UK minister rejects calls to extend ‘not particularly attractive’ social investment tax relief
The UK Financial Secretary to the Treasury has rejected calls for a further extension of a crucial tax relief scheme designed to stimulate social investment – but campaigners hope this can open the door to a new, improved policy to replace it.
Social Investment Tax Relief (SITR) offers tax incentives to individuals to encourage them to invest in social enterprises.
Investors were left in limbo for months as to whether the relief, which was to end in April 2021, would continue beyond this date. It was eventually extended for another two years in March, when the government’s Budget was announced.
But campaigners including Big Society Capital and Social Enterprise UK have been asking for SITR to be extended for at least five years, as the 24-month extension would not be sufficient to allow funds to receive and deploy investors’ money.
Answering questions in parliament yesterday, Treasury minister Jesse Norman (pictured top) said the scheme had had “much lower engagement than originally anticipated”. This lack of success showed there needed to be “a much more fundamental reconsideration” of the tax relief, which did “not appear to be particularly attractive” to investors.
SITR had much lower engagement than originally anticipated - Jesse Norman
The minister said that between 2014 and 2018-19, 110 social enterprises used SITR to raise £11.2m in investment. The Treasury had originally predicted £83.3m worth of investment in its first three years of operation, while the actual figure ended up being £5.1m.
The two-year extension from April 2021 provided “an appropriate timeframe for the tax relief to continue to support the social enterprise sector while also providing a reasonable period over which to monitor its effectiveness,” Norman said, ruling out any further extension of the scheme.
His comments came after 11 Conservative members of parliament, including Treasury committee member Steve Baker, sent him a letter on Wednesday asking for SITR to be extended.
“Despite this commitment the short-term nature of the extension could significantly undermine the ability of this tax relief to do good, and damage our efforts to show that this Conservative government is backing entrepreneurs, social enterprises, and charities in their efforts to build back better,” the letter said.
“The danger is that without a longer extension, SITR remains on the books but still under-utilised wasting both Treasury resources and frustrating the organisations we want to help,” the MPs continued.
Another door opens?
The comments of the minister however indicated that – while there was no longer a prospect for extension – there was scope for a new tax relief scheme that could replace SITR when it comes to an end in April 2023, Melanie Mills, senior director of social sector engagement at Big Society Capital, told Pioneers Post.
“It was never just about saving SITR, it was always about extending it and improving it,” she said, adding that Big Society Capital was ready to “work very hard” with partners on what a better new tax relief should look like.
Jesse Norman’s comments outlined an “opportunity to come up with a better tax relief that does all the things that SITR was designed to do, and hasn't quite managed to achieve,” Mills (pictured) added.
This is an opportunity to come up with a better tax relief that does all the things that SITR was designed to do, and hasn't quite managed to achieve
She acknowledged, however, that the uncertainty created by the short-term extension would create a risk that “not more SITR capital will be raised in the next two years, but less, because it's unlikely that we will see funds go on to raise money using SITR in the way that they have done in the past.”
Big Society Capital is hoping for a long-term commitment to a new tax relief scheme for social investment. “It isn't helpful to keep having short-term reviews,” said Mills.
“Our focus going forward will be that we will facilitate the maximum use of SITR between now and April 2023. So that every social enterprise and charity [that] wants to use it and is able to, can be supported to do so,” she said.
It was important to have a “seamless transition” between the current SITR and any new tax relief that would replace it, she added. “As one door closes, another opens.”
Editor's note: this story was updated on 23 April 2021, to correct the number of MPs to 11, not 12 as previously stated.
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