Helping enterprise in disadvantaged communities

Small businesses and other enterprises in disadvantaged communities will find it easier to attract funding from banks and individual investors following consultation on proposals to develop a Community Investment Tax Credit (CITC), Financial Secretary Paul Boateng said today.

Commenting on the Government's initial response to consultation on the CITC proposals announced in Budget 2001, Mr Boateng said:

"Businesses developing in disadvantaged communities need to be able to draw on the widest possible range of suitable funding. The response to our consultation shows clear, widespread support for our proposals for a Community Investment Tax Credit as a means to encourage investment in these businesses. We are strongly minded to introduce CITC as planned to help them.

"We have listened carefully to the views of those involved and decided that it would be right to extend the benefit of our CITC proposals to help businesses to raise money from individuals and banks, and not restrict them to investment from corporate and equity investment sources.

"This will increase the options for the access to new capital vital to help reinvigorate some of our poorest communities."

The Budget CITC proposal aims to stimulate business activity in disadvantaged communities through a tax incentive to encourage private investment in both commercial and not-for-profit enterprises. It is proposed that qualifying investments, made through qualifying Community Development Financial Institutions (CDFIs), will attract tax credits worth 25%, spread evenly over five years. Today's announcement in a speech by Mr Boateng to a CDFI conference in Birmingham, will extend the initial proposals by:

allowing individual investors to benefit from CITC.
allowing both debt and equity investments to attract CITC.

These measures will encourage individuals to invest through either loans or taking shares in CDFIs rather than through equity alone, and enable CDFIs to raise loan capital for developing businesses in their areas from banks and other lenders as well as by issuing shares. Together they will give CDFIs greater flexibility in raising capital for enterprises in their communities.

The text of Mr Boateng's speech is available on this website by clicking the link below.

Internal links

Link to Mr Boateng´s speech

Notes for editors

The Chancellor of the Exchequer announced consultation on proposals for a Community Investment Tax Credit (CITC) on 1 March 2001 (HMT press release 26/01).
The consultation document 'Enterprising communities : A tax incentive for community investment', which includes a number of regional examples of the work of CDFIs which the proposals would enhance, followed recommendations by Sir Ronald Cohen's Social Investment Task Force in October 2000. The document is available on the Treasury website or from the Treasury Public Enquiry Unit on 020 7270 4558.
The consultation closed on 2 July, after meeting with around 60 organisations, and visits to six areas around the country, and receiving over 50 written responses. In addition to the acceptance of consultation suggestions announced today, the Government is considering further its response to other issues raised during the consultation.
Community Development Financial Institutions (CDFIs) have existed in the UK since the 1970s, generally to provide capital and technical assistance to enterprises in disadvantaged communities excluded from mainstream commercial finance. A range of CDFI models have developed, helping both not-for-profit social enterprises and small commercial businesses. The CDFI approach has also been successful in developing enterprise in disadvantaged communities in the United States.
Media enquiries should be addressed to Charles Keseru in the Treasury press office on 020 7270 5188.