Budget 2017: Chancellor should create dedicated £150m responsible finance fund, says industry body

Posted On: 
7th November 2017

The social and economic value that responsible finance providers generate is significant; for every £1 responsible finance providers lend, they generate £7 in economic value, says Responsible Finance.

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Prime Minister, Theresa May, has stated her aim of creating an inclusive economy’, one that ‘works for everyone, not just the privileged few.’ The 2017 Autumn budget provides an opportunity for the Government to put this commitment into practice by supporting the responsible finance sector to deliver a financial services system that allows everyone access to the services and products they need for economic inclusion and prosperity.

The social and economic value that responsible finance providers generate is significant; for every £1 responsible finance providers lend, they generate £7 in economic value. Over the past 10 years their business and social enterprise lending has created and helped to protect thousands of jobs, accounting for up to 5% of the UK’s total jobs growth each year. They have also helped people across the UK save a total of £20 million in repayments to high cost lenders.

This is made possible by our model: local market knowledge and reach, a customer-centric approach, and providing support alongside finance.

Responsible Finance calls for the following commitments in the budget which will provide a roadmap for building an economy and a financial services system that works for everyone:

Launch a Responsible Finance Fund

A significant growth constraint for the sector is the lack of a dedicated responsible finance fund, similar to that seen in the US. A £150 million fund would unlock significant private sector investment and scale up the sector’s impact on excluded and undeserved communities.

Ensure Tax Reliefs and Guarantees are fit for purpose

Tax-reliefs and guarantee schemes are tools widely utilised by the responsible finance industry to leverage commercial investment. The tools need to continue to be kept competitive, therefore we propose the following to be included in the Budget:

  • Launch a guarantee scheme or tax-relief for the personal lending sector, enabling greater investment into responsible finance providers that are competing head-on with high cost credit providers;
  • Align the benefits of CITR with those of the SITR, to enable easier navigation for socially oriented investors;
  • Expand the wholesale EFG option to incentivise larger scale private investment;
  • Ensure tax-reliefs, guarantee schemes and other tools are appropriate and flexible for responsible finance providers to effectively serve the demand across the demographic and industrial landscape.

Maintain or replace access to EU funding and facilities

The responsible finance sector receives approximately 10% of its annual funding to on-lend from EU Structural funds, in addition to use of EU instruments such as the EaSl and COSME guarantees. Access to these EU funds and instruments have been frozen since 2016, and whilst the Chancellor guaranteed that key projects dependent on European funding that support economic development across the country will continue to receive funding, it is important that those facilities which incentivise commercial investment into the responsible finance sector, namely EaSI, COSME and ERDF, are replaced, or access is maintained.

Ensure proportionate and appropriate regulation

The responsible finance industry is regulated by the Financial Conduct Authority (FCA), therefore is compliant with their rules. These rules are designed for large-scale financial institutions and hamper the type of diversity in the system that would lead to greater access. Small firms like responsible finance providers have increased regulatory and reporting requirements and costs, therefore proportionate and fit-for-purpose regulation would enable fair small providers to grow and innovate.

The responsible finance industry is well positioned to work with the government in creating strong and diverse industries and an inclusive and resilient economy, and we believe our key asks will help shape the financial services of the future into a system that is competitive, diverse and inclusive.

Please refer to our website, responsiblefinance.org.uk, for further information.