What Labour’s finance report means for UK tech

Labour tech Image credit: Rupert Rivett / Shutterstock

Labour Party this week published a report outlining many of its economic policies intended to support the growth of British business ahead of an upcoming general election expected this year.

The Financing Growth report covered policy across the financial sector, looking at the wider regulatory framework, pension funds, SME growth and more.

Here is everything the tech industry needs to know about Labour’s newly unveiled economic plan.

British Business Bank revamp 

The British Business Bank, or BBB, plays a significant role in directing investment into SMEs across the country.

Labour has said it would “empower” the state-owned development bank “with a more ambitious and targeted remit”.

The opposition argued for a greater focus on regional support, calling for additional key performance indicators (KPIs) to encourage more of the bank’s regional activity.

BBB’s existing regional funds include a £150m Scotland fund, a £70m Northern Ireland fund, a £130m Wales fund and a £200m South West fund.

The report also included a plan to instruct BBB to offer match funding for spinout seed funds to boost the level of support available to companies that spin out from universities.

Artificial intelligence 

As expected, Labour included references to AI tech policy, a major priority for governments across the world.

The report teased that Labour has begun the process of developing its own AI strategy to “lay out how we will set clear standards for AI safety”. Labour politicians have been critical of the government’s current efforts to govern AI.

It also promised Labour would “set international standards for the use of AI in financial services”. The party stated it was in support of using the technology to improve the sector but would put a focus on consumer protection when implementing it.

At the Labour Party Conference in October, Alex Davies-Jones – then shadow minister for tech and digital economy – and Matt Rodda, shadow minister for AI and intellectual property, criticised the priorities of the AI Safety Summit.

Regulating BNPL

Regulation of financial services was the central theme of the report, with particular focus put on the loan product buy now pay later (BNPL), which allows users to defer the full payment of a purchase by splitting the cost into instalments.

The report confirms Labour’s support of new regulation for BNPL, stated previously by shadow economic secretary to the Treasury Tulip Siddiq.

The Financial Conduct Authority (FCA) has been clear in its ambition to oversee tighter regulation of BNPL, in line with the regulatory framework used for other loan types.

The government has shown some support for this, publishing an outline of how this new regime would work in February 2023. However, there has been no clear sign of when or if this regime will be brought in, with rumours of hesitation at the Treasury.

“Government has kicked reform into the long grass, leaving millions of consumers unprotected and the BNPL sector in a state of uncertainty,” the report said.

“Labour has laid out a plan for regulation, which has received broad support from the sector and can be implemented quickly to better protect consumers and provide certainty for BNPL providers.”

Open banking

The report applauded the UK’s recent success in the field of fintech, with credit given to the implementation of open banking as advised by Ron Kalifa in his review of the British fintech industry.

It warned, however, that the UK risks “slipping behind” as fintech industries in other European nations, notably France, grow. To combat this, Labour has pledged to “deliver the next phase of open banking”.

The government has been criticised by the fintech community for delays in further additions to the open banking regime, such as variable recurring payments (VRPs), a form of payment instruction that allows customers to connect payment service providers to their bank accounts so that providers can make a series of payments on their behalf.

The Labour report said, if elected, the party would support the Joint Regulatory Oversight Committee (JROC) in implementing these next steps. It also said future phases of open banking require a long-term framework that Labour would help shape.

Digital pound

Continuing the theme of embracing technology in finance, the report confirmed Labour’s support for the implementation of a Central Bank Digital Currency (CBDC), referred to as the digital pound.

The Bank of England and the Treasury have been in the planning phase for crypto tokens distributed by the central bank and tied to the value of the pound sterling for some time, announcing the project in April 2022.

It appears the digital pound has received cross-party support, with the opposition paper saying: “Labour recognises the growing case for a state-backed digital pound to protect the integrity and sovereignty of the Bank of England.”

It added that the party “fully supports the Bank of England’s work in this area” and supports the regulatory policies outlined by the bank, which include legislated protection of users’ private data.

Capital markets

The levels and efficiency of the UK’s capital markets have been a long-running concern. It has led to companies opting to list overseas instead of London and international pension funds benefiting from UK tech growth more than domestic counterparts.

There have been several reviews in this area, including Lord Hill’s Listings Review. Labour said it would “evaluate the progress made in adopting the recommendations”. One policy introduced last year to improve capital markets is the chancellor’s Mansion House reforms, which could unlock up to £75bn into growth companies from pension funds.

Labour said it would set up an opt-in scheme for defined contribution pensions to invest some of their capital into UK growth assets.

This would be split between venture capital, small-cap growth equity, and infrastructure investment. This arrangement would be modelled on France’s “Tibi” scheme and will be managed by an oversight committee, which would draw up an accredited
list of VC funds and UK small-cap funds.