What should the UK government be doing for financial services in the public sector?

What should the UK government be doing for financial services in the public sector?

In March 2023, the UK Government announced the latest Spring Budget. Many businesses anxiously held their breath as it was released during the height of the country’s cost-of-living crisis.  

The Budget claims to “build upon the action taken at the Autumn Statement 2022 to halve inflation, grow the economy and get debt falling”, with the immediate aim of supporting businesses and households, while guaranteeing the UK’s affluence in the long term.  

Financially, it also acknowledges that the UK has been struggling, narrowly avoiding a recession in the second half of 2022. As a result of this, the public sector’s output remains below 2019’s levels – falling by nearly 40% in the second quarter of 2020. The Budget cites healthcare as a key reason why the public sector’s output levels remain so low, with the aftermath of the pandemic still being felt widely across this sector.  

This, combined with high inflation, is putting an unprecedented amount of pressure on businesses within the public sector and many are struggling to stay afloat. The Budget notes that while debt is forecasted to fall, in the near term the public sector is “expected to borrow £152.4 billion” in 2023 – “£30 billion higher than 2021-22”.  

However, the Budget firmly believes that “the government’s continued disciplined and responsible approach to public spending will continue to support the fall in debt at future fiscal events.” 

This is backed by The Charter for Budget Responsibility, which aims to reduce the country’s debt sustainably by responsibly managing the public sector’s balance sheet. So, there is hope for companies in this sector.  

On top of this, Jeremy Hunt, Chancellor of the Exchequer, confidently announced changes in childcare, employment, enterprise and localised growth. With a particular focus on a simpler tax system for small businesses – freeing up both time and money for the 5.5 million SMEs across the UK.  

“The OBR report that inflation in the UK will fall from 10.7% in the final quarter of last year to 2.9% by the end of 2023,” said Hunt.  

In the same speech to Parliament, Hunt also predicted that, with a buffer of £6.5 million, the country’s underlying debt/borrowing was destined to fall significantly by 2027 – just down to 1.7%. Subsequently, Hunt determined that this meant there would be “more money for our public services and a lower burden on future generations.” 

In response to the Spring Budget’s bold objectives, we asked two experts for their thoughts and posed the question: What should the government be doing for financial services in the public sector? They offer their insights below… 

Chris Hornung, Managing Director of Public Sector at Totalmobile

Chris Hornung, Managing Director of Public Sector at Totalmobile

For the public sector, the first half of this year has been defined by industrial action and disquiet. And, despite high hopes, the Chancellor’s Spring Budget did little to nothing to allay fears. While individual negotiations have taken place and deals have been reached, the issue still remains that public sector pay is at an all-time low. 

Although the entirety of the country has been faced with a severe economic downturn and 10.4% inflation, the public sector has been disproportionately affected. In fact, the average pay growth for the private sector from September to November 2022 was 7.2% – the largest rate seen in the private sector outside of the height of the pandemic. The public sector only saw a growth of 3.3%. 

In light of this, it’s easy to conclude that the government should be increasing its expenditure on staff pay. And, of course, they would be remiss to not offer some form of compensation, most likely in the form of an incremental increase in budgets and pay packets. However, while this would be a positive result, it is a short-term solution to a long-term problem. Not only will the increase not likely match inflation, but it will do little to get to the core of the issues driving the situation, for example, an intense skills shortage. 

Skilled staff in the public sector are leaving in droves. A decade ago the percentage of paramedics leaving their job in the UK was 4.8%. That number has now jumped to 10.3%. Not only is this simply disheartening, but it’s creating a serious issue for these services. They can continue hiring and training new staff, but if experienced employees are leaving, efficiency and quality of service are going to continue to suffer. 

We need to see tangible changes to how these areas are run and provide better experiences for those currently working in the public sector. For example, reducing administrative tasks and back-office duties that only serve to cause a backlog for the general public and frustrate the staff who are merely trying to do the job they are dedicated to. 

I would like to see a concerted effort from the government towards investing in the public sector’s Digital Transformation journey. It may take more investment in the short term, but in the long term will lead to shorter wait times, easier scheduling and greater retention of staff.

Ahmad Al Khatib, CEO, Qudo

Ahmad Al Khatib, CEO, Qudo

As a tech entrepreneur and founder of a London-based start-up, I was eagerly awaiting the 2023 Spring Budget announced by Jeremy Hunt in March. However, I was disappointed not to see more measures announced to support the UK’s start-up sector, which is facing multiple challenges and uncertainties in the current climate.

