Can tax incentives help attract social investment? A UK perspective

Tax incentives have always been credited with ensuring Americans’ high levels of charitable giving [though coming into question of late - see a recent Wall Street Journal debate here]. But recently, the UK has offered a variety of tax schemes to encourage investment in small and medium enterprises (SMEs), seen as critical to the country’s economic recovery. Indeed, the UK’s enterprise investment schemes and start-up investment schemes raised 800 million GBP for SMEs in 2010-11!

Based on this success, the City of London commissioned a report about what similar incentives could do for social investment. After all, BCG estimated demand for impact financing (mostly risk capital) of up to 1 billion GBP by 2016.

The report concluded that incentives could help to raise 460 million GBP, and so should be offered. However, the preference is to let social enterprises qualify for the existing incentive programs mentioned above. This approach would avoid the complexity and cost associated with creating new legal structures that would be prohibitive for many social enterprises.

Watch this video for a more complete discussion by the report’s authors, and if you’re really a tax fanatic, download the full report thanks to the City of London.