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Budget 2010 announcements for the third sector

25 March 2010

On the 24th March 2010, the Chancellor of the Exchequer, Alastair Darling, announced the Budget 2010. The top lines for the third sector include:

• Support for Social Impact Bond Pilots to help investment in long-term initiatives and support preventative action.
• Up to £75m of Dormant Accounts in a Social Investment Wholesale Bank
• Consultation on options to make sure banks make an appropriate contribution to community lenders and exploring potential for greater transparency in the coverage of retail banking services.
• The level of small business rate relief in England will be temporarily increased for one year, from 1 October 2010, to give full relief for eligible businesses occupying premises with a rateable value of up to £6,000 and tapering relief to £12,000.
• A number of other business support schemes to SMEs including social enterprises including the Time to Pay arrangements and the creation of a new statutory Small Business Credit Adjudicator, amongst other measures.
• Extension of the guarantee of a job, work placement or training for young people out of work for six months or more until March 2012.
• VAT cost-sharing exemption: the government will work with charities to consider options for implementing the EU cost sharing exemption.
• Report of the national civil health to be published at the end March 2010.
• Introduction of a new ‘universal service obligation’, giving people the right to a basic bank account.

For more information, please visit the HM Treasury website at www.hm-treasury.gov.uk.

Further details on the announcement:

Social Investment

• To support the creation of a SIWB the Government will provide up to £75 million of Dormant Accounts money as a minority stake in a private sector social investment fund of funds. The SIWB’s aim will be to deliver financial inclusion and other social returns by linking mainstream investors with organisations with social impact.
• The Government is also announcing support for the first social impact bond (SIB) pilots to help investment in long-term initiatives and support preventative action. The first one will be a pilot to reduce re-offending at HM Prison Peterborough, which was announced by MoJ last week. In addition CLG will enable Leeds City Council and Leeds NHS to use a SIB approach to reduce health and social care costs and the Government is doing further work with Bradford Metropolitan District Council to improve social outcomes. The Government will incorporate this work into Total Place discussions with the Third Sector.
• The Government is committed to recycling the income from its existing social investments to further develop the size of the social finance capital market. The next Spending Review will examine options for delivering this objective. [Box 6.2].

Civic Health report

Financial Inclusion

• The Government will continue to work to improve the supply of affordable credit for low-income households, including by supporting third sector lenders. It will consult on options to make sure banks make an appropriate contribution to community lenders, through regulatory action or a new community levy to be funded by retail banks. [3.74].
• The Government intends to introduce a new ‘universal service obligation’, giving people the right to a basic bank account under certain conditions and will consult on the details. [3.70]
• The Government is determined to secure greater transparency in the coverage of retail banking services. It is exploring with the FSA the best way to ensure that the banks provide public information about the geographical distribution of banking services to personal and small business customers. This transparency requirement would highlight differences in coverage and therefore the people most at risk of financial exclusion [3.67].

Guarantee of a job, work placement or training

• Budget 2010 announces that the guarantee of a job, work placement or training for young people out of work for six months or more  will be extended until March 2012, funded through underspends in the money already set aside for the Department for Work and Pensions (DWP) [Box 5.1].

Industrial and Provident Societies

• The Government intends to consult widely on whether the exemption currently available to industrial and provident societies which provide a financial service (insofar as they accept deposits in the form of withdrawable share capital) should be removed. This would mean that members of failed industrial and provident societies would qualify under the FSCS and would have access to the Financial Ombudsman Service. The Government also intends to seek views on raising the current share capital limit for industrial and provident societies from £20,000 to £35,000, enabling societies to raise more capital from members to further their objectives. It will also consult on proposals to facilitate the use of electronic communications by mutual societies. [3.66].

Supporting business and growth

The Government is:

• Continuing to offer Time to Pay arrangements, which will help viable businesses spread  their tax payments as part of a package of measures that continue to support business through the recovery.
• Supporting start-ups, SMEs and growing businesses by providing a temporary increase in the level of small business rate relief; so that eligible small businesses occupying properties with rateable values up to £6,000 will pay no business rates for one year from October.
• Agreeing departmental targets to increase the proportion of central government procurement spend that goes to SMEs by 15 per cent throughout the supply chain.
• Launching UK Finance for Growth to oversee more than £4 billion of the Government’s SME finance products including the Growth Capital Fund.
• Raising £200 million of cornerstone investment for the Growth Capital Fund announced at the 2009 Pre-Budget Report. The fund will act as a new channel for attracting private sector investment into UK SMEs who need £2-10 million of financing to support their growth and who struggle to access the finance.
• Doubling the Annual Investment Allowance to £100,000 and extending the Entrepreneurs’ Relief lifetime limit to £2 million.
• Creating a new statutory Small Business Credit Adjudicator which will ensure that SMEs are treated fairly when applying to their bank for finance.
• Setting up a Green Investment Bank to invest in the low-carbon sector.
• Putting forward proposals to mobilise the EU's key financial institutions – the European Investment Bank (EIB) and the European Investment Fund (EIF) to stimulate the provision of venture capital and loans for SMEs.
• Will work with industry to examine the evidence base for modifications to the tax-advantaged venture capital schemes (Enterprise Investment Scheme  and Venture Capital Trusts), including increasing: the employee limit to either 100 or 250 employees; the gross assets limit to £15 million before the investment, and £16 million after; and the annual investment limit to £5 million for qualifying companies. [4.9-4.16].

Mutualisation

• Government will publish a report on mutualisation, setting out its approach to social assets and its ambition for public authorities to think more creatively about ways of maximising social value amongst their communities (e.g. British Waterways). [Box 6.3].

Landfill Communities Fund

• The landfill communities fund invests in projects that aim to improve communities around a landfill site. The fund has benefited 25,000 projects in the past 14 years. To ensure the fund continues to benefit local communities, Budget 2010 announces that the fund will increase in line with inflation to £74 million in 2010-11. [7.49].

Vat Shared Services

• The Government recognises the efficiencies that can be achieved by organisations such as charities sharing services and the potential VAT barrier that exists. The Government will work with charities and other affected sectors to consider options for implementing the EU cost sharing exemption.[5.89].

Extension of UK charity tax relief for charities and Community Amateur Sports Club in the EU and EAA [A.156]

• UK charity tax reliefs are being extended to certain organisations, which are equivalent to charities and Community Amateur Sports Clubs (CASCs), in the EU and in the European Economic Area (EEA) countries of Norway and Iceland. This follows a judgment in the European Court of Justice (ECJ) in January 2009.
• A number of changes to the law and HMRC processes are being introduced at the same time. These will:
  
• Introduce a new definition of a charity and align it across all charitable tax reliefs and charity exemptions administered by HM Revenue & Customs (HMRC).
• Limit the scope for fraudulent claims.
• Remove inconsistencies in the current rules.
• Ensure that HMRC can maintain a cost efficient service to charities.

For more information, please visit:  http://www.hmrc.gov.uk/budget2010/bn32.pdf

Changes to Gift Aid process

• HMRC will shortly be discussing with charities and representative bodies changes to the in-year Gift Aid repayment claim process.

Charity pooled funds

• The Government will continue to consider stakeholder views and responses to last year’s consultation on charity pooled funds, along with the proposed EU directive on alternative investment fund managers before responding in the autumn. [5.56].

Substantial donors

• The Government is committed to replacing the anti-avoidance rules relating to substantial donors to charities and will continue to explore the details of the proposed new purpose test. [A146].

Gift of shares to charities

The Government intends to introduce legislation to close down a tax avoidance scheme involving relief for gifts of shares to charity, with effect from 15 December 2009, when this action was first announced. [A147].