Seize the social investment opportunity, BVCA urges next Government

The Government can do more to encourage investment into UK social enterprises, the British Private Equity & Venture Capital Association (BVCA) argues today in a set of policy recommendations aimed at driving growth in the impact investment market.

In the third part of The Investment Agenda – the new BVCA campaign which demonstrates the impact of private equity and venture capital – we look at the growth of social impact investment across the country and make a range of policy recommendations for the next Government designed to make the UK the home of social enterprise.

Social impact investment has a social and/or environmental objective as well as a financial one. It is a relatively new type of investment but one which has the potential to make a real difference to people and communities across the UK.

In order to drive growth in this emerging investment class, the BVCA has made a number of policy recommendations aimed at the next Government:

• Require a social investment pension option

  Pension funds should allocate some of their capital to social enterprises, along similar lines to the French model of ‘solidarity investment funds’ which invest at least 90% to traditional asset classes and 10% to social investment.

• Lock-in social missions

  In order to protect the alignment between financial and special objectives at impact-driven organisations, the next Government should provide legal forms or provisions for entrepreneurs and investors.

• Promote a new culture of Government procurement

  More needs to be done to direct Government procurement towards the social enterprise sector. A start was made in the Public Services (Social Value) Act 2012 but further efforts are required.

• Expand the Social Investment Tax Relief

  Raise annual limit to £5 million. The current maximum allowed is €344,827 over three years. The Government announced in the Autumn Statement it was seeking state aid clearance for a maximum of £5 million per organisation per year up to a total of £15 million, which is expected to be in place on or after 6 April 2015.

• Create a Social VCT fund model

  Open social investment to mainstream investors through the creation of Social Venture Capital Trusts (VCTs), thereby opening up a larger source of capital. We also recommended that AIM listing would be more appropriate for a Social VCT than a listing on a main exchange due to high costs associated with the latter.

• Educate social entrepreneurs

  The BVCA wants to see the introduction of educational initiatives aimed at increasing awareness and understanding of impact finance amongst social entrepreneurs. This includes awareness of the diversity of sources, the types of impact finance availability and how to access this finance. Governments and foundations should consider establishing capacity-building grants programmes or centres of excellence to support social ventures in their efforts to scale.

Tim Hames, Director General of the BVCA, said:

“Social impact investment is an area of increasing interest, from both politicians and investors, and what we want to see from the next Government is a greater commitment to propel this market into the mainstream.
Great strides have already been made, not least of all in the planned expansion of the social investment tax relief. The UK is arguably the leading country in the world for social investment, largely due to the pioneering efforts of Sir Ronald Cohen, but there remains much more to be done if we are to have a significant and genuine impact on local economies and communities across the UK.”

Notes to editor