UK Chancellor George Osborne made some strong commitments to UK asset finance in last year’s Autumn Statement. Julian Rose analyses how they might affect the everyday business lender.
The UK will relax pressures on peer-to-peer (P2P) lending scheme participants by removing the need to pay income tax on any bad debts incurred from lending through the P2P format.
A statement from the UK Treasury in the Autumn Statement said: "This Autumn Statement announces support for P2P and crowdfunding platforms through a package of measures to remove barriers to their growth from regulation and tax rules.
"These include a new bad debt relief for lending through P2P platforms; a consultation on whether to extend ISA eligibility to lenders using crowdfunded, debt-based securities and an intention to review financial regulation which currently stands in the way of institutional lending through P2P platforms.
The UK government said it was committed to reducing barriers to investment in the UK, and it intended to introduce a new targeted exemption from withholding tax for interest on private placements – a form of long-term non-bank debt financing.
Government backs alternative finance providers
The government also intends to name the big banks that will be required to open up access to their credit data and refer on any SMEs they turn down for finance, while supporting financial technology firms that want to use bank data to help consumers and small businesses make better decisions. The government highlighted price comparison site gocompare.com as the first site that would launch a tool to aid consumers share current account data. The statement said: "Gocompare is the first comparison website to commit to launching a Midata current account tool, and intend to make the service available from 1 April 2015. Building on this, the government is keen to enable more innovation around bank data and will launch a Call for Evidence on how to deliver standardised Application Programming Interfaces in the banking industry. In August Leasing Life reported that the UK government backed the need for small and medium enterprises to be linked with other lending organisations if they are rejected for finance by banks.
Government promises up to £1bn extra lending
The UK Chancellor for the Exchequer George Osborne has said in the Autumn Statement that UK businesses will be able to unlock up to £1bn (1.27bn) of credit through extensions to schemes run by the British Business Bank (BBB).
The BBB will receive £400m from the Treasury to supply to UK small and medium enterprises, according to the Statement. A statement read: "Ensuring the best firms can get the finance they need to grow is essential for improving productivity. The government is providing a further £400m to support venture capital through the British Business Bank’s Enterprise Capital Funds programme.
A further £500m will be available to small and medium enterprises though the treasury’s extension of the BBB’s Enterprise Guarantee Fund.
"It is particularly difficult for small businesses to access finance if they lack security or an established track record," said the Treasury.
"Since its creation, the Enterprise Finance Guarantee scheme has facilitated £2.9bn of lending to small businesses. Building on this long-standing success, the Autumn Statement provides further funding for the Enterprise Finance Guarantee scheme, facilitating up to £500m of new lending in 2015-16.
"Funding for these two major British Business Bank schemes will unlock up to £1bn of finance for smaller-businesses."
FLS to be extended for one year
The Treasury also plans to extend the Funding for Lending Scheme (FLS) for an extra year until 29 January 2016.
A statement from the UK Treasury said: "Given uncertainties in the global economy, and the risk of shocks that might impact on credit conditions and jeopardise the recovery, the Treasury and the Bank of England announced on 2 December that the FLS will be extended for one year, until 29 January 2016.
"Unused borrowing allowances from the scheme as of 31 January 2015 will continue to be available for drawdown in this period. The FLS will be further focused on incentivising lending where it is most required, for SMEs, and is being further tapered to remove lending to large businesses."
The Treasury said additional borrowing allowances in 2015 will be generated through net lending to SMEs, with participants able to draw £5 of funding for each £1 of net lending to SMEs.
Leasing Life has reported the amount of net lending by participants in the Bank of England’s Funding for Lending Scheme fell £2,430m in Q3 2014 because of rising repayments and flat new lending. The vast majority of the fall – £2,218m – came from lending to large corporates, though the amount of net lending to SMEs fell by £128m.
Julian Rose says: "For an Autumn Statement that appeared fairly unexciting for the asset finance industry, there were still at least a couple of points to worry us.
The government that promised us "stable, certain and simple" taxation, and has largely been delivering that, restricted banks’ ability to offset their tax losses against future profits. It’s unlikely to have any direct impact on asset finance, but extra uncertainty over the future value of capital allowances must cut the chances that banks will return to offering operating leasing.
We also had a raft of announcements on measures to support ‘alternative finance’ providers, including bad debt relief, ISA extensions, and forcing banks to share current account data. It’s clear ‘alternative finance’ has become a synonym for peer-to-peer finance in Whitehall. Apart from introducing yet more regulation and bureaucracy into the SME finance market, the measures should be fairly innocuous for asset finance and may even help occasionally. However, they do seem a distraction from addressing issues across the wider SME finance market.
The Autumn Statement wasn’t bereft of announcements on ‘non-alternative’ finance, with an extension of the Funding for Lending scheme and extra money for the British Business Bank, but there was nothing likely to make asset finance providers feel that a great deal had changed."
Asset Finance Policy Limited is a new specialist consultancy. Its founder, Julian Rose, was the Finance & Leasing Association’s head of asset finance from 2008 to March 2014. He previously worked in regulation, management consultancy and in industry.
Julian Rose, is a management consultant at Asset Finance Policy Ltd.