The government will commit no more than £75m from dormant bank accounts as initial capital for a Social Investment Wholesale Bank, it announced today in its Pre-Budget Report.

The government confirmed it would "take forward further work towards the creation of Social Investment Wholesale Bank" and by next April's Budget would have finalised the model for the Bank and set out how the institution could grow over time.

The initial capitalisation would be "up to £75m" from the Dormant Accounts Scheme, "subject to the final volume of funds and alongside funding other priorities".

"The bank will aim to leverage in investment for organisations with social impact from a wide range of sources and improve their access to finance," the report said.

"The Bank will also aim to increase financial inclusion by
supporting Community Development Finance Institutions and credit unions, and contribute significantly to innovation in public service delivery. 

"It would be mission-driven, operate at a wholesale level, and be independent from government."

VAT back to 17.5 per cent 

There was little else in today's Pre-Budget Report for the sector to get excited about, observers agreed. The Chancellor’s announcement that VAT will revert to 17.5 per cent on 1 January, from the 15 per cent rate that it dropped to last December, will cost the sector around £60m-£70m, according to the Charity Tax Group (CTG).

And the news that employers’, employees’ and self-employed National Insurance contributions would rise by an additional 0.5 per cent from April 2011, on top of the 0.5 per cent increase announced in last year’s pre-Budget report, will affect charities’ wage bills.  Estimates by CTG have put the cost to the sector of a 0.5 per cent NI rise at £50m, so the combined effect of the 0.5 per cent announced last year and the 0.5 per cent announced today could be a total cost to the sector of around £100m.

Gift aid and substantial donors

However, there were some positive references to gift aid and the substantial donor legislation.

The report said the government was continuing to explore how best to support the third sector through the gift aid system, and that its research into the possible effects of redirecting gift aid higher-rate relief from donors to charities would be published on the HM Treasury website on 15 December 2009.

“The government is considering the findings and hopes the research will stimulate and move forward the discussion of the options for reforming gift aid,” the report said.

Helen Donoghue from CTG said it was encouraging that the government still seemed willing to discuss options in relation to gift aid, but that the sector was conscious of the clock ticking down to the 2011 loss of the transitional 22 per cent relief.

The government also confirmed changes to its proposed substantial donor legislation, saying it would replace the anti-avoidance rules with new rules to deny tax relief on donations to charities “where the donor is party to an arrangement, the purpose…of which is to extract value from the charity”.

Don Bawtree, partner at auditors BDO, said this effectively meant the tax hit would fall with the donor, not the charity, which was “definitely good news”, but also widely expected by the sector.

John Conlon, head of charity tax at Baker Tilly, said the proposal "should have wide charity sector support and, hopefully, survive a change of government".  The next stage of the process is for HMRC to work with the charity sector to produce draft legislation. 

Welfare-to-work

Voluntary sector providers of welfare-to-work services could benefit from the government’s latest plans – Chancellor Alistair Darling (pictured) signalled his intention to extend the current scheme that guarantees a job or training for every 16 and 17-year-old, to all those leaving school next September.

He also announced that from next month, no-one under the age of 24 needs to be unemployed for longer than six months before being guaranteed work or training – previously it was 12 months. 

And he promised more funding so that people over 50 who find themselves out of work would receive specialist and tailored support to equip them with the confidence and skills needed to get a job.

The Pre-Budget Report confirms that the Government will stick to planned levels of overall departmental spending in 2010-11, and announces that public sector current expenditure will grow by an average of 0.8 per cent a year in real terms from 2011-12 until 2014-15.

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Government commits 'up to £75m' for social bank in Pre-Budget Report

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Directory: BDO | Charity Tax Group
Who's Who: Don Bawtree