This week the Chancellor is due to lay out his Budget. One of the issues on the table is the future of the Social Investment Tax Relief. This little-known tax relief has raised millions of pounds for social enterprises so far and has the seeds of something that could help hundreds of social entrepreneurs as they look to build back better from COVID.
The media traditionally gives a lot of focus to the state and public spending at Budget time. The Chancellor will be under pressure to answer big questions on the future of the furlough scheme and business rates relief. Both these measures will impact social enterprises, but looking forward, we know that the strength of our recovery will be based on the creative potential of entrepreneurs across the country. Social enterprises will be at the forefront of building back better. As Shadow Chancellor Anneliese Dodds said last week, social enterprises are the first in to help communities suffering from economic shock and the last to leave.
To build back better social enterprises need access to capital so that they can adapt, innovate and hire.
The good news, as outlined in a new report from Social Enterprise UK with a foreword from Conservative MP Steve Baker, is that there is capital out there. Some households have saved tens of billions of pounds during this pandemic. One firm has calculated that upper-middle-class households will see their savings increase by £82bn due to lower spending caused by lockdowns. In many cases, this money is sitting in low-yielding savings accounts. The best savings accounts offer a little over 1% in interest compared to the 4.2% return that community shares have offered on average, according to research by Cooperatives UK.
We need tools to tap into these savings and this is where the Social Investment Tax Relief (SITR) comes in. SITR enables individuals that invest in social enterprises – businesses which trade and reinvest their profits to achieve a social or environmental mission – to get tax back on their investment. This makes them more likely to provide funds and take risks. Access to finance remains a barrier for many social enterprises making this tax relief important to their success. Thanks to this relief, millions of pounds have already been injected into businesses creating jobs and spreading opportunity.
The bad news is that this tax relief is due to expire in April 2021, just at the time when it is most needed. Social Enterprise UK and others have expressed concerns in the past that this tax relief has not achieved its full potential. But the answer is not to scrap it, but to reform it and promote it better.
One suggestion in our report is to use the SITR to promote ‘Build Back Better’ funds around the country where ordinary savers can put their money into helping to rebuild their communities after COVID. We know that regional funds can work, Resonance has successfully piloted them in the South West and North West. What we need is long-term backing from government.
Analysis by Social Enterprise UK indicates that extending and expanding this tax relief could unlock £500m over five years in investment as individuals look to make the most of their savings and create 13,500 jobs. The cost to the Treasury would be just £150m, a very strong return on investment. This doesn’t even take into account the money saved by the taxpayer through boosting employment and increasing other tax revenues.
Backing SITR is a win-win. People can make their money work harder and have a sense of helping the national effort to rebuild from COVID. Social enterprises will benefit from getting access to finance to grow and recruit. SITR is already on the statute books, it is “shovel-ready” to quote a favourite phrase of the Prime Minister.
Social enterprises have an amazing track record of creating jobs – with the average social enterprise creating 3 jobs per £100,000 of turnover, compared to 0.6 jobs per £100,000 of turnover in the rest of the private sector. They are also located in the places that most need levelling up – with 1 in 5 located in the most deprived communities. The business case for SITR and the social enterprise sector is very clear.
Social enterprises will be watching the Budget closely on Wednesday to see whether the Government is going to follow up its commitment to building back better by giving social enterprises the tools they need to do the job. So far 300 people have signed a letter to Rishi calling on him to extend the SITR on Wednesday. Hopefully, Rishi will listen to these social entrepreneurs and give them what they need.