Higher taxes will ‘kick UK fintech when it is down’, Healey warned

Venture capital investors have expressed concern that higher taxes on financial services would hinder the growth of Britain's fintech sector, which is already struggling to access capital. Sanchit Dhote, a principal at Outward VC, warned that the sector would face indirect effects from a tax hike on top banks and increases to capital gains.

Banks could potentially withdraw from operations where they serve as customers and partners for fintechs and cease providing specialized loans for high-growth startups. Investors desire certainty, and any changes to future tax rates could create uncertainty in investment decisions. The charging of a three percent levy on banks, known as the banking surcharge, is currently set at £100 million of group profit but is expected to be increased to £500 million by Chancellor John Healey in his upcoming budget.

This anticipated change has been criticized by top fintech executives, who argue that the "moving target" of future taxation will negatively impact valuation sentiment. UK fintech investment fell to a decade-low of £1.8 billion in the first half of the year, despite the UK maintaining its top spot in Europe. The lack of "specialist investors in fintech" and the reallocation of funds to AI are contributing factors to the decline.

KPMG's Hannah Dobson emphasized that heavier tax burdens would "kick UK fintech while it's down" and that taxation is just one aspect of the larger competitive picture. The government has ruled out equalizing capital gains with income tax, but is open to changes in the overall tax regime. Meanwhile, major banks are expected to face a cash raid when Chancellor Healey delivers his budget on October 28th, with some predicting the banking surcharge could be raised to up to eight percent.