By David Mercer, CEO of LMAX Group, discusses the necessary steps needed to keep the UK fintech sector afloat
After a nearly four-year battle, news of a deal between the EU and UK sent many parties into a state of short-term serenity, but many were just glad it was over. Amid the fallout of the COVID-19 crisis and an even more uncertain future for many businesses, Brexit is still happening. Even if it is delayed it is essential that the UK takes necessary precautions to avoid further disruption and sustain the thriving fintech sector upon which so many hopes rest.
The financial services industry contributes over £130 billion annually to the UK economy. Currently, the fintech sector is estimated to be 10% of this figure with the potential to grow at a much faster pace than the broader industry.
Given the prospect of a sizeable reduction of inflows in the UK’s pool of talent, ideas generation and income in the coming year due to Brexit, one thing politicians, policy makers and regulators need to get serious about is protecting the UK’s fintech sector. Being the CEO of a fully employee-owned fintech company, that is proud to boast of all 27 EU state nationalities in our workforce, I believe LMAX Group can speak to the essence of the Brexit effect on the fintech sector.
These are dark times for many businesses, made more difficult by longer term uncertainty. The absence of an official solution to the terms of Brexit is more keenly felt by fintech entrepreneurs every passing week. We are proposing that the government addresses three crucial T’s to safeguard this high growth sector, Taxes, Talent and Technology.
In short, the Chancellor needs to cut income and business taxes and provide tax breaks to fintech companies who are just starting out. In turn, this will harness and encourage an inflow of talent, giving the UK a competitive edge. This should be coupled with reducing the cost of and moving to fast-track entrepreneurial visas. The UK needs to provide an incentive for entrepreneurs to move here and create a welcoming hub for innovation-led businesses. Finally, the speed of technological innovation and corresponding investment in infrastructure will need to increase massively to support these businesses.
The last UK budget announcement sent shock waves through the fintech community – slashing of the Entrepreneurial Tax relief by 90% was short-sighted in the extreme. Coupled with the difficulties early-stage businesses find themselves with the current COVID-19 epidemic, with many at risk of bankruptcy, we need positive government intervention more than ever to keep this sector afloat and encourage innovation.
The UK is competing in a global market to attract the best talent in order to cement our position as an international fintech and creative hub. The entrepreneurs that benefit from this relief create jobs, products and opportunity for the economy that faces huge challenges post-Brexit. Limiting the benefits of taking significant personal and business risk will be counterproductive.
I have no doubt that the government wants to see the sector thrive, but to do so we need to enhance our talent and technology with an efficient and competitive tax regime. Disincentivising entrepreneurs in this way may drive the brightest minds to offshore lower tax jurisdictions in Eastern Europe or Asia. I would urge the government to re-engage with the business community and come up with a better taxation plan to encourage growth rather than suffer the consequences of low value policies such as these.
In terms of taxation, our opinion is that the government should take a three-pronged approach: extend tax relief for job creators; provide tax benefits for those starting businesses; and cut the cost of recruiting talent globally.
The second component inhibiting the growth of the UK fintech sector post-Brexit are the difficulties in attracting, enhancing and preserving talent. Despite the UK’s skills shortage it’s still challenging for non-EU citizens to move to the UK. With added future Brexit pressures, now, more than ever, the UK needs to find ways to encourage talent to settle within our borders.
For this to happen, there needs to be cost-cutting and fast-tracking of entrepreneurial visas: both individual visas and company-sponsored visas. In terms of the latter, we feel that the government should be doing more to simplify this onerous programme. Introducing fast-track processes for company-sponsored visas for entrepreneurs will succeed in encouraging highly-skilled and talented workers to come to the UK.
In addition, there is a growing need for cutting-edge UK apprenticeship schemes and educational programmes that are easily accessible for foreigners to attend. If they excel, these individuals should be granted with a less scrutinous visa process as they will be adding to the pool of domestic skills and talent.
In order for the first two tactics to be effective, the UK needs to increase productivity through improved infrastructure. We need to optimise our processes to create better domestic and global connectivity.
The COVID-19 crisis has seen some amazing feats of ingenuity conducted in extremis. For example, China building a fully functioning hospital in a week and launching a cloud-based learning platform to ensure the country’s 180 million students continued with their studies within a week of lockdown.
We have seen similar levels of efficiency on our home soil, with the Nightingale Hospital in London built in just nine days. Although this was a necessary measure to support the nation during the pandemic, it’s encouraging to see how efficient our country can be in a time of need.
Moving forward, we’d love to see the UK operating at the level of efficiency we are seeing with the pandemic into helping our fintech sector. We need to optimise our infrastructure in order to become a desirable, and accommodating, place to set up shop. If we can emerge as a nation that has superior connectivity, technological capabilities, and better infrastructure, we will be able to encourage many more innovation-led businesses and individuals to base themselves here (and settle here). In turn, this will create more jobs in both the infrastructure sectors and fintech sectors.
To sum up, the COVID-19 crisis is already damaging the UK’s fintech sector and Brexit will severely compound this unless action is taken. At LMAX Group, we are calling on policy makers and regulators to keep our fintech sector alive and thriving. We have not lost hope. The support of the government could be the push we need to maintain our spot on the leader board of innovation, while making an invaluable contribution to the economy.