Is Britain open for social business?

Amongst the many, mostly predictable, responses to last week’s budget, it was positive to the see the speed and unity with which leading social enterprise organisations got together to highlight the chancellor’s failure to do anything much to help Britain’s social enterprises.

The good news is that Britain is open for business – which, for the Daily Mail, means Corporation Tax is being cut. Another example of Britain being open for business is that the very rich will pay less tax on their salaried income.

It seems likely that many of those earning more than £150,000 per year might be keen to demonstrate the effectiveness of the trickle-down theory by investing some of the money they will now not be paying in tax into social enterprises.

Unfortunately, while the Enterprise Investment Scheme (EIS) provides investors with substantial tax relief on investments – you get 30% of the money you spent back in income tax relief, plus further tax relief if you end up selling the shares at a loss – in many conventional for-profit businesses, there is currently no similar scheme to support investment in social ventures.

There is currently a scheme called Community Investment Tax Relief, which provides tax relief on indirect investments in social ventures – investments in Community Development Finance Institutions (CDFIs). Many CDFIs – such as Big Issue Invest and London Rebuilding Society – do good work but investing some money in an organisation that provides finance to social enterprises, is a very different thing to investing money in a social enterprise that you yourself support.

This was one of the issues highlighted in a (succinct and practically focused) report published by NCVO’s Commission on Tax Incentives for Social Investment in January this year. It’s a shame that George Osborne has ignored it although he has set up an internal review within the Treasury to look at the finance barriers facing social enterprise so maybe officials will have the chance to read some of the existing research as part of that.

There’s clearly massive scope for the wealthy individuals – and the less well-off who have a small amount of spare cash they’d like to spend on social good, EIS offers relief on investments over £500 – to take a punt on a social venture based in their local area or addressing a social need that they’re particularly interested in.

As Jonathan Jenkins, chief executive of The Social Investment Business points out here: “This is a watershed year for the social investment market, with the large injection of capital from Big Society Capital. We need more support from the Government to encourage private investment into social ventures that can change the way services are delivered to our communities.

While Jenkins is one of a number strong voices calling for positive change, the overall track record of (theoretically) specialist organisations in UK social investment is so far one of much bluster and not much social impact.

Big Society Capital clearly will change the social investment market significantly by putting loads of money into it but, whether or not the idea of Big Society is still a key part of government’s thinking, the ideals behind Big Society would be significantly promoted by enabling private individuals who want to invest in social enterprise (or a social enterprise) to get at least the same benefits as those who invest in mainstream business.

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7 Comments

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7 responses to “Is Britain open for social business?

  1. From experience, apparently not David. I’ve shown you recently how in 2004, we’d tried to gain the support of the social enterprise community with a business plan to invest in CDFIs.

    http://www.ecademy.com/node.php?id=174452

    If those who commit as practitioners are to be left hanging while blustering attracts public funding, we are lost.

    Here’s something I attempted to channel to the Social Enterprise Summit in 2009 via ClearlySo discussion, where others were calling for tax relief to be given to CICs.

    “I have an idea which might be a lot simpler to administer and perhaps be more aligned to the concept of social action based on market revenue
    rather than donations.
    In the model proposed by PCED 12 years ago, it was question of modifying the company articles to make a social cause the primary purpose,
    agreed to by shareholders as being the entire point of the business.
    Alongside, seed capital for new “social” business might be provided by a trust fund, it was suggested. So, why not give both private individuals and business the opportunity to invest at a higher rate of return than the conventional investment banks with the same security as afforded by government to current lenders?
    Actioned as part of a recovery plan, with the trust itself non proifit making, might well be more cost effective strategy than pumping money into
    collapsed banks.
    Meanwhile in the US these ideas are moving forward as reported by Change.gov with the Obama Biden team planning to:

    l Create a Social Investment Fund Network: Use federal seed money to leverage private sector funding to improve local innovation, test the impact of new ideas, and expand successful programs to scale.

    l Social Entrepreneurship Agency for Nonprofits: Create an agency within the Corporation for National and Community Service dedicated to building the capacity and effectiveness of the nonprofit sector.”

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  2. MJ Ray

    Please be careful: I think you’re misrepresenting the report you discussed at https://beanbagsandbullsh1t.com/2011/11/29/blustering-social-investment-sector-poised-for-big-society-impact/ which looks like it mainly concerns social investment intermediaries, not direct social investors.

    You could even argue that the report showed that social investment intermediaries had failed, with £350m of public money resulting in a much smaller sum than that being invested in that way (where did the rest go? Admin? Consultants? Furnace fuel?), so Big Society Capital is just throwing more money at a broken model which will ultimately benefit the related private-sector operators and suppliers.

