Question
Asked by
To ask Her Majesty’s Government what assessment they have made of the recommendations in the Kalifa Review of UK Fintech, published on 26 February.
My Lords, I beg leave to ask the Question standing in my name on the Order Paper and declare my interests as set out in the register.
My Lords, the Government welcome the Kalifa Review of UK Fintech. The Chancellor recently set out the Government’s response at UK FinTech Week. This includes plans to take forward a regulatory scale box for growing firms; government support for an industry-led centre for finance, innovation and technology; improvements to tech visas to attract global talent; and plans to make the UK a more attractive location for public listings.
My Lords, fintech has a critical role to play in our Covid recovery, in enabling financial inclusion and in levelling up, not least through the nations’ and regions’ fintech clusters. Does my noble friend the Minister agree? What is the Government’s plan to make these criticalities a reality?
My Lords, the Government recognise the importance of fintech in our economy. Indeed, that needs to flow through to the curriculum; we have extended the number of pupils studying computer science at A-level, for example. In the Cabinet Office, in my role overseeing the Government Digital Service I pushed that out to Bristol and Manchester to engage much more closely with FE and HE in those cities. My noble friend is absolutely right; continual focus on this is needed.
My Lords, the Chancellor of the Exchequer said at the UK FinTech Week conference that the Government would
“push the boundaries of digital finance”.
Does the Minister acknowledge the risk that, in cheerleading the latest technology, the Government will fail to count the costs of runaway financial innovation: both the obvious environmental costs—Bitcoin climate emissions are equivalent to those of the whole nation of Norway—and the dangers to the security of our real economy and lives? This was the world experience of 2007 and 2008, which they risk forgetting.
The Government absolutely recognise the risk of a financially weak system. We learned important lessons 12 years ago and they are very much part of our institutional memory.
My Lords, I refer to my interests as set out in the register. Has the Treasury given any consideration to the specific recommendation to amend the EIS, SEIS and VCT rules to make it easier to attract investment into these start-ups and to retain the tax reliefs when the business models evolve into more regulated activities? This would cost the Treasury very little but unlock a potentially substantial amount of capital.
My noble friend raises important points. These matters are always under discussion in the Treasury, although it is important to stress that there is a large amount of capital out there to support early-stage businesses. We see that in the valuations these businesses are achieving, even at an early stage. However, we will keep it under review.
My Lords, while it is encouraging to see the Chancellor’s commitment to the scale-up visa scheme, what are the Government doing to ensure that our education system is updated to bring in financial, digital and business skills to encourage the next generation of entrepreneurs and innovators?
My Lords, as I touched on in answer to an earlier question, we absolutely recognise how important is to get our young people enthused by this industry of the future. I referred to computer science, and we are certainly looking at increasing the number of maths teachers so that children can be more enthused at an early age. I hope to meet the Israeli ambassador shortly in order to understand more about Israel’s Magshimim programme, which gets 14 year-olds involved in a career in cybersecurity.
My Lords, this is an important report, laying down the way to go in this area, but what I find lacking is consideration of how it will affect the consumer of financial services. It is important not to fall into stereotypes, but there is a real problem with the digital exclusion of some consumers across all sections of our society. Will the Minister assure the House that, hand in hand with the development of financial technology, consideration will be given to ensuring the widest possible sharing of the benefits by consumers?
The noble Lord is right: we do not want to see citizens excluded from the digital world into which we are heading, and that matter is under continual consideration. It is also worth stressing that, as a country, we are very much innovators and our consumers are keen for the sort of products that are coming out. For example, 2.5 million UK consumers and businesses now use open banking-enabled products; indeed, we were the first country to develop open banking standards, in 2018.
Scale-up for our fintech sector requires access to international markets. The Government overlooked this in Brexit negotiations and equivalence from the EU now looks unattainable. Fintech is problematic in trade negotiations with the US because the UK industry risks being swamped. How will this Government deliver access for fintech to major and key international markets?
My Lords, the Department for International Trade has just announced two initiatives which I hope will help to address the noble Baroness’s concerns: a new fintech cohort within the DIT Export Academy initiative to provide bespoke one-to-one advice to eligible UK fintechs that are ready to scale into key markets, and a DIT-led fintech champions scheme to promote UK fintech overseas and support UK fintechs to grow internationally through mentoring and peer-to-peer learning.
My Lords, fintech has much to offer. I am pleased that, when I was on the board, Transport for London united its huge customer base with the banks to introduce and deliver contactless payment to this country—well ahead of the United States, it should be said. However, finance remains a risky business. Does my noble friend agree that we should not be led astray by the glitz of the new, that the underlying financial transactions are broadly what they always were, and that the financial risks, particular and systemic, remain essentially the same?
My noble friend is right that finance is an inherently risky business; my great-plus-three grandfather and his two brothers founded Close Brothers, so risk is certainly in my genes. That is one reason why we are introducing the sandbox concept, whereby this technology can be tested in a safe environment without exposing the economy to any risk.
My Lords, in the Chancellor’s recent Written Statement on fintech, he speaks of a “scale-up visa stream” allowing qualification for a fast-track visa without the need for sponsorship or third-party endorsement. What criteria was used to select fintech for this fast track, and where else in the economy is it envisaged that scale-up visas will be introduced?
My Lords, these concepts are still being designed and I will be very happy to update the noble Lord when more information is available. However, the key emphasis of scale-up is to attract global talent and boost the fintech workforce, so it will be focused on the skills these people can offer our country.
The CBI, of which I am president, welcomes the recommendations set out in my friend Ron Kalifa’s fintech review to ensure the UK’s position as the best place in the world to start and grow fintech business. Do the Government agree that having a proportionate, innovation-friendly regulatory framework will help support economic growth, facilitate access to global markets and enhance competition? Do they also agree with the review’s recommendation that a centre for finance, innovation and technology be created?
My Lords, we are certainly keen to support the creation of a centre for finance, innovation and technology. In UK FinTech Week the Chancellor announced his support for the industry, and we certainly recognise a private sector-led centre for finance, innovation and technology’s potential as an accelerator of fintech sector growth. This can be achieved through research, thought leadership and working with regional fintech hubs and national fintech bodies. The Government are committed to working with industry to make this a reality.
My Lords, as we have just heard, the Government welcomed the recommendations of the Kalifa review, which has diagnosed the ingredients, including the EIS, that have led to the UK economy blossoming over the last decade, especially the SME sector. I have been chairman of the EIS Association during this time. The UK is recognised as the best place to start and scale up a business. What aspects of the findings of the Kalifa report do the Government view as the most important?
I gave noble Lords a sense of the key findings in my opening answer, but there are several others that I can make my noble friend aware of: for example, a task force led by the Treasury and the Bank of England to co-ordinate exploration of a potential UK central bank digital currency, and a new Bank of England account type that will allow innovative financial market infrastructures to provide enhanced wholesale payments and settlements. There are also the DIT initiatives that I mentioned earlier.
My Lords, the time allowed for this Question has elapsed. We now come to the fourth Oral Question.