One of the biggest shocks for the tech industry was the collapse of SVB, one of the leading banks for start-ups and venture capital firms. This has created a sense of insecurity and distrust among many tech businesses and investors, who rely on SVB for their financial needs. The government and other banks need to step up their communication and reassurance efforts to restore confidence and stability in the system.

Another major concern for me is the imminent closure of Tech Nation, a network that has been providing valuable resources and opportunities for ambitious tech entrepreneurs across the country for nearly a decade. Tech Nation has helped thousands of start-ups grow and scale their businesses, as well as showcase their potential on a global stage. Without Tech Nation’s support, many start-ups may struggle to access funding, talent, mentoring and markets.

The tech sector overall is one of the most innovative and dynamic sectors in the UK economy, contributing over US$1 trillion globally. It has also proven to be resilient and adaptable during the pandemic, creating solutions for various social and environmental problems. The government should recognise this potential and invest more in fostering a vibrant and diverse tech ecosystem.

I believe that the government should also listen more to the voices and concerns of tech entrepreneurs and consumers, who are at the forefront of creating value and impact through technology. By engaging more with them, the government can better understand their needs and challenges, as well as their aspirations and visions for the future. 

On top of the creation of a more open forum, I would like to see more frequent conversations being had with tech entrepreneurs across the board. Spring and Autumn statements are one thing, but if the past year has taught us anything about the current economic environment for small businesses, it’s that things change quickly and unexpectedly. With that in mind, introducing new measures, however effective or needed, every six months simply is not enough to provide adequate support. 

Lastly, I’d like to know how the government will actively promote small businesses abroad across sectors – this is something we see the US doing for businesses on all scales and can have a real impact. As an immigrant founder myself, I think the UK Government can and should do more to both welcome immigrants looking to start businesses in this country and promote rising stars within them. 

I hope that future measures will reflect these points and demonstrate a greater commitment to supporting the UK’s tech sector in these difficult times.

Dr Henry Balani, Global Head of Industry and Regulatory Affairs, Encompass 

Dr Henry Balani, Global Head of Industry and Regulatory Affairs, Encompass 

The government has a key role to play in creating a positive environment for economic growth, especially following the UK avoiding a technical recession in early 2023. With recent financial services-related news and developments, the public is concerned about the impact on the wider economy so it is important to carefully consider and prioritise both stability and future growth ambitions. The government can help to provide guidance in the following ways:

Encouraging socially responsible innovation

The role of RegTech is to develop new approaches for the financial services industry, with the goal of increasing efficiency and lowering costs. One key example of assessing innovation development, and identifying any challenges, is through regulatory ‘sandboxes’ – which have been designed to test new innovations. The UK’s Financial Conduct Authority (FCA) has a programme in place to support this and it’s also an approach being taken globally by other regulators, including the US Federal Reserve.

When financial services institutions are supported by the government and the regulator they can push the boundaries of processes, such as Know Your Customer (KYC), using technology in a safe and responsible manner. Dynamic KYC process automation, for example, can save vast amounts of time and significantly boost business efficiency. This has been shown to reduce the KYC process from an average of 5-10 hours to minutes, enhancing the speed and accuracy of associated tasks and facilitating an improved onboarding process for customers.

Common standards for technology firms

As well as establishing innovation departments, the government can encourage the development of standards that technology firms can adopt to ensure their solutions are interoperable. Continuing to guide and influence the industry based on new developments is key to ensuring innovation has a valuable impact. This can be greatly supported by the international collaboration promoted in the recent Spring Budget, as well as the Economic Crime Plan 2, encouraging the pooling of expertise and tangible investment in order to position the UK as a leading hub to do business with and within.

Ensuring transparency and clarity during rulemaking

Beyond asking for input, it is also important that regulatory agencies clearly communicate when proposed rules are to be implemented and the process involved. Feedback and debate will always be useful but, all too often, new rules appear to be swiftly put out as a reaction to significant public events, such as the initial Economic Crime Bill following the Russian invasion of Ukraine, without, perhaps, a full understanding of the medium and long-term consequences. Any rulemaking needs to be a deliberative process, with clarity and in-depth decision-making needed to properly support financial institutions.

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