The exchequer secretary to the Treasury gives an update on social investment tax reliefs and what we should expect in 2014
David Gauke, exchequer secretary to the Treasury: 'the government is driving social investment growth via tax relief'. Photograph: Rex Features
The government is driving the agenda globally in social investment. But I'm not talking about our Big Society Capital, the world's first ever social investment institution of its kind, or our social impact bonds which are informing policy in other countries. I am talking about tax.
I am of course biased, as tax minister for the Treasury, but let me explain why. Our new social investment tax relief is the latest in a series of steps the government is taking to ensure there are the right conditions for social enterprises to thrive in the UK.
Today, I've set out those steps in our social investment roadmap – and I look forward to developing policy in this area throughout the year with input from the social enterprise sector.
In 2011 to 2012 alone, £202m was invested in UK social enterprise. I want to go further and make the UK the easiest place in the world to invest in social enterprise.
Introducing a social investment tax relief will make investment even more appealing and accessible.
The relief will be available for investors in the form of a deduction from income tax, and will be effective from April this year. Estimates from the Big Society Capital suggest that the relief could unleash up to £500m of extra investment over the next five years.
We'll be announcing what the rate of the tax relief will be at budget in March, but before then, I thought I'd update the sector where we are with this and other measures we're taking to support social investment.
Extending the relief to a higher investment limit
We want to make sure that the tax relief comes into effect as soon as possible. So initially we're introducing a relief designed in a way that conforms to the European commission's existing state aid rules for tax reliefs.
But this limits the amount of investment a social enterprise can receive, so we will work to get EC approval of an expansion of the initial design as soon as possible.
The commission should decide within 18 months – during which we'll submit evidence making our case. Officials are already working on this with the aim of starting the formal process for clearance in April.
The accreditation process for social impact bonds
We announced at autumn statement that social impact bonds would be eligible for the tax relief. An accreditation process will be introduced for the company running the bonds. We're informally consulting with the sector on the eligibility criteria already and will issue initial guidance on this too at the budget.
I want to open up investment even further so over the summer we'll launch a consultation on indirect investments in social enterprises – including exploring the possibility of a new scheme based on the success of venture capital trusts which will enable investors to pool their funds to support a variety of social enterprises.
This will allow people to invest smaller amounts, and replicate the support available for investment in businesses startups.
Changes to current legislation on community interest companies
Community interest companies are a growing form of regulated social enterprises, and we want to make sure that the rules are as friendly as possible for investors and social enterprises.
To align the rules around Community Interest Companies with the tax relief, we will look to update them alongside the introduction of the tax relief. These changes should become effective from autumn this year.
I'm keen to hear thoughts from you and the sector on any of the measures, and would welcome comments from readers in the comment section below on these. We'll be consulting throughout the year though, so there will be time to make your voice heard on these important issues as they develop.
Read about the timetable for this work in full in the Social investment roadmappublished today.