Right now it’s still a small and disparate industry. It’s hard to define. But it’s rapidly changing the world. Airbnb has done it to hotels. Uber is doing it to taxis. Simply put – tomorrow, sharing will beat owning.
First, the good news: the UK is already a world leader in the sharing economy, second only to the US. London’s Silicon Roundabout is home to one-in-10 of the world’s companies in this revolutionary new digital sector. That’s more than are found in the whole of France, Spain and Germany – combined. Britain is leading the tech revolution in one sector in particular, giving birth to some of the world leaders in Fintech including Funding Circle and Transferwise.
According to PwC, the global sharing economy is now worth £10bn per year, still relatively small. But this industry is projected to explode to £220bn over the next decade. For the UK alone it’s conservatively expected to reach £9bn by 2025, creating thousands of high value jobs and billions in revenue for the exchequer.
So it is no surprise that the Government says that it wants to support the sharing economy. In this year’s spring Budget, for example, George Osborne unveiled “steps to put Britain at the forefront of the online sharing economy” and encouraged government employees to use these services to cut transport and accommodation costs. The Chancellor has also repeatedly expressed his ambition to make London a global leader in Fintech.
But now comes the bad news. There have been a series of decisions recently that may have unintended negative consequences for the sector. And the danger is that unless the Government is more sensitive to the needs of the sharing economy, then the forest of digital ‘saplings’ will not grow to their full potential.
One case study should suffice: housing. The Autumn Statement included welcome steps to get the supply side moving and help first time buyers. But it also introduced a new 3% stamp duty rate on buy-to-let properties and second homes. This may or may not be a bad idea in terms of restricting the cottage industry that is characteristic of the buy-to-let market. But what this policy has done, combined with previous tax and regulatory changes, is to create an environment of uncertainty for Fintech businesses in the property investment sector. The result will be less innovation, lower investment, fewer housing starts – and ultimately lower tax receipts.
Property Partner is a crowdfunding platform that, in its short life, has begun a revolution in the buy-to-let market. It has opened up the asset class by allowing anyone to invest in individual residential properties from as little as £50. Tenants are protected by professional standards in property management and fair rent guarantees.
This model also promotes housing supply. By acting as a large cash purchaser, Property Partner is able to buy small developments in bulk, saving small house-builders time and money and releasing vital cash-flow to enable them to move on to their next project more quickly. Combining a crowdfunding element with shared ownership, the company hopes to make it possible for far more people to take their first step onto the housing ladder. However the cloud of uncertainty hanging over the buy-to-let market from the recently announced stamp duty increase, will deter investment in such innovation.
Uncertainty for nascent businesses is never a good thing, not least as it deters the investors who are crucial to helping such businesses grow. Sharing economy investors are of course highly mobile: if another country (such as the US) offers a better tax and regulatory environment, why not put your money there? And the investors’ concerns are compounded for those participating in hot political areas such as property.
The sharing economy is vulnerable not only to tax changes and to the unintended consequences of heavy handed regulation, but also to uncertainty. And it has no defence mechanism. Unlike more mature industries, it has no lobbying expertise, no well established trade body, no voice. The individuals working in the industry are quite rightly obsessively focused on growing their business. They are not the sort of people who want to spend time and money in getting to know how Whitehall works. And if you look at the sharing economy from the Government’s point of view, then you can see that it is incredibly difficult for Ministers and civil servants to really understand the impact of any tax or regulatory proposals on an industry which by its nature is unpredictable and rapidly changing.
So while the Government’s verbal support for the sector is welcome, what can be done to avoid the risk of stifling the potential of this fascinating sector? Could for example, all government impact assessments include a line to consider the impact of any new regulation on the sharing economy? That would not be that different to the protections built-in to encourage scrutiny of new e-commerce regulation in the EU. Or could it begin active engagement with the UK’s leading investors in the sharing economy – such as Index Ventures, Accel, Balderton, Octopus and Seedcamp? Such a move would quickly help the government build a true understanding of the culture, mechanics and needs of the sharing economy.
Across the world, innovation in the sharing economy has thrived most in economies with light regulatory regimes. The problem is, that as it grows, so the sharing economy becomes more vulnerable. It will be interesting to watch, over the next five years, whether the UK Government will manage to keep its deadening regulatory hands off this fascinating sector.