After spending time examining our open-source SITR Deals Database for the Government’s review of Social Investment Tax Relief, On-Purpose Associate Thomas Mackay picks out some of the headlines that helped to inform Big Society Capital’s response.
It’s a month since the Government’s Call for Evidence on Social Investment Tax Relief (SITR) closed. And if the headlines from the responses made public are anything to go by, we’re not alone in believing the untapped potential that SITR could have. It’s also very clear that changes need to be made for this potential to be fully realised.
My role in Big Society Capital’s response involved pouring over our SITR Deals Database searching for patterns in the past and present that can evidence a vision for the future. The outcome of this is represented in various data and graphs across the response. They sit alongside powerful evidence gathered from social enterprises, charities and community businesses all in need of the type of finance SITR can be used for.
The purpose of this is to highlight the valuable impact SITR has had and to demonstrate how current restrictions have proven to be a barrier for organisations to use it.
Naturally, not all of our response can be neatly summarised in a headline. There are a few pieces of data that have been missed, or, if included, haven’t quite had the podium status I believe they deserve. So, in the time it takes you to have your morning cup of coffee I’d like to highlight a few key figures that I don’t think have quite had their well-deserved five minutes of fame.
There is huge untapped potential for SITR in many UK regions
The number of SITR investments in the database varies significantly by UK region. Scotland, the South West and West Midlands have received 38 between them. But Yorkshire & Humber, North East, East Midlands, and East of England all have just two or fewer deals in each. Wales and Northern Ireland don’t currently have any.
The high number of SITR deals completed in the former regions are likely a consequence of SITR funds in these regions (SIS in Scotland and Resonance in Bristol and the West Midlands). It seems obvious how the existence of these funds has had a positive impact on SITR uptake. Yet we know from talking to fund managers and those providing business support to frontline organisations that the restrictive nature of the relief is a serious concern. It’s a key reason why developing a SITR fund may not be so attractive. And as Action Homeless CEO Mark Grant explains in his blog, why it’s prohibiting frontline organisations from using it.
SEUK’s State of Social Enterprise Survey shows there is a demand and need for the patient and riskier finance that SITR offers. In reviewing SITR, the Government could provide important motivation for new funds to be developed across the UK.
Expanding eligible activities to include asset leasing could expand the universe of organisations eligible for SITR
For social enterprises and charities with assets to lease, doing so can enable them to generate a self-sustaining revenue stream (a real challenge in itself). It may also be another way for them to scale and grow, allowing them to do more good in their communities. However, leasing of assets is one of the restricted trading activities. This means that if leasing an asset (alongside other restricted trading activities) makes up 20% or more of the organisation’s trading income, it will no longer qualify for SITR. And whilst the ‘20% rule’ allows organisations to do a portion of restricted trading activities, it can be tricky to predict how much revenue each activity might generate which could understandably put an organisation off from using SITR.
We believe that expanding the list of qualifying activities to include the leasing of assets on a short-term basis could greatly expand SITR’s reach. In our response, we estimate that this change could lead to at least £38.5 million across the UK over the next five years. (You can see the assumptions on which we base our estimate on page 14 of our response.)
SITR can empower communities to make a positive impact on the planet
If the record-breaking temperatures recorded in Europe recently didn’t tip you off, the world is in the grips of a climate crisis. SITR alone won’t save the planet, but it could certainly make a difference to community energy businesses who lost the option of using it when the rules changed in 2017.
These are businesses that provide significant benefit to their local communities (in 2018 many community-owned renewable companies gave back nearly £1 million to their local communities through community benefit funds). And they provide green energy that we desperately need. The financial need, the social need and the environmental need for SITR-backed investment into these enterprises couldn’t be clearer.
We estimate that if SITR were able to fully restore the investment levels of 2016 into community-owned renewables, that would represent an incremental investment of £28 million. This is approximately ten times the total of SITR investments in 2017.
The most important story isn’t in the data about the investment deals
Our database has a wealth of information but there’s one area where the database doesn’t provide a concise headline figure. And that’s the impact organisations that have used SITR have had on the people and communities they serve. It doesn’t tell us how many ex-offenders trained by the Freedom Bakery were able to find employment and avoid reoffending after release. It doesn’t show us how many hundreds of tonnes of food have been distributed to organisations working with vulnerable people by Fareshare South West. And it doesn’t reveal how Wellington Orbit will bring community spirit and empowerment into Wellington through their community arts centre.
That’s the risk, that we spend so long pouring through investment figures that we forget why we’re doing this. We’re doing this so the lives of people across that UK can be improved through the tireless efforts of the charities and social enterprises that make a major contribution to society.
For the organisations that have used SITR, it has been invaluable in accessing affordable finance that is otherwise difficult to get. And this has enabled them to provide vital support to those most in need.
That’s the potential of SITR, that’s what should be at the forefront of our minds as we plot its future, and that’s the headline we should be sharing.