What does the 2024 Spring Budget mean for social impact investment?


Written by

Jovana Lalic, Policy and Advocacy Manager

Last week’s Spring Budget was a closely watched fiscal event, given the Chancellor was announcing the government’s tax and spend priorities for possibly the last time in this current parliament ahead of the upcoming general election. Here we outline some of our thoughts on the Chancellor’s announcements, and what more needs to be done to support a thriving social investment market across the UK.

The Government recognised the importance of loan guarantee schemes through the RLS extension

It was very positive to see the two-year extension of the Recovery Loan Scheme (RLS), now known as the Growth Guarantee Scheme, for SMEs and social enterprises looking to access finance to sustain their operations and support their growth. Under RLS, the government provides a 70% government-backed guarantee of up to £2mn to companies with a turnover of less than £45mn. Loan guarantee schemes serve as an important policy tool, allowing for government intervention to ensure financial stability and address market failures[1]. Recent economic evaluations of the Covid loan support schemes demonstrated the role they can play in protecting jobs and supporting the financing needs of SMEs [2].

Loan guarantees are also important to Community Development Finance Institutions (CDFIs) and the customers they serve. CDFIs specialise in providing flexible loans to organisations which may not have access to ‘traditional’ mainstream banks. Around 50% of CDFI lending is to areas in the 35% most deprived areas across the UK, and CDFIs lend disproportionately to SMEs led by women and ethnic minority owners. Fifteen of the existing CDFIs represent over a quarter of all RLS lenders[3].

We recently announced the launch of the second phase of the Community Enterprise Investment Facility (CIEF), which will see £62mn invested into three CDFIs. Taking a leading role, Lloyds Bank has become the first mainstream lender to invest in the CDFI sector through this facility. The existence of vital tools such as the Growth Guarantee Scheme increases the potential to get more capital to underserved areas and generate positive impact in those areas. Going forward, we will continue to ask for a permanent extension to the Growth Guarantee Scheme, given just how crucial it is for providing certainty in the business lending market.

The next government needs to think creatively about tax reliefs as a policy tool, given last year’s removal of SITR and no amendment to CITR this year

Following the scrapping of the Social Investment Tax Relief (SITR) last year, the focus should have turned to maximising the impact of the Community Investment Tax Relief (CITR) scheme. However, the lack of amendment to CITR was a missed opportunity to correct an outstanding anomaly. CITR incentivises individuals and organisations to invest in small businesses and social enterprises in disadvantaged areas through investing in CDFIs. The tax relief is worth up to 25% of the value of the investment in the CDFI across 5 years, and from 2020 to 2022 facilitated an average of over £20mn of lending into small businesses and social enterprises each year.

In the 2023 Spring Budget, we were pleased to see that the amount which both wholesale and retail CDFIs could raise through CITR increased (the difference being that wholesale CDFIs only lend to other CDFIs, whereas retail CDFIs lend to SMEs and non-profits), as did the amount which these retail CDFIs could lend on to SMEs and non-profit organisations.

However, now there is a cap of £2.5m on how much wholesale CDFIs can lend to each retail CDFI in the first instance, and this ultimately limits how much capital can reach the frontline organisations working to support their local communities. Failing to lift this cap was a missed opportunity and we urge future governments to prioritise this as an easy policy ‘win’ to unlock more capital for SMEs and social enterprises.

The continued importance of 'place’ in policymaking was apparent. A future government should consider the role of social investment in local areas to scale these commitments

There were plenty of announcements related to place-based policy, from ‘trailblazer’ deal funding for cultural projects in the North-East and an expansion of the Long-Term Plan for Towns, to the commitment to a framework for single settlements for Greater Manchester and the West Midlands Combined Authorities. It was particularly exciting to see the announcement of a £20mn investment into a social finance fund for community-led housing, and a pilot programme led by the Office for Investment to use underutilised government assets to drive investment and “inject new funding into dormant assets across the country”; we look forward to further details being announced.

We'd urge the government to consider how to use money from underspent grants, such as from levelling up programmes, to target market failures through place-based investment partnerships as these grants can bridge financing gaps, particularly in deprived areas. Using existing place-based programmes, such as Local Access, as a blueprint provides important lessons for partnership working between local authorities, businesses, investors and communities and for how to best deploy and scale blended finance. We estimate that leveraging existing networks, through BSC, Access, CDFIs and other social investors, to create a supply of blended finance could bring in match funding, grow 3,000 community SMEs and social enterprises and generate 8,000 jobs in deprived areas.

Get in touch

Ultimately, social impact investment can provide money that is spent smarter and puts people at the heart of how to solve difficult social issues. Policy decisions made by Whitehall are critical enablers of this system. Please get in touch with us if you’re interested in learning more about how social investment can help unlock more capital to tackle social challenges across the UK.

[1] https://www.oecd.org/finance/financial-markets/48297609.pdf

[2] See https://www.ipsos.com/en-uk/evaluation-bounce-back-loan-scheme-coronavirus-business-interruption-loan-scheme-and-coronavirus; https://www.enterpriseresearch.ac.uk/wp-content/uploads/2019/05/No28-SOTA-Loan-guarantee-schemes-in-the-UK-M.Cowling.pdf; https://londoneconomics.co.uk/wp-content/uploads/2022/06/evaluation-of-BBLS-CBILS-CLBILS-process-evaluation-early-impact-assessment.pdf

[3] https://committees.parliament.uk/writtenevidence/124106/pdf/