Big Society bank boss says UK Chancellor’s tax break will be ‘pivotal’

This week’s budget announcement that tax incentives will be introduced for social investment will be ‘pivotal’ in persuading more people to invest in social innovation, says the CEO of Big Society Capital.

Writing in his blog about the announcement, Nick O’Donohoe says: “Today is an important day in the development of the social investment market. The announcement by the Chancellor in his Budget today that he will introduce tax incentives for social investment will be pivotal in encouraging greater numbers of individuals to provide funding to social sector organisations.”

He adds: “This investment can help social sector organisations to grow and make a big difference to a large number of society’s most vulnerable. Until now, the lack of appropriate tax incentive has been a barrier to unlocking the potential of these individuals to support social investment.”

Evidence shows that tax incentives are key to motivating and unlocking investment. A recent report by the City of London estimated that £480m could flow into the social sector over five years from more than 225,000 households.

David Hutchison, CEO of Social Finance – the organisation behind the social impact bond and several other innovations in the social investment sphere – said tax breaks would “level the playing field to allow social enterprises to offer the same tax advantages as for profit enterprises. Enhanced access to capital will enable them to deliver impact at greater scale and play a larger part in delivering public services”.   

Social Finance believes that the simplest route would be to adjust current tax advantaged schemes to allow all regulated social sector organisations (e.g. charities, community benefit Industrial and Provident Societies and Community Interest Companies) with a range of activities and trades to benefit.

Luke Fletcher, senior associate at leading charity law firm Bates, Wells & Braithwaite, said: "The announcement is fantastic news and a massive encouragement to all those who have been pushing for a bespoke relief over recent years. Social enterprise will for the first time be expressly recognised in the tax system. It represents, in part, the coming of age of social enterprise."

He added: "As ever, the devil will be in the detail and there will be a lot of work to do to make sure the tax relief works and is effective. Ideally, it would be available for direct investment by way of equity or debt into social enterprises. It is also likely to raise the thorny question of definition.

"Now that the Government has made its intentions clear, hopefully the relief can be designed with a view to creating the most effective tax relief possible for the benefit of social enterprises, as opposed to the relief being shaped predominantly by political considerations.”

Social Enterprise UK CEO Peter Holbrook said: 

"We wholly welcome the Chancellor's announcement in today's Budget – growing the UK's social investment market is crucial as traditional sources of finance continue to dwindle in the economic downturn. Capital needs to be raised in new ways to support social enterprises working to address the country's social and green issues - levering in private investment is vital.”

Caron Bradshaw, CEO of the Charity Finance Group, said: “It’s fantastic to see moves from Government to develop the framework to incentivise and further build this market. However, while social investment will benefit some, it is no panacea for charities generally. Our recent report showed that 73% had not considered using social investment.”  

Sir Stuart Etherington, CEO of the National Council for Voluntary Organisations, said: “Charities run expert, high quality services, but often struggle to find the finances they need to expand their work. Social investment is an increasingly important way for charities to grow. We’ve long argued that levelling the tax playing field to ensure that social investments are just as attractive as other investments is a crucial part of supporting this burgeoning market. This consultation is a very welcome step and we look forward to contributing."

The NCVO said that currently, most social investment products are outside the scope of existing tax reliefs, so investors have had greater incentives to invest in traditional companies.

An NCVO Commission on Tax Incentives for Social Investment last year recommended the government extend tax relief to cover social investment as well as traditional investment in order to benefit charities and social enterprises.