The Chancellor Philip Hammond presented his much-anticipated Budget yesterday amidst intense and competing political and economic pressures.
The political picture has changed significantly since the last Budget in March. After a General Election in June that left the Conservative Party in a fragile position, Hammond needed to deliver a budget to appease both sides of an increasingly divided Conservative Party and to hand out electorally popular giveaways to the public as the Labour Party waits eagerly in the wings.
So, was it a Budget for growth from a City perspective looking beyond the turbulent realities of tough Brexit negotiations?
The economic backdrop to the Budget has deteriorated of late. Despite the UK economy regaining a bit of pace lately, the Office for Budget Responsibility (OBR) slashed the growth outlook for both the near- and the medium-term on the basis of slow productivity growth. These figures underpin the Budget and so boxed the Chancellor in somewhat. The Chancellor’s response was to deliver a neutral package of measures and keep to his fiscal rules of reducing the structural budget deficit to less than 2% of GDP by 2020/21.
The Chancellor managed to find some wiggle room: a combined £25 billion of fiscal boost was confirmed for this and the next five fiscal years. Apart from setting aside £3 billion to prepare for an unfavourable Brexit eventuality and a promise to top it up, a number of investments into areas crucial for the UK’s long-term growth have been announced. The focus on boosting the housing market – including the scraping of stamp duty for first-time buyers buying a home of up to £300,000 and a new target to build 300,000 homes a year and on enhancing local transport connections is welcome.
Of particular interest to the City are the measures fostering the UK’s innovation and knowledge-intensive economy. At a time of uncertainty in the City, the government’s clear commitment to harnessing the synergy between financial and technology sectors is both timely and very welcome. The centrepiece of this the publication of a 10-year Action Plan following the Patient Capital Review to unlock £20 billion of new investment in UK scale-up businesses, including a new £2.5bn fund for British Business Bank investment and a doubling of the EIS investment limits to £2m. There will be an additional £500m fund for investment in high growth sectors including FinTech. The Government will also increase R&D Tax Credits to 12% in an effort to further boost business investment in research and development. Furthermore, technologies crucial to financial services, in particular Artificial Intelligence, also received a significant boost from the government’s plan to invest £500 million directly into new technologies.
Alongside this we heard significant commitments to address the skills agenda. The announcement of a National Retraining Scheme with a focus on STEM skills and the investment in the teaching of STEM subjects. These will help address the clear skills gap in our industry. As the digitalisation of Financial Services continues apace, firms will need more and more people with such foundations. A core component of London’s competitiveness as an International Financial Centre has always been the deep pool of talent – measure such as this will help us stay ahead of the curve.
In Parker Fitzgerald’s latest report “What does a post-Brexit London tell you about the future of finance”, we argue that it is the symbiotic relationship between financial services and technology that lends London a Brexit-proof appeal and sets the City apart from other international financial centres. Indeed, neither Brexit nor regulation but technology will be the dominant driver of change in global financial services, as well as being the dominant driver of new systemic and firm-level risks. The City of London is in a prime position to address these, as well as to become a standard setter of digital finance.
Yesterday’s Budget, and the government’s long-term vision set out in recent speeches, will only reinforce this. So, whilst many commentators have hailed the budget as a neutral, balanced set of announcements, from the point of view of the City, there are clear reasons to be optimistic if not cheerful. On the face of it, a budget for FinTech, a budget for the City.
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