Magic (Financial) Roundabout

06 Jan 2017

Those below a certain age may not remember this children’s cartoon (Dougle, the dog addicted to sugar voiced by Robbie Williams in the film, has probably been banned by now), but linking several news articles relating to Peer-to-Peer lending makes for a cartoon that will make some investors want to hide behind the settee, or at least to wonder how grown-ups can get into such a mess.

From The Daily Telegraph on page 3, we read that Funding Circle has secured an extra £40m from the government to lend to small firms. The company said the state-owned British Business Bank will lend directly through its platform alongside other backers including more than 50,000 individuals. Catherine Lewis La Torre, chief executive of the British Business Bank’s investment arm, said peer-to-peer lending was "becoming an increasingly important source of finance for smaller businesses". Analysis by industry body AltFi shows that between 2014 and 2015 peer-to-peer lending in the UK grew from £749m to £1.4bn, and of course the government is making this activity ISA-able.

On page 12, An HMRC spokesman has confirmed that the Revenue has been monitoring interest payments made by peer-to-peer lenders for two years, in addition to its long-standing policy to monitor interest received by bank and building society customers. The monitoring was exposed after it was revealed HMRC had sent out 10,000 letters to savers warning them that they may have underpaid tax. Richard Morley, a partner at BDO described the move as a targeted attack on middleclass savers. He said: "HMRC knows people are unaware they owe money on peer-to-peer returns and this is a cheap way of doing a cleaning up exercise. People who say the letters were a random exercise are talking rubbish."

Those of us who have noted that for years the Government has encouraged pension saving only to drop the whole idea from their current list, quite apart from restricting investment in yet facilitating payments out may not be surprised that the Treasury is lending with one hand and taking back with another, as part of a policy thinking roundabout that is less than magical.

In The Times on the same day, Peer-to-peer lender Wellesley has attempted to reassure investors after BDO warned that it was "dependent on raising further capital to continue to operate for 12 months". Founder Graham Wellesley said that the lender was attempting to raise further funds but that it would continue to trade even if this was unsuccessful. "Our loan book is very healthy,"" he said. "We are not worried or concerned. Any further money raising is to fund stable future growth."" No doubt the Government will give him the money… before they take it back again.

(Press references relate to 6th January 2017)