We call on the incoming Government to create a policy environment that facilitates the flow of funding across the economy to ensure that businesses and households have access to the finance they need to flourish.
We have set out below our recommendations to unlock further investment opportunities, particularly in more sustainable assets.
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Better Regulation
The current regulatory system and law governing financial services has become excessively complex and outdated, adding costs for firms and their customers, as well as stifling innovation and deterring investment. A more efficient and effective system would benefit all by making firms more productive and able to provide better products and services at lower cost. We therefore call on the incoming government to:
Deliver outcomes-based regulation
We need simpler and more coherent outcome-based regulation which can only be achieved by redressing the imbalance between the Financial Conduct Authority (FCA) and the Financial Ombudsman Service (FOS). The FOS currently acts more like a regulator rather than a dispute resolution body without any of the safeguards that apply to regulation and without the FCA being able to curtail this. The FOS issues decisions that go beyond regulation and sets new requirements on lending without any analysis of or consultation on the impact on the market and the provision of finance. Access to credit and financial inclusion have been damaged by this overreach. This twin layer conduct regulatory regime also creates confusion, complexity and makes the UK an international outlier, with a detrimental impact on our ability to attract international investment. A new focus on outcomes-based rules will ensure that regulatory expectations are clear for industry and consumers and deliver a more competitive regime.
Simplify regulatory approach to consumer complaints
The FCA and the FOS should work together to give firms a clear and consistent view of what good customer outcomes entail. This will give consumers greater certainty of what to expect and firms a better understanding of what the regulations require. Greater certainty will reduce the cost of capital for firms and of borrowing for their customers.
It will also reduce the volume of complaints and avoid mass claims by claims management companies (CMCs). In some markets, large numbers of complaints to the FOS have been speculatively lodged by CMCs without properly involving the customer. The recent powers to enable the FOS to charge CMCs fees are welcome and need to be implemented without delay.
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By GlobalDataCMCs are currently regulated by either the FCA or the Solicitors Regulation Authority which have different requirements. High standards and strong supervision should apply across all CMCs, which is not currently the case.
Prioritise reform of the Consumer Credit Act
The Consumer Credit Act (CCA) was designed more than 50 years ago. The customer journey is laborious and the forbearance process is convoluted when borrowers fall into difficulty. The Treasury’s work to replace the Act must be completed in the next Parliament. It needs to enable technology to be harnessed to deliver better financial products for consumers; to allow the provision of new forms of finance for green goods and services; and to ensure consumers of Sharia-compliant financial products get the same protection as other consumers.
Promoting Access to Finance
Access to finance is essential to enable households and businesses to invest in their future. We therefore call on the incoming government to:
Broaden consumer access to credit
Unclear regulatory expectations and disproportionate enforcement are a barriers to lending. High compliance costs make credit more expensive for consumers and constrain innovation and investment. A riskier environment for lenders means that consumers have less access to credit. Some firms are now having to decline 75% to 80% of all applications.
We want to restore financial inclusion and the supply of responsible credit to consumers while retaining high levels of consumer protection. A new partnership between industry, Government and regulators is required. The Government’s reform of the CCA is a critical step, better allowing lenders to offer products tailored to a consumer’s needs with easy-to-understand requirements. Regulators can drive financial inclusion by clarifying their regulatory expectations, allowing greater certainty for industry in making lending decisions.
Improve business access to finance
Some businesses, particularly smaller ones, find it difficult to source the right kind of finance at the right price. This could be remedied by:
•Reforming the Mandatory Bank Referral process to make it more flexible for businesses.
•Giving businesses better access to and ability to correct the data held on them by reforming the Commercial Credit Data Sharing Scheme.
Maintain a diverse funding market
During the COVID pandemic, Government incentives were provided to banks in the expectation that funding would trickle down to non-banks. That did not work smoothly. Non-bank lenders are an increasingly important source of funds for businesses, and they need a dedicated mechanism to ensure that funding continues to reach all corners of the economy during a crisis.
Their contribution should be enhanced by the establishment of:
•A Business Finance Growth Guarantee to replace the Recovery Loan Scheme with a focus on green investment.
•An Emergency Warehouse Finance Liquidity Scheme for non-banks.
Make the tax system more effective
The tax regime plays a major role in investment decisions and customer behaviour. Currently, leasing does not benefit from fiscal incentives which distort choice towards other products. Finance should be unlocked by:
•Radically simplifying capital allowances so that the now permanent full expensing regime includes the following: leased assets; the current Annual Investment Allowance; a new, targeted green tax allowance; and a more limited number of targeted first-year allowances (FYAs).
Financing a Greener Future
FLA members play a vital role in enabling UK households and businesses to make greener choices as part of our commitment to meet Net Zero targets.
Greener Choices
The new Government should enable consumers and businesses to make greener choices by:
•Reforming the CCA to enable the provision of better finance products at lower cost, stimulating growth in the “able to pay” market.
•Working with businesses to create a long-term replacement for the Green Deal and Green Homes Grant schemes.
•Providing a complete and stable policy and regulatory environment to enable businesses to choose to invest in green with confidence, with a taxonomy of green assets.
Greener travel
The decarbonisation of road transport must be facilitated by:
•Actively addressing consumer anxieties to drive demand for Zero Emission Vehicles through measures such as battery health certificates and better information on full life costs.
•Immediately confirming the details of the Zero Emission Vehicle Mandate for 2031-35 and finalising any additional changes to EV transition policy to provide the certainty that consumers and businesses need to invest.
•Accelerating the delivery of the charging infrastructure needed to reassure consumers and businesses that the green energy they need will be there when they need it.
Greener growth
The inaugural spending review must provide for a multi-year green budget for green growth by:
•Providing targeted support to ensure that no one who can currently afford access to a car will be unable to do so as a result of the phasing out of internal combustion engine vehicles.
•Publishing a transport tax roadmap to provide certainty for consumers and businesses on the future of vehicle excise duty, fuel duty, VAT and benefit in kind.
•Sharing risks by enacting a green finance guarantee and approving a new category of green assets/securitisation vehicles focused exclusively on green assets to stimulate investment in net zero and deliver lower costs for end customers and stimulate the green economy.
Who we are
We are the Finance & Leasing Association – the trade body that represents business, consumer and motor finance providers in the UK.
Our members include banks, subsidiaries of banks and building societies, the finance arms of leading retailers and manufacturing companies, and a range of independent firms.
•£151bn: of new finance provided to UK businesses, households and the public sector in 2023.
•£63bn: of this total was provided by non-bank lenders.
•£113bn: provided in the form of consumer credit.
•£38bn: provided in the form of asset finance to businesses.
•£23bn: of which went to SMEs to fund new equipment, plant and machinery, or purchased software.
•£52bn: of motor finance provided to consumers and businesses.
What we do
In 2023, Finance & Leasing Association members provided £151bn of new finance to UK households and businesses, including the small business sector which is critical for economic growth and a vital facilitator of the UK’s Net Zero ambitions.
When businesses need to finance equipment, leasing and hire purchase are cost-effective options that preserve cashflow. These products are also vitally important to the public sector for funding medical technology and school equipment. In total, our member firms provided £38bn of asset finance last year.
The £113bn of new finance provided to consumers in 2023 enabled them to spread the cost of acquiring a car to drive to work, or replacing household goods with more energy-efficient models.
