Wise: "The overlooked budget opportunity"

As we approach the first Budget from a Labour government in 14 years, it is a moment to reflect on the transformative changes in the UK’s economic landscape. Notably, the fintech sector, which was virtually non-existent during the last Labour administration, has emerged as a vital driver of innovation and growth. With Prime Minister Keir Starmer prioritising economic growth, it’s crucial to consider policies that stimulate growth without straining public finances or increasing the tax burden. One such policy is increased transparency in cross-border payments — a simple yet impactful strategy with significant potential benefits.

There is a glaring issue costing the UK economy £4.4 billion annually: hidden fees associated with foreign transactions. Both consumers and SMEs are hit by these fees when they transfer or spend money abroad, whether for studies, suppliers, or summer holidays. This is £4.4 billion that could otherwise be injected back into the economy, boosting growth, supporting businesses, and creating jobs.

SMEs bear the brunt of this problem, losing approximately £2.8 billion each year. In 2024, research indicates that 70% of UK SMEs are concerned about potential closures due to escalating costs, with nearly half pinpointing hidden banking fees and rising material costs as key factors. On average, small businesses estimate incurring over £3,700 annually in hidden fees within exchange rates offered by banks — equivalent to three months' rent in major UK cities outside London.

The lack of transparency and competition in the market exacerbates these issues. Traditional banks and financial service providers often impose marked-up exchange rates, obscuring the true cost of these transactions. This lack of clarity makes it difficult for time-strapped small business owners to compare options effectively, leading to higher costs and reduced service quality. While consumers are affected too, losing about £1.6 billion to hidden fees, the impact on business is even more pronounced due to the larger sums involved.

Since Labour last held power, fintech companies like Wise, Starling Bank, and Monzo have been addressing these challenges by offering transparent fee structures and competitive FX rates. However, these practices are not yet universal. The Labour government must engage with fintech innovators to address these regulatory gaps across the broader financial sector to protect both consumers and SMEs.

At Wise, we advocate for clear and upfront pricing because we believe it is key to ensuring a fair financial system for everyone. This aligns with the UK’s international obligations and serves as a moral imperative to support British people and businesses. As the government considers policies for the upcoming Budget, embracing transparency in financial services should be front and centre. The government's ongoing review of payments regulation offers a golden opportunity to end hidden fees in FX rates by financial providers when making an international transfer. By taking decisive action, the government can potentially unlock billions for the UK economy — and crucially, at no cost to the taxpayer.