Economic Environment: Growth and Jobs

Lord St John of Bletso Excerpts

Thursday 11th July 2019 Lords Chamber

[Lord St John of Bletso (CB)]

My Lords, I join in thanking the noble Baroness, Lady Neville-Rolfe, for introducing this topical and timely debate. I shall focus my comments on promoting job creation and business growth in the digital ecosystem. The industrial strategy made provision for substantial investment in digital infrastructure, as well as investment in talent and skills. My observations are less about the tax system, save for the tax incentives to invest in digital entrepreneurship through EIS and SEIS.

Last year I was fortunate to be a member of the ad hoc Select Committee on AI, ably chaired by the noble Lord, Lord Clement-Jones, in which we did a deep dive into both the benefits and the threats of AI. I am tempted to talk more about medtech, infotech, proptech and digitech, but in my limited time I will focus on the importance to our economy of fintech, a sector where the UK is arguably the global leader. Fintech is essentially a combination of financial services with innovation, with a multitude of benefits and savings. The UK fintech ecosystem has all the key elements for a world-leading environment where the industry can thrive with start-ups, entrepreneurs and technological innovation in abundance.

However, I must stress that this is not a time for complacency. As the noble Baroness mentioned in her introductory comments, the digital revolution has provided disruptive technology solutions to age-old as well as brand new problems, from efficiency and reliability to transparency and usability. It also poses a potential threat of massive job losses.

It is a sobering reality that there are currently 1.3 million unbanked working adults in the United Kingdom. Moreover, 16 million people in the UK have less than £100 in their savings account. Some 10% of households are still without access to the internet, and 30% of people over 65 have never used a computer. Fintech holds the key to unlocking and tackling financial inclusion, and it is a sector that places entrepreneurship at its heart. I entirely agree with the noble Baroness that we need to establish a culture of enterprise.

Start-ups are the lifeblood of the sector and are driving the digital economy forward. Banking the unbanked, highlighting affordable credit solutions and providing SME loans all combine to deliver the future that we all deserve. At a time when investors have less appetite for high risk, the tax incentives of EIS and SEIS for start-ups have been essential to the sustainability of many fintech businesses. Last year the United Kingdom had its best year ever in terms of fintech investment, with over £3 billion invested from private equity and VC investments alone. This puts the UK third in the sector, behind only China and the US. London has the world’s highest concentration of 64,000 financial and professional services firms. There are just over 1,600 fintech firms in the UK—a figure that is destined to double by 2030.

Key to the success of fintech in the UK are our progressive regulatory frameworks, enabling challenger banks, remittance providers and fintech pioneers to lay their foundations and rapidly scale up. There have as a result been several unicorns such as Revolut, Monzo and GoCardless. While there is a lot to be positive about in the fintech ecosystem, the future of Brexit will invariably pose a major threat to open borders and the international talent pool that is vital to the success of fintech in the UK. Immigration policy questions will continue to loom large in the light of Brexit uncertainty, and it is thus all the more important to grow the talent pipeline with a greater range of diverse talent at home. Can the Minister give assurances that there will be more provision for tier 1 exceptional talent visas to help retain and fill the demand for skilled labour?

I mention the challenge of diversity because at present, only 12% of senior executives in the UK fintech sector are female. We need policies that drive the recruitment of diverse talent, both to tackle the gender imbalance and to have a workforce with other skills backgrounds. I entirely agree with the noble Baroness, Lady Neville-Rolfe, that education is pivotal. I welcome the introduction of fintech courses, apprenticeships and sponsored work placements to strengthen the fintech talent pool, as well as the Fintech for Schools campaign, which educates young people in how to use fintech.

In conclusion, the UK, and particularly London, has built an incredible financial services community that, positioned correctly, can withstand techno-economic headwinds. But this is not a time for complacency; we need to focus our energies on collaboration rather than competition.