PLY: A UK centric day today as the Chancellor made tax shuffles which will short term help but long term just hinder the economic by making life more bureaucratic still… At least for now it’s progress for the social impact bond movement, even if the UK economic itself still has nobody brave enough to tackle its long-term problems…and that probably requires more than just SIBs!
From April next year, equity and certain debt investments into social organisations will qualify for a 30pc tax credit. This will apply to investments up to a maximum of £1m.
The launch of a new social impact bond will also allow companies that work for the social good to raise money without issuing shares.
Social impact bonds are a contract with government that commit to delivering performance-based returns based on improved social outcomes and public sector savings. “They are a halfway house between a charitable donation and a proper investment,” explained John Cooney, head of private client services at accountancy firm EY. “It’s a charitable donation where you stand a 50pc chance of getting your money back.”
LONDON is fast emerging as a global centre for social investing. All of the ingredients are here: a vibrant entrepreneurial culture, a strong ethos of charitable giving and investing for good, a supportive government, and organisations whose aim is to grow the world of social impact investing.
In the last few months, London has hosted the G8 social impact investment task-force, the Global Impact Investing Network, and seen the launch of new accelerator programmes and social investment funds – Goldman Sachs and Morgan Stanley are the latest to enter the market. But while our own impact investment fund has seen a huge demand for risk capital in the last 12 months, to really grow this new market we need to encourage more investors who are prepared to invest across the spectrum of risk.
So far, the government has been a major catalyst for the growth of the sector, and rightly wants to open up the social investment market to new sources of capital. But when the chancellor delivers his Autumn Statement today, we are hoping he gives this market a further boost by revealing details of a new tax relief for social investment. There is a real opportunity to recreate the great success of schemes like the Enterprise Investment Scheme (EIS), and Venture Capital Trusts (VCT). By providing a tax incentive to the investor, these initiatives have supplied over £8.7bn of capital into over 20,000 firms in 20 years.
But a consultation on the tax relief over the summer has led to concerns that the chancellor’s announcement will be akin to baby steps, not a huge leap forward.
Focusing incentives around a tight definition of who qualifies, limiting how much they can raise (possibly only £150,000), and only giving relief for certain risk-based debt investments will limit the impact of this new scheme.
Of course, tax incentives should look to grow the market and not just subsidise the capital that is already in place, and tax incentives should reward risk taking. However, most investment in social enterprise is high risk – investments are made to grow impact, not to make large capital gains, so doesn’t it follow that the incentives need to be pretty broad?
So, what would create more opportunity?