    I agree completely that a better Big Society solution would be to harness and coordinate social investors, but I also don’t think many who invest whatever we feel we can really change our decision-making based on the level of Community Investment Tax Relief. Better CITR terms may help free up a little more money from existing investors and persuade some “flying capital” (like the notorious flying factories) to land in community enterprises for a while, but I think it seems like fiddling around the edges for everyone except intermediaries.

    I think the social enterprise scandal in the budget was the lack of exemption for social landlords from the so-called Mansion Tax. Want to buy a delapidated mansion to renovate and use as a House in Multiple Occupation? That’ll now be 15%, same as a fat cat personal company, thank you.

    But once again, capital seems to be stealing the headlines away from stories about homes.

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  3. Beanbags admin

    “You could even argue that the report showed that social investment intermediaries had failed,”

    It did and I did. Not that many intermediaries don’t do some good work but they’ve failed to support innovative social ventures because the way their funded means they can’t make risky investments.

    The point about the changes that haven’t happened to CITR is that they would’ve supported direct investment in social ventures without the need for intermediaries.

    I think the guarantee of claiming 30% of an investment back in tax relief would encourage people to invest. Obviously, I can’t it until it’s been tried.

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    • MJ Ray

      I’ve just reread the earlier article and it still reads to me like you are arguing that the social investment market in general had failed, rather than that the intermediary/parasite model had failed.

      Would a CITR boost encourage anyone? What’s the evidence for it? The reports of the “social enterprise” body responses were big on noise and excitement, but low on evidence, but that might be an omission from the reports.

      Personally, I don’t believe a 30% tax relief would make more people invest. It might free up some extra funding from existing investors and attract some flying capital from intermediaries, but if you’re not sold on social investing, would anything less than 100% relief really change your mind?

      Also, I’m not sure that CITR offers much benefit small-scale direct social investors who are on PAYE (is this who you mean by “the less well-off who have a small amount of spare cash”? Well, sorry for being working class(!)). If someone’s not already self-assessing, would 30% really make you feel it was worth the stress of dealing with the confusing HMRC PAYE recoding process? After all, we’ve felt much pain from PAYE coding errors in the last few years (I myself had four recoding notices in one month). Moreover, http://www.hmrc.gov.uk/manuals/citmanual/CITM9900.htm#IDAQILVG isn’t quite clear to me if it means you’ll be forced onto Self Assessment anyway if you try to claim. That’s a lot of time and pain, so the relief will often go unclaimed by small investors, won’t it?

      So the current CITR looks like a scheme mainly for fat cats and middlemen to me. There are bigger questions over this budget about the effects of changes to income tax, corporation tax and stamp duty on social enterprises, which the apex bodies seem to be ignoring as they try to romance the fat cats into social investments.

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      • Beanbags admin

        Well, to (attempt to) clarify the terminology, I’m talking about the market that’s currently described as ‘social investment’ (or sometimes ‘impact investment) in the voluminous current discourse around social investment.

        I think you’re raising an important point in terms of the fact that clearly the activity being discussed as ‘social investment’ is only one of the many ways that social ventures get investment – and the notion that it is (or will be) one of the most important ones is a contentious opinion not a fact.

        I don’t know if more people would invest – but I think it’s worth a try.

        Process for claiming back is definitely an issue. That would need to be made as accessible as possible. Agree that it would be pointless if people had to pay an accountant £400 to enable them to claim back £300.

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  4. I think that too David,

    What MJ says about intermediaries resonates with me although an intermediary finance body like a CDFI which might spread investment risk would probably encourage investor confidence.

    It’s been ironic however to read that Transition Institute will support “independent, social value businesses that achieve the sustainability test.” It was SEL who been approached first in 2004, with this concept.
    Perhaps they may not have understood at the time, but that doesn’t explain why they don’t now want to collaborate with pioneers who have, after all, walked the talk.

    https://socialenterprise.guardian.co.uk/en/articles/social-enterprise-network/2012/mar/16/health-department-services-commissioners

    It’s been a recurring experience of ours to have approached support organisations who can’t help at the time, yet later regurgitate what we’ve introduced to them under their own banner.

    As self sustaining businesses we pay tax to support these intermediaries while at the same time being marginalised by them and selective media. This, as a point out, can quite literally deny us a living and life itself.

    .

    . .

    . .

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  5. Pingback: Sense of relief | Beanbags and Bullsh!t

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