childcare system in an effort to boost employment activity rate.
Key figures at a glance:
| 2021 | 2022 | 2023 | 2024 | 2025 | 2026 | 2027 | |
| GDP* | 7.6 | 4.0 | -0.2 | 1.8 | 2.5 | 2.1 | 1.9 |
| CPI* | 2.6 | 9.1 | 6.1 | 0.9 | 0.1 | 0.5 | 1.6 |
| Unemployment** | 4.5 | 3.7 | 4.1 | 4.4 | 4.3 | 4.2 | 4.1 |
*Year-on-year percentage change
**Percent
In sum, this is a slight improvement on November's very gloomy economic forecast. This is best captured by real household disposable income, a measure of real-living standards, which is expected to fall 5.7% over the next two years. While this is 1.4 percentage points better than originally forecast in November, it would still mark the largest two-year fall since records began in 1956-57.
Key points for FinTech
1. Tax relief for R&D
You will recall that changes to SME R&D tax relief were announced in 2021 and 2022, for implementation from April 2023. These included a reduction in the effective rate of relief by 44%, overseas R&D no longer qualifying for relief, but cloud data costs to be brought within scope. There has been considerable push back against the proposed reductions in rate and scope by Innovate Finance and other trade associations.
One change to these has been made today in response to our pressure: a delay in implementation of overseas expenditure restrictions by one year. The previously announced restriction on some overseas expenditure will now come into effect from 1 April 2024 instead of 1 April 2023. This will allow the government to consider the interaction between this restriction and the design of a potential merged R&D relief.
One additional change announced today was a new 27% tax credit for R&D intensive companies who spend more than 40% of their expenditure on R&D. It seems unlikely that many Fintech companies will fall within the scope of this new relief, unless perhaps they move all of their R&D into a separate company.
What’s next? The SME R&D scheme and the RDEC scheme for larger companies are to be merged with effect from April 2024. HMT and HMRC have recently closed a consultation on what the combined scheme should look like, and will be announcing the final terms of the new scheme, including the rate, later this year “at a future fiscal event”.
Find out more: EY are holding a webcast for their clients to discuss the changes, and they are making this available to Innovate Finance members as well. In this webcast, EY R&D specialists will share insight into the current landscape including HMRC activity, and the changes due from 1 April 2023, and also discuss what companies should be considering now in response to these changes. You can find the webcast details below:
Date: Wednesday, 29 March 2023
Time: 12:00 p.m. – 1:00 p.m.
You can register here for the webcast
2. Tax: Capital investment
One change that could benefit members is a replacement to the Superdeduction scheme, which ends next month. Full capital expensing will be introduced for the next 3 years (with a view to making it permanent): spending on IT, Plant and machinery will be fully tax deductible in the year it is incurred (details here).
3. Pension Fund investment in innovative firms (more to come…)
The chancellor restated his commitment to unlock defined contribution (DC) pension fund investment into the UK’s innovative firms, building on the review of the pension cap following the Kalifa Review. In the Budget the Chancellor said that the government will work closely with industry and regulators to bring forward an ambitious package of measures by the autumn. At Innovate Finance we have been working with the City of London and the Lord Mayor on this agenda with members and will continue to engage on measures that support investment in the Fintech ecosystem. Our global summit next month, IFGS, includes a panel session on unlocking pensions for growth investment: you can find out more and book your ticket here.
4. AI Regulation
Today the Government published Sir Patrick Vallance’s report on Pro-Innovation Regulation of Technologies and the government's response. This particularly looks at support for UK Artificial Intelligence (AI) and includes the introduction within 6 months of a new multi-regulator AI sandbox for bringing new products to market, opening access to public data and work by the Intellectual Property Office to clarify the application of IP rules on AI usage.
5. Investment zones
Further details were announced of the new Investment Zones programme to develop 12 high-potential knowledge-intensive growth clusters across the UK. These will focus on key future sectors - green industries, digital technologies, life sciences, creative industries and advanced manufacturing and provide additional investment and tax incentives.
6. Amending the Self Assessment forms for cryptoassets
The government is introducing changes to the Self Assessment tax return forms requiring amounts in respect of cryptoassets to be identified separately. The changes will be introduced on the forms for tax year 2024-25.
7. Enterprise Management Incentives (EMI): changes to the process to grant options
The government is simplifying the process to grant options under an EMI scheme. From April 2023, the requirement for a company to set out details of share restrictions within the option agreement and the requirement for a company to declare an employee has signed a working time declaration will be removed. From April 2024, the government will extend the deadline for a company to notify HMRC of the grant of an EMI option from 92 days following grant, to the 6 July following the end of the tax year.
Got questions or comments? Get in touch
We’re keen to hear from our members and our wider network. If you have views or concerns, please free to email us with your thoughts at policy@innovatefinance.com
Innovate Finance policy team:
Adam Jackson - Director of Policy
Rachel Waggott - Head of Regulatory Affairs
Mike Carter - Head of Platform Lending and Investment
David Abadir - Policy Associate
Christopher Foo - Policy Associate
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