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Progress report December 2001 Community Investment Tax Credit Community Development Venture Fund Bank Disclosure Greater latitude for investment in Community Development Initiatives Support for CDFIs

Recommendation one:
A Community Investment Tax Credit

Following the Task Force's recommendation for a Community Investment Tax Credit (CITC) to encourage private investment in not-for-profit and profit-seeking enterprises in under-invested communities, the Government published a consultation document in March 2001. This proposed a tax credit for those investing in enterprises in disadvantaged communities through Community Development Finance Institutions (CDFIs). The tax credit would be set against investors' tax liabilities, and be worth 25 per cent of investment, spread evenly over five years. It was proposed that the tax credit would be allocated to CDFIs through a competitive allocation process.

Feedback on the consultation document was overwhelmingly supportive of the Government's proposal for the tax credit, although respondents suggested modifications to aspects of the scheme. In July 2001, the Financial Secretary to the Treasury announced the Government's intention to proceed with the CITC, with decisions on two major aspects of the scheme:

• individual investors as well as corporates will be allowed to benefit from the tax credit
• both debt and equity investments will be allowed to attract the tax credit

In the Pre-Budget Report published on 27th November 2001, the Government announced substantial amendments to the proposed competitive allocation process in order to increase access to the CITC, reduce administrative costs for CDFIs and increase the efficiency of the mechanism. In particular, the Government intends to:

• remove the overall cap on the amount of investment that can attract tax credits in any year, meaning CDFIs will compete against a standard rather than against each other.
• set a limit or cap on the amount of investment attracting the tax credit which any successful CDFI may raise - a £10 million limit per CDFI per accreditation round is proposed
• ensure that the caps are sufficiently high to give CDFIs enough credit to raise two to three years' volume of investment

The Government now proposes that the Small Business Service (SBS) administer an accreditation process for CDFIs that wish to raise investment qualifying for tax credits, in consultation with the RDAs and devolved administrations. Work is currently under-way on the detailed structure of the accreditation process, which is likely to include the use of an advisory panel of experts.

Further announcements on the CITC in the Pre-Budget Report included:

• applying some restrictions to property investment, prohibiting accredited CDFIs from investing tax-incentivised funds in residential accommodation
• including "wholesale" CDFIs (i.e. CDFIs whose main activity is lending to other CDFIs which in turn invest in enterprises in disadvantaged communities) within the CITC

Final decisions will be made on other issues in time for Budget 2002. The Government aims to publish draft legislation before Budget 2002 and to legislate in Finance Bill 2002, with the scheme starting thereafter, subject to state aids approval.

For further details of the Pre-Budget Report and a Press Release on the CITC see www.hm-treasury.gov.uk

[Original Recommendation]

Recommendation two:
A Community Development Venture Fund

The Social Investment Taskforce also recommended that the Government help set up a Community Development Venture Fund - a matched funding partnership between Government and the venture capital industry to provide equity finance for firms operating in disadvantaged areas. The Government has already announced its commitment of £20 million in matching funding to a £40 million fund. Responses from the private sector in terms of raising this investment have been positive. The Government announced in the Pre-Budget Report that it hoped to see the fund up and running by the end of the financial year, again subject to obtaining state aids clearance.

[Original Recommendation]

Recommendation three:
Bank Disclosure

The British Bankers' Association intends to start gathering the first round of disclosure information in January 2002 with a view to publication in the spring. Data will be presented by post-code, building on the information published by the Bank of England in November 2000. They welcome views on how the data might be used by stakeholders involved in the local regeneration agenda, so that they can refine the exercise in subsequent years.

[Original Recommendation]

Recommendation four:
Greater latitude for investment in Community Development Initiatives

In response to the Task Force report the Charity Commission has:

• published guidance on community capacity building (December 2000)
• published guidance emphasising that charities can already undertake "Programme Related Investments", that is investments that do not have to seek the best financial returns, as long as they are in line with the organisation's charitable objects (May 2001) See www.charity-commission.gov.uk/supportingcharities/ccpri.asp

The Charity Commission is now exploring further the role that charities can play in community development finance and whether there are obstacles to this involvement within the current charitable framework, with a view to publishing further guidance if necessary.

[Original Recommendation]

Recommendation five:
Support for CDFIs

Trade Association

Following positive feedback from the consultation on establishing a trade association for CDFIs, a business plan has been drawn up to start an association in early 2002 and funding is now being sought. To be called the Community Development Finance Association, it will be a membership organisation for CDFIs providing services for them including capacity building, information exchange and the development of industry standards, as well as providing a unified voice for the sector to advocate to government, regulators, investors and funders.

Wholesale intermediary

Funding has been received from the Phoenix Fund for a feasibility study to look at the potential of a wholesale intermediary for the sector. The working title of the intermediary is the Local Investment Finance Corporation (LIFC). As an intermediary with specialist experience, it would on lend funds raised from the Government and private investors to CDFIs.

Government funding

Successful bids to the second round of the Phoenix Fund's Development Fund were announced in early September - 46 organisations were successful. The second round of the Phoenix Fund's Challenge Fund for CDFIs was announced in August; it is expected that up to £12 million will be made available to CDFIs during this round, compared to £5 million in the first round.

New talent and skills

The second annual Community Development Finance conference, 'Money for Change', took place in Birmingham on July 11-12th. It was attended by over 220 delegates who helped create an extremely vibrant atmosphere and was enjoyed for both the formal and informal learning it offered as well as for its networking opportunities. Feedback from delegates was overwhelmingly positive.

Planning for the third annual Community Development Finance conference in 2002 now is underway. For the latest information see www.cdfi.org.uk

Specialised training on setting up and managing a CDFI has also been developed and piloted. This will be available in 2002 through the new trade association - the Community Development Finance Association - once it is up and running.

[Original Recommendation]

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The Social Investment Task Force was an initiative of the			The secretariat and research were kindly supported by:
	UK Social Investment Forum		Bank of Scotland Calouste Gulbenkian Foundation Charities Aid Foundation Ecology Building Society Hadley Trust Joseph Rowntree Foundation Lloyds TSB Nat West / Royal Bank of Scotland Group Northern Rock Unity Trust Bank
	in partnership with the
	New Economics Foundation
	and the
	Development Trusts Association

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