Investment in social enterprise is good business

Under the new legislation outlined in last month’s Budget, individuals who choose to invest in social enterprises from this week can reduce their income tax liability in a tax year by an amount equal to 30 per cent of their investment. They will also be exempt from capital gains tax where the investment has been held for three years.

The government estimates the incentive could unlock up to half a billion pounds of new finance for the sector across the UK and present an exciting prospect to an already growing sector, which despite its successes still suffers from a lack of accessible capital.

For some years the mainstream fiscal agenda has been focussed on other types of enterprise investment, such as the Enterprise Investment Scheme and the Seed Enterprise Investment Scheme.

These new measures will hopefully help to reconcile that supply with ever-increasing demand. Since Social Investment Scotland’s establishment in 2001 we’ve seen a substantial growth in demand for capital in the sector, and demand continues to rise rapidly. Social enterprises across Scotland are already taking on the delivery of public services, creating jobs and tackling social issues. What is more, many are demonstrating sound investment opportunities – our recent Social Impact Report found that 77 per cent of our customers perceived their financial stability to have improved, with 82 per cent expecting turnover to increase in the next financial year. And that’s over a wide range of sectors, from health and environment, to renewable energy and sport.

The introduction of the social investment tax relief marks a step change in the government’s approach to social investment, and hopefully the approach of the mainstream investors too.

We hope the impact will be an increase in capital flowing into communities and that this in turn will encourage more organisations within Scotland’s third sector to look to innovative business models which combine business success with social good.

• Alastair Davis is chief executive of Social Investment Scotland