In regards to HM Treasury’s Consultation on Social Investment Tax Relief proposal released on June 6, today, British social investment bank Big Society Capital (BSC) wrote a response calling for a few areas that need to be expanded and addressed for the tax relief to be effective.
Namely, they are to ensure simple investment products are eligible (including unsecured loans); increase the size of eligible investment into social sector organizations; extend the range of permitted indirect investment schemes (including venture capital trust-like schemes); and permit investment into social impact bonds (SIBs).
BSC agrees that a tax relief is important because social enterprises and charities play an integral part in the British economy and society, but lack the capital they need to do more. Individual investors are a key part to the social investment market’s next phase of growth, and a tax relief can boost investor appetite.
However, they have some remaining concerns.
For example, they disagree with the need to link between returns to the social investor and the financial performance of the social sector organization, saying that it would only provide relief for quasi-equity investment products. BSC proposes including simple investment products that don’t require this link.
They also propose investigating whether it is possible to increase the size of investment into social sector organizations beyond the European Commission de minimis “state aid” regulation of €200,000 (approximately £150,000). This is because research shows the average investment size in the social investment market is £264,000.
Then there’s the rationale to include indirect investment schemes. By restricting investment structures to only “nominee” schemes, BSC fears it misses a large group of potential investors.
Finally they hope that social impact bonds will be included in the tax relief. Yet, while this may attract investors and open up capital from new sources, the first retail SIB had previously shown that there are various problems standing in the way of its success.
The government had opened an invitation to comments on the introduction of the social investment tax relief, which closes on September 6.
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