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HELPING ENTERPRISE IN DISADVANTAGED COMMUNITIES

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Small businesses and other enterprises 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 the consultation,
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 the treasury website.
NOTES
1. The chancellor announced consultation on
proposals for a Community Investment Tax Credit (CITC) on 1 March
2001.
2. 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 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.
3. The consultation closed on 2 July, after meetings with around 60
organisations, visits to six areas around the country, and receiving
over 50 written responses. In addition to acceptance of consultation
suggestions announced today, the government is considering further
its response to other issues raised during the process.
4. 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.
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