2024 budget: A mixed blessing for the trade finance sector

By TFG's reporter, Silvia Andreoletti

TFG’s Friday musing: some food for thought for the weekend. What's been going on in trade, treasury, and payments?

On 30 October, Chancellor of the Exchequer Rachel Reeves announced the UK’s Autumn 2024 budget: the first budget by a female chancellor in history and the first by a Labour government in 14 years.?

The budget has made headlines for its increase in National Insurance contributions, raising the minimum wage, and ending VAT exemptions for private schools. However, the fine print includes changes that could have important consequences for the trade and supply chain finance industries.?

Export finance support for critical minerals

In a bid to support domestic growth-driving sectors, the UK will provide export finance to companies supplying critical minerals to key domestic manufacturing sectors. UK Export Finance (UKEF), the government’s export credit agency, will offer trade and export finance facilities to foreign companies that supply UK industries like electric vehicle (EV) battery production, clean energy, aerospace and defence, with the critical minerals they need.?

The move is intended to support the industries by securing a long-term, stable, and resilient supply of raw materials to enable UK companies to expand production. This aligns with the government’s goals of boosting the UK economy and promoting clean energy - many of the minerals being supported are used in the production of solar panels, wind turbines, and electric cars.?

However, this could have the unintended consequence of removing market share for trade finance companies in the UK. Several trade finance providers, both in the UK and abroad, have been working for years to promote factoring, receivables, and other export finance solutions to promote trade of critical minerals; while UKEF’s intent is surely to supplement, not replace, existing deals, there is a risk that more favourable government conditions could put other players in the industry at a disadvantage.?

On the other hand, with the EU passing high tariffs on electric vehicles from China, growth in the sector could position the UK to become an important player in battery production for Europe and boost its own domestic climate goals. The UK has a large automotive industry, with the vast majority of cars produced in the UK being exported abroad, but the country lags behind in EV production; a steady supply of raw materials could go a long way to changing that for good.??

Prompt Payments - a repeat of the EU Late Payment Directive?

The government announced that from October 2025, companies will have to pay suppliers within an average of 45 days to be eligible to apply for large government contracts. Firms bidding for government contracts over ￡5 million per year will not be eligible unless they pay their suppliers within the defined time regardless of the contract negotiated, a measure meant to help small businesses manage their cash flows and deter late payments.?

This mirrors a plan proposed by the EU in spring 2024, which would have limited all payment terms to 30 days with very few exceptions to decrease small businesses going bankrupt due to late invoice payments. The measure was scrapped in July 2024 after major backlash by the financial services industry, who feared the new regulations would sink the EU’s supply chain finance industry.

While the government’s proposal is not as extreme and will likely only affect medium-sized and large companies, it could still stifle the UK’s thriving trade finance industry, as well as decrease flexibility for exporters and small businesses - especially if it signals the government’s intent to widen the scope of the policy in the future.

Revamped Freeports boost sea trade

In a further effort to boost trade, the government has announced increased funding for Freeports across the UK. Freeports incorporate improved sea and air infrastructure with conditions beneficial to businesses to promote investment in areas that have historically been less economically developed.?

Five new customs sites will be built in Freeports across the UK, which it is hoped will speed up the transport process and decrease port congestion. The favourable conditions of freeports, which include incentives for businesses that set up in the designated area, could boost domestic and international trade, luring exporters to new areas of the UK - and bringing trade finance firms with them.?

Tariffs for carbon-intensive goods: the Carbon Border Adjustment

After an extensive consultation, the government has announced plans to introduce a carbon border adjustment mechanism starting in January 2027. The mechanism would raise tariffs on imports of goods with a high carbon footprint, like cement, aluminium, and fertilisers in an effort to lower emissions.

A similar mechanism has been in force in the EU since 2023 and has not impacted trade significantly; an expected rise in EU tariffs in 2026 signals part of a wider effort by the international community to adhere to its climate goals by discouraging carbon-intensive goods.

Tax changes for alternative finance

Plans to simplify alternative finance tax rules to be more similar to conventional financing arrangements have been announced after consulting with industry providers. The changes will apply from the end of October 2024 but are expected to have a negligible impact on most companies. Instead, they will put legislation on capital gains and alternative financing on a level playing field.?

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The budget includes bold moves to boost growth and promote climate goals, as well as measures that could be harmful to the trade finance industry and the economy as a whole. As with every other budget, only time will tell how the industry will react to the important changes that were announced today - but the future looks bright.

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