£5m fund under threat as campaigners fight to save social investment tax relief from the scrapheap
Despite its low uptake, social enterprise and investment bodies are fighting to retain Social Investment Tax Relief, with the weeks ahead crucial to their campaign. Meanwhile, uncertainty around the future of SITR means organisations in north-west England are set to lose out on up to £5m of investment.
An investment fund that channels private investment in charities and social enterprises in north-west England has been put on hold – and may even close unless MPs amend a finance bill in the coming weeks.
The North West Social Investment Tax Relief (SITR) Fund, from social investment firm Resonance, was launched a year ago to reduce poverty in areas including Greater Manchester, Merseyside and Cumbria. It aimed to raise £5m over the next few years from private investors, who benefit from an income tax break of 30% of the value of their investment once their investment is deployed.
However, without government intervention the scheme – the only UK tax break specifically aimed at social enterprises – will end, because it was set up in 2014 for an initial seven-year period, and expires in April 2021 unless amended.
North west England has high concentrations of deprivation, with nearly 20% of neighbourhoods in the region in the top 10% most deprived in the country. The region has also faced “massive cuts in public spending,” according to Liz Allen, director of The Connectives and a member of the Resonance North West Investment Committee.
The government opened a review of SITR last year, following a public consultation in the summer, but since then has been diverted first by December's general election, then by the Covid-19 outbreak.
Resonance’s North West Fund was reaching its first close, having raised just over £1m, but paused deploying any of this money last month due to uncertainty about the future of the relief. The firm expected an update from the government but has not heard anything, communications director Paul Handford told Pioneers Post.
If you take the relief away, investors won’t be so keen and we won’t be able to lend at the same affordable terms to social enterprises - Paul Handford
Resonance allows up to 24 months to deploy investors’ money, particularly in newer funds where a pipeline of investable projects often takes longer to develop, making the North West Fund particularly affected by the uncertainty ahead. Resonance fund managers are working to deploy the investment capital in its two other SITR funds (in south-west England and the west Midlands) by next April, Handford said.
The firm's regional SITR funds not only allow investors to back a particular region, they are also its only funds that channel capital from individuals, with the tax incentive playing a big part.
“The tax relief helps make up an element of return… If you take the relief away, investors won’t be so keen to invest into social enterprises and we won’t be able to lend at the same affordable terms to social enterprises,” said Handford.
Low uptake, high stakes
So far the SITR scheme has led to the private investment of at least £14m in more than 75 social enterprises – far below initial Treasury predictions of £83m within just three years of operation.
Advocates fear this low uptake will not help their case, but have called for overhauling rather than scrapping the scheme. Big Society Capital, which is leading a campaign to retain SITR, claims the relief could generate at least £300m in investment over seven years if reformed. Resonance alone was previously on track to raise a combined £30m by 2022 through growing investment in its three SITR funds and launching additional regional funds.
In a statement, Big Society Capital chair Harvey McGrath said financial advisers and wealth managers typically required a track record of three to five years before advising clients on a product. “We are just getting there now, with Social Investment Scotland and Resonance laying the foundations for others to follow. So starting from scratch would be a mistake.”
This uncertainty is effectively blocking the flow of capital into social enterprises and charities - Harvey McGrath
He added: “This uncertainty is effectively blocking the flow of capital into social enterprises and charities now, given the deployment timing.”
Handford echoed these frustrations: “We’re in limbo… The Treasury needs to say one way or another.”
Resonance CEO Daniel Brewer said SITR was “a vital support scheme for social enterprises and charities that are working hard to improve vulnerable people’s lives in our communities across the country”. That support was “particularly urgent now”, he added, with social enterprises helping the country to recover from Covid-19.
The finance bill is at the committee stage in the House of Commons, and is due to be debated from this week onwards.
Thirty-three social investors and third sector support organisations have signed a letter to Jesse Norman MP, financial secretary to the Treasury, urging him to extend SITR for a further two years. Conservative MPs Harriet Baldwin, Danny Kruger and Simon Fell, and Labour’s Liam Byrne and Pat McFadden, plus Liberal Democrat Tim Farron have all signalled support so far, according to Big Society Capital. Wes Streeting, Shadow Exchequer Secretary to the Treasury has also backed SITR’s extension to 2023, saying, “allowing it to close without an alternative would send the wrong message to the voluntary sector and undermine the government’s claim about their levelling up agenda.”
Pioneers Post has contacted the Treasury for comment.
Asked if social enterprise and investment bodies should have campaigned earlier to save SITR, Handford said they had been “pushing and pushing and pushing” – but pointed among other reasons to a lack of any high-profile, larger fund managers currently offering SITR who could have put significant budget behind lobbying efforts.
Social Enterprise UK’s director of external affairs, Andrew O’Brien, said the priority for his organisation’s campaigns in recent months had been “survival” of social enterprises through the first phase of Covid-19. SITR, in its current form, was “not game-changing” compared to the scale of financial needs, he added, but was one way to generate funds as they moved into the recovery phase and had “the potential to be game-changing, if reformed”.
Header image: investor Glenn Chard pictured with Fiona Hunter and Ray Hughes, both directors at Wellington Orbit, which raised £75,000 through SITR towards a project turning a former HSBC building in Wellington (Shropshire) into an art and culture centre (credit: Resonance).
Thanks for reading Pioneers Post. As somebody working in the impact economy, you'll know that producing quality work doesn't come free. We rely on paid subscriptions and partnerships to sustain our purpose-led journalism – so if you think it's worth having an independent, specialist media platform to share your news, insight and debate across the globe, please consider subscribing. You'll also be buying social: Pioneers Post is a social enterprise itself, reinvesting all profits to help you do good business, better.