UK budget 2023: Three key changes for social ventures and their investors
On Wednesday 15 March UK chancellor Jeremy Hunt announced the Spring budget – billed “a budget for growth”, with a focus on getting more people back into work.
But what were the key changes affecting the social economy?
1. Boost for CDFIs: Community Investment Tax Relief expanded
Community Investment Tax Relief (CITR) is to be expanded. This could drive an additional £20m in annual lending capacity for community development finance institutions (CDFIs), according to estimates by Responsible Finance, a national body for CDFIs.
CITR encourages investment in disadvantaged communities by giving tax relief to investors who back enterprises – both for-profit and not-for-profit – in underserved areas of the UK. These investments must be made through CDFIs — specialist lenders that provide funding to businesses, social and community enterprises in under-invested areas. In this way, CITR both increases the supply of capital and lowers its cost for CDFIs.
Community Investment Tax Relief is an important tool to help CDFIs raise funding... today’s announcement will make the scheme even more effective
Wednesday’s announcement increases the amount CDFIs can lend to eligible businesses from £250,000 to £375,000 for non-profits and from £100,000 to £250,000 for for-profit organisations. The amount accredited CDFIs can raise through CITR will also be increased to £25m (up from £10m) for retail CDFIs and to £100m (up from £20m) for wholesale CDFIs.
Theodora Hadjimichael, CEO of Responsible Finance (pictured), said: “Wherever they live, ambitious entrepreneurs need the right kind of finance at the right time to start or grow their businesses. Not-for-profit community development finance institutions are recognised for ‘outperforming banks’ in lending to the UK’s most deprived areas and financing under-served businesses.
“Community Investment Tax Relief is an important tool to help CDFIs raise funding for social impact lending. The terms of CITR had not changed since 2002, so today’s announcement will make the scheme even more effective. We are excited to continue closing the finance gap and unlocking the untapped economic potential laying latent in our more deprived areas.”
2. Blow to social enterprises and charities: Social Investment Tax Relief scrapped
Two years after securing a last-minute extension, the Social Investment Tax Relief scheme is being scrapped for good. “SITR will be allowed to expire in April 2023. New investments made on or after 6 April 2023 will no longer qualify for Income and Capital Gains Tax relief,” the budget paper reads.
SITR offers tax relief to individuals to encourage them to invest in social enterprises by enabling investors to claim 30% of the cost of their investment off their income tax bill. More than £15m has been raised by social investors thanks to the scheme.
In 2021, following a campaign from a number of social investors to continue SITR, the government granted a two-year extension; but then Treasury minister Jesse Norman rejected calls to extend the scheme any longer, arguing that it hadn’t proved “particularly attractive” with investors.
While this week’s news was expected, it was still a disappointment for those who had campaigned for reforming the scheme, rather than dropping it entirely.
Stephen Muers (pictured), CEO of Big Society Capital, said: “The scrapping of Social Investment Tax Relief is a significant step back, and creates an unequal playing field for social enterprises and charities. The government should be encouraging investment in organisations who are delivering social benefit in areas where the impact is most needed.”
- Read more: UK minister rejects calls to extend ‘not particularly attractive’ social investment tax relief
The scrapping of Social Investment Tax Relief is a significant step back, and creates an unequal playing field for social enterprises and charities
3. Windfall for charities: new £100m funding pot
The government will provide more than £100m to support charities and community organisations in England that are facing increased demand from vulnerable groups together with higher delivery costs. Civil Society reported that three-quarters of the money would be dedicated to this.
The remainder of the new funding will provide investment in energy efficiency measures to help social ventures “reduce future operating costs”.
Tim Davies-Pugh, CEO of Power to Change, an independent trust that supports community businesses in England, said the announcement was a “vital recognition of the role that 11,000 community businesses across England continue to play in providing essential services for local people throughout the cost of living crisis”.
Big Society Capital’s Muers said the budget was “was right to acknowledge the outstanding work of the third sector, and the £100m given to the Department for Culture, Media and Sport to support them will have a positive impact across the country.”
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