The Labour Party has rightly prioritised economic growth as its first ‘mission’ in government. Yet, in order to secure a systemic rise in productivity in the UK, they will need to act boldly which means creating the right environment for business and entrepreneurs.
Much rests on the Chancellor seizing that opportunity in her upcoming Budget Statement on 30 October.
We would like to see these three items included to promote long-term economic growth:
Commitment to pro-growth regulation by requiring cost-benefit analysis to better reflect the secondary objective to facilitate economic growth.
We need a stable regulatory regime that gets the right balance between costs and benefits.
Regulatory cost-benefit analyses typically are too narrowly focused and do not capture the impact on growth and competition that is enshrined in the new secondary objective.
For instance, the Payment Systems Regulator’s answer to tackle the growing problem of Authorised Push Payment Fraud (APPF) was to mandate all payment service providers to reimburse customers who have fallen victim to scams up to £85,000. APPF is a problem that costs UK victims around £460m1 per year according to UK Finance. Visa research shows that around 34% of scams go unreported to financial institutions. Therefore, the true figure is likely to be closer to £700m per year2.
The PSR’s cost-benefit analysis has not adequately considered the impact on growth and competition. Placing these requirements on payment service providers will have the effect of reducing competition in the long term with smaller players likely to withdraw and new significant barriers to competition being created, all to the detriment of customers. I have written about this extensively.
We need a new approach to financial regulation that takes into account the wider impacts on growth and competition.
It is encouraging that the Chancellor has pledged to continue the previous government’s move to request tangible progress from financial regulators such as the FCA and PSR in their ‘secondary objective’ to facilitate economic growth. We would like to see further emphasis placed on this in the Chancellor’s upcoming ‘remit letter’ to the FCA, which coincides with Labour’s first Budget in 14 years. At a minimum this should require regulatory cost-benefit analysis to explicitly consider the impact on the secondary objective.
2. Investing in the UK’s growth through unlocking pension fund investment in high growth companies
The government’s recently announced pensions review is a welcome and critical opportunity to boost domestic investment in growing UK companies. Total private pension wealth in Great Britain was £6.1 trillion according to the ONS. It is sensible to implement the Mansion House Compact, which aims to secure better financial outcomes for defined contribution savers.
Done in the right way, the review can help deploy significant pension fund investment in ‘productive finance’ and in supporting the UK’s most innovative and fast-growing companies – whether these are start-ups, listed companies or late-stage private companies such as Tide.
3. Small business VAT relief
The government needs to be bolder in terms of VAT relief for small businesses. Earlier this year, the previous government raised the VAT registration threshold from £85,000 to £90,000. While welcome, it was only the first time in seven years that it has been raised and the threshold has not kept up with inflation, meaning that more and more UK small businesses have been caught up in the threshold.
This government should recognise that it cannot achieve growth while burdening SMEs – the backbone of the UK economy, and who are (as with the net zero transition) a key pillar to future growth and productivity. We call on the government to increase the threshold by a substantial amount to deliver fairness and create breathing room for small businesses.
As I have said before, a failure to act boldly could create a lost generation of small businesses and set entrepreneurialism back by years in the UK.
Tide and its 650,000 members in the UK, look forward to the Chancellor’s Statement at the end of the month and to see strong signs of a pro-growth agenda.
UK Finance Annual Fraud Report 2024 (reporting for 2023): £459m for APP Fraud losses for 2023
Visa’s The impact of APP scams white paper
