HM Treasury

Pre-Budget Report

REV/HMT 2

27 November 2001

ENTERPRISE IN DISADVANTAGED COMMUNITIES

Disadvantaged communities received a boost today when the Chancellor announced two important measures to encourage investment and stimulate regeneration.

To deliver faster productivity growth and rising living standards for all, enterprise and investment must spread to every region and community of Britain.  Towns and cities grow, survive and prosper because they attract and retain businesses and people. To extend opportunity and ensure that disadvantaged communities are not left behind, the Government is:

Announcing these measures, the Financial Secretary to the Treasury, Paul Boateng, said:

"The Government is committed to providing economic opportunity for all, and these new measures will boost enterprise and investment in Britain's most disadvantaged areas. The Community Investment Tax Credit will unlock new sources of capital, stimulating business activity in parts of our society suffering from acute deprivation. I am also delighted to be able to say that business start-up, expansion and re-location in 2000 of the most disadvantaged areas of the UK will be made cheaper from Friday, as stamp duty on property sales worth up to £150,000 in these areas will be abolished."

In addition, entrepreneurs will benefit from the Community Development Venture Capital Fund, a £40 million private-public venture capital fund due to come into force in early 2002 which will only invest in businesses in disadvantaged areas and which has received substantial interest from private investors.

Responding to the Government's proposals, Sir Ronald Cohen, Chairman of the Government's Social Investment Taskforce and the venture capital fund, Apax Partners, said:

"Venture capital has proved to be a powerful engine of growth in the mainstream economy. The fund will now apply venture capital techniques to the most disadvantaged communities in England. My early discussions with the private sector have been encouraging and pending state aids approval I hope to see the fund up and running by the end of the financial year."

DETAILS


The Government committed itself to promoting enterprise for all in the Chancellor's speech of June 18 this year. Today's measures are designed to advance this initiative. They include:

Community Investment Tax Credit

A tax credit worth 25 per cent of investment spread evenly over five years will be channelled to the individuals or corporations providing capital to intermediaries called Community Development Finance Institutions. CDFIs will provide capital and technical assistance to enterprises excluded from mainstream finance. Today the Government announces several modifications to the CITC, including:

Stamp Duty exemption: enterprise and urban regeneration

The stamp duty exemption announced today will be introduced in two stages:

This exemption will encourage businesses and families to locate in the qualifying areas, helping to revive depressed property markets, promoting enterprise and increasing employment opportunity.

The stamp duty exemption is part of the Government's Urban White Paper fiscal package, which also includes VAT reforms to encourage the conversion and renovation of existing residential property, tax relief to encourage conversion of empty space over shops into flats, and tax credits for cleaning up contaminated land. In addition, the Government is considering provision for tax relief for donations to urban regeneration companies, and legislation will be introduced to create "Business Improvement Districts."

Community Development Venture Fund

There have been strong expressions of interest in the Community Development Venture Fund from the private sector. The £40 million Fund will be a commercial venture capital operation that only invests in the most deprived areas of England. The Government has committed £20 million in matching funds as long as the private sector invests £20 million as well. Sir Ronald Cohen, Chairman of venture capital firm Apax Partners, has been discussing the fund with the private sector following the work of the Social Investment Taskforce, which he chaired. He has received a positive response to his initial proposals. Pending state aids approval the fund should be operational in early 2002.

NOTES FOR EDITORS

This section provides background on the Government's announcements today regarding the Community Investment Tax Credit and stamp duty.

COMMUNITY INVESTMENT TAX CREDIT

- Under original proposals, CDFIs would have to compete against each other for a fixed amount of tax-incentivised investment available each year. Respondents to the consultation felt that this would place a large administrative burden on CDFIs and would be inequitable.

- The Government also proposes to allow CDFIs to raise sufficient tax-incentivised investment to fund 2-3 years worth of investment, rather than just one year.

- A limit of £10 million is proposed on the amount of tax-advantaged investment that an individual CDFI can raise from any one accreditation round. This is not expected to constrain CDFIs, but will prevent excessive pressure on the Exchequer, should demand be unexpectedly high.

- the Government accepts that property development and investment in businesses that provide commercial property to rent has a role to play in providing an improved infrastructure for disadvantaged communities. Property-backed business (such as a hotel, or a factory with freehold premises) may play a similar role. However, the Government wishes to prevent the development of accredited CDFIs that are no more than property investment and holding companies, as such CDFIs are not expected to provide the wider access to funding that the CITC seeks to encourage.

- there are indications that there will be demand for the service wholesalers could provide; they exist in the more mature US CDFI sector, and some are currently being set up in the UK.
 
- the Government's view is that since the aim of the CITC is to promote a business solution to problems of social deprivation, the market, wherever possible, should be left to determine its own structure.

STAMP DUTY

- the full list of almost 2,000 disadvantaged areas announced today is available on the Stamp Office website. The list draws on the individual index of deprivation in each nation of the UK.  Selection has been made on the level of individual wards except in Scotland, where the Index of Deprivation is based on postcodes.

- the selection focuses the relief on areas of the greatest disadvantage, whilst aiming for a fair balance between the countries of the UK.  It was prepared following consultation with the devolved administrations in Scotland, Wales and Northern Ireland.
 
- for England and Scotland, the most disadvantaged 15 per cent of wards/postcodes will qualify for the exemption. In Wales and Northern Ireland, the exemption will apply to the most disadvantaged 42 per cent of wards.

- for the exemption to apply, the instrument of transfer would need to be certified. In most circumstances professional advisors will be required for certification.

- Further information can be obtained from local stamp offices and from the Stamp Office website or the Stamp Office helpline 0845 603 0135

- The exemption was introduced by Section 92 (with Schedule 30) Finance Act 2001.

- The restriction of the exemption for the time being to transactions up to £150,000 is effected by The Variation of Stamp Duties Regulations (SI 3746/2001). The Treasury Order by which the exemption is brought into effect under Section 92(8) Finance Act 2001 is The Finance Act 2001, Section 92(8), (Specified Day) Order 2001 (SI 3748/2001); and the regulations designating the qualifying disadvantaged areas (Section 92(4)) are The Stamp Duty (Disadvantaged Areas) Regulations (SI 3747/2001).

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