Below is the text of the speech made by the Exchequer Secretary to the Treasury, David Gauke, on 22nd October 2013 and was held at the Livery Hall at the Guildhall in London.
I’m very pleased to be here this morning, in such a historic venue.
In fact, as something of an amateur historian, when I was given the rather grand job title of Exchequer Secretary to Her Majesty’s Treasury three and a half years ago, I thought it would be a good idea to investigate its history.
And – after an extensive trawl through the internet archives – I discovered that the title of Exchequer Secretary to the Treasury dates all the way back to the mid-1990s!
In that context – when I was looking at the history of the term social enterprise – I was not surprised that it predated the title, Exchequer Secretary to the Treasury, but not by as much as I might have thought. It was first coined as recently as 35 years ago, at Beechwood College in Leeds.
Of course the concept of a social enterprise dates back much further. Whether that be the John Lewis Group in the early 20th century… The Co-operative Group in the 19th century…
Or going back even further, The Bridge House Estates; which was founded a stone’s throw from here in 1282, to maintain bridges over the River Thames.
The government recognises the crucial role that such groups have played, and will always play in our economy.
And we recognise the important role it currently plays. The social enterprise sector – in fact – employs more than 2 million people, and the total annual incomes from the sector are estimated at over £160 billion per year.
So not only are these organisations good for thousands of communities up and down the country. They also play a key role in driving the UK economy.
As such, we want to give social enterprise groups the support they need.
Social Investment Market
One of the recurring issues that we know these organisations face is access to finance. And without access to capital it can be a real struggle to scale-up, to grow or even to become self-sustaining.
For this reason the government – led by the work of Nick Hurd – is committed to growing the social investment market.
And as part of this work, we’ve launched a number of initiatives focusing on all parts of growing this market, including:
– the supply of finance
– the demand for finance
– creating an ‘enabling environment’ for social investment
So we’ve worked hard to ensure that we’ve got the right regulation in place to support the sector.
And we’ve also established a number of publically-backed funds to directly support social enterprises in the UK.
But we know that there remains one massively under-represented type of investor in this market – and that’s the type of investor I want to spend the rest of my time focussing on today. The private, individual investor.
Some services to cater for this type of investor are emerging. But we know that there is a further appetite out there, and we need to find a way to tap into it.
A Cabinet Office paper published in the summer stated that fewer than 16% of High Net Worth Individuals currently have investments with ethical, social or community benefits. Yet 77% of potential pension contributors said they would prefer to contribute to a social investment fund than to a conventional fund for their pension. And 36% said they would choose social investment even when it involves a significant trade-off with financial return.
So we needed to find a way to tap into this enthusiasm. And I know from my day to day role – my more readily understood, but somewhat less glamorous job title is Minister for Tax – that tax levels and reliefs can be a key lever for encouraging certain behaviour.
It was with this in mind, and this type of investor in mind, that at this March’s budget, we committed to introducing a tax relief for social investment.
Social investment tax relief
That tax relief, the matter-of-factly titled ‘social investment tax relief’ is currently being designed by my officials at the Treasury.
We consulted on it over the summer and I’d like to thank everyone here that contributed.
We now plan to introduce the relief by early next summer, through the 2014 Finance Bill.
In the consultation document we outlined that the relief would:
Firstly, offer individuals income tax relief – as a proportion of the amount invested – for investment into qualifying social enterprises.
Secondly, allow social enterprises to receive up to £150,000 in investment through the scheme in any 3 year period.
Thirdly, offer relief on investment instruments other than equity.
Fourth, focus on allowing established forms of social enterprise – Community Interest companies, community benefit societies and charities – to benefit from the relief.
And fifth: allow for investments via a ‘nominee’ – to cater for those individuals who do not want to make investment decisions personally and would prefer to make use of professional expertise.
I appreciate that there are a lot more details to be ironed out, but we will be publishing our draft legislation on this in December, and I strongly urge you to explore some of the detail then.
Enterprise Investment Scheme
Now, some of you may have noticed something familiar in the form of this relief. And this is neither coincidence nor plagiarism.
The model of the scheme takes inspiration from the successful and long-standing Enterprise Investment Scheme, or EIS.
A scheme which will not only be well understood by many investors, and thus easy for them to figure out and operate in.
It is also a scheme which is very successful at achieving its aims. In fact, since its establishment in 1994, it has brought over £8.7 billion of equity investment into nearly 20 000 small, UK companies.
This shows the impact that a well-targeted tax intervention can have on motivating private investment into specific areas of the economy, and it is a success that we want our relief to emulate.
Wealth advice community
So that is how we plan for the social investment tax relief to look.
But – as many of you will know – announcing a tax relief is only half the story. We need people to know about it. And we need people to know how to use it. And that is why the wealth management sector –many representatives of which are in this room today – will have such an important role to play in all this.
You are at the forefront of delivering financial advice to the public. You’re the ones they turn to when they want to know where they can invest most safely, or most profitably, or most ethically. So you can play a crucial role in enabling investors to understand and to make use of this scheme.
And networks such as this one – the Social Investment Academy – have a crucial role to play too, in bringing together people from across the advisory community. And in spreading news of the scheme.
I understand that this is only your second meeting as a group? So I’m very grateful to have had the opportunity to speak to you so early in your existence.
And I’m sure that either myself, or a member of my Treasury team will be very happy to attend another of these events closer to the implementation of the tax – when we have greater detail on its exact workings – to explain things in more detail.
We want to see – as I’m sure do many people in the room – a strong social investment market here in the UK.
And – as government – we’re doing the best we can to support it – through our actions on both regulation and on taxation.
We hope that you – as wealth advisors – will be able to help us spread the word, and to build the strength of the market here.
And I’ll look forward to working with you as you do so.
Thanks for listening.