HISTORIC PRESS RELEASE : Helping Enterprise in Disadvantaged Communities [July 2001]

The press release issued by HM Treasury on 11 July 2001.

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.