Earlier this month, the government released the Autumn Statement and the AltFi Sector responded with unanimous applaud. And with good reason! 

The Retail Investor Reigns:

In section 2.184 (footnote 1) of the Autumn Statement Policy Decisions around enhanced economic fairness, the government will introduce tax policy change that will introduce new reliefs for Individual Investors that will allow them to offset losses associated with bad P2P debt. In changing the tax system, retail investors will be able to offset losses from bad P2P loans against other P2P income. 

Numerous alternative finance platforms have noted that this policy change will mean greater security for Individual investors by helping to minimize risk associated with lending and translate into a more active retail investor base. As FundingKnight CEO Graeme Marshall stated:

“I'm particularly delighted with the change that allows losses on bad debts to be offset against interest earned for income tax purposes. It will remove an advantage that the banks have enjoyed over individual lenders. This tax incentive parallels the EIS treatment of equity investment in smaller companies, so it will now stimulate lending alongside equity investment. It will especially benefit the platforms which do not currently offer a safety net against defaults, such as FundingKnight. I think this change will give a real boost to retail crowdlending.”

This change essentially puts the retail investor on par with that of a larger, institutional lender such as banks. By allowing individual investors to participate in SME lending in a fashion more akin to the institutions, it is clear that the government has more confidence in the crowd-led models than before and that the model has proven that individuals can intelligently use Alternative systems. Nick Moules of Rebuilding Society provided an example of how individuals will save money through this change: 

“One of our lenders provided this example of how taxpayers will save money: Suppose you incur losses of £5k but make £5K in interest. You do not have to pay tax on £5K, which would save a 20% taxpayer £1K. Thus, you would only lose £4K overall. The loss would be reduced to £3K for a 40% taxpayer as a result of the offsetting. So we’re delighted that lenders can offset losses against tax. The industry has been lobbying for this for some time; so it’s great to see the debt market receiving similar levels of treatment as investors in equity crowdfunding get through EIS and SEIS.”

In a similar vein, Funding Circle co-founder James Meekings had this to say: 

“This change in the tax system will make lending to small businesses via our marketplace much fairer for individual investors, putting them in an equal position to larger lenders such as banks […]More than 35,000 people currently lend through Funding Circle and the average investor could earn up to 25% more overnight per year as a result of this change. This could potentially be significantly higher depending on an individual's investment strategy."

The Start of a Level Playing Field:

As the UK continues to grow its fintech sector, the government would like to see the UK develop into the leading global hub for fintech businesses. As such, The Autumn Statement has indicated enhanced support of P2P and Crowdfunding businesses as a key element of reforms targeted to reach this goal. 

Beyond tax relief indicated above, the Autumn Statement has presented policy that will require the big banks to open access to their credit data and refer on turned-down SMEs. An additional complexity is that Banks will need to provide data to Fintech firms whose purpose is to help consumers and SMEs make better finance decisions. (footnote 2 & 3) 

Not only does this speak to the growing referral-system debate in the UK, but also to the type of information provided to lenders. Under the ‘Small Business, Enterprise and Employment Bill’, banks will need to share SME credit data via credit reference agencies, and information on SMEs declined for finance. 

Lessened barriers to entry where also addressed in this Autumn report, specifically around an expanded mandate for action from the new Payment Systems Regulator to ensure openness and fairness and make it easier for fintech businesses and challenger banks to complete in the UK banking market. (footnote 4) Specific to P2P lenders, the government announced the intention to review regulation that presents barriers to Institutional lending via the marketplace. This certainly will have positive implications for the sector, as it is met with greater interest from institutional funders who wish to participate in the sector. As Graeme Marshall expresses:

"The Autumn Statement, alongside the recent consultation document on ISAs and the FCA's feedback on Project Innovate, reveals one clear theme. Crowdlending has progressed from the edge of the room to the middle of the dance floor. It is now on the dance card for the three main financial arms of UK Government - HM Treasury, HMRC and the FCA. This should give huge comfort to prospective lenders & borrowers."


A Question Persists:

Despite the clear strides this Autumn Statement makes in advancing support for P2P and creating an incentivized environment for both retail and institutional investors, the Autumn Statement brings up the questions on extending ISA eligibility to lenders using crowdfunded, debt-based securities. Earlier in the year, this seemed a settled topic but this Autumn Statement indicates that further debate about ISA inclusion persists. As Andy Davis explains, “I think the Autumn Statement didn't suggest that we will get an answer on P2P's inclusion in ISAs as likely to happen in the near future. This suggests to me that the technical difficulties with incorporating P2P into the existing framework will be considerable, although given the delay in issuing the consultation in the first place this should probably come as no surprise.” 


Footnotes from :

1) Bad debt relief on investments made through the peer-to-peer lending industry 
– The government will introduce a new relief to allow individuals lending through P2P platforms to offset any losses from loans which go bad against other P2P income. It will be effective from April 2016 and, through Self Assessment, will allow individuals to make a claim for relief on losses incurred from April 2015. Section 2.184 

2) The government is also announcing support for all alternative finance providers by naming the big banks that will be required to open up access to their credit data and refer on any SMEs that they turn down for finance, and support for fintech firms who want to use bank data to help consumers and small businesses make better decisions. 
Gocompare are the first comparison website to commit to launching a Midata current account tool, and intend to make the service available from 1April2015. 
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. Section 1.171

3) Sharing Small and Medium Enterprise credit data – The government plans to designate Royal Bank of Scotland, Barclays, Lloyds Banking Group, HSBC, Santander, Clydesdale and Yorkshire Banks, Bank of Ireland, Allied Irish Bank, and Danske Bank under proposals in the Small Business, Enterprise and Employment Bill. These banks will be required to share SME credit data with other lenders through credit reference agencies and share information on SMEs which have been declined for finance. Section 2.180

4) The government supports action from the new Payment Systems Regulator (PSR) to solve the access problems that have made entry to the UK banking market difficult for fintechs and challenger banks. Should the measures set out by the PSR prove insufficient, the government expects the PSR to use its strong powers in order to deliver the government’s aim of open, fair and innovative payment systems for the UK. Section 1.173