CFG has said the government's proposals for social investment tax reliefs are "overly restrictive".

CFG has released its response to the consultation on social investment tax reliefs, including writing a letter to Chancellor George Osborne.

Although welcoming the initiative as “a potentially valuable tool to harness the power of finance to tackle some of the most difficult problems in the UK today”, CFG is challenging some attributes of the proposed relief that it believes could “severely undermine its potential”.

'Raise investment limit, broaden eligibility'

Specifically, CFG wants simple unsecured loans to qualify for the relief, and the maximum level of investment permitted through the relief to be raised.

It also thinks that investment in large charities should qualify for the relief, and that proposed exclusions on qualifying activities, such as residential care and financial services, would unnecessarily exclude many organisations.

The umbrella body has also called on government to do more to stimulate demand for social investment among charities.

Caron Bradshaw, CFG chief executive, added: “We would also urge the government to carefully consider the rate at which it sets the relief in relation to gift aid, to minimise the concerning potential for charitable donations to be switched to investments.”

Last week Big Society Capital issued its own response to the consultation, in which it also suggested broadening the terms of qualification and increasing the limit on investment.

'Create support programmes for expanding charities'

As well as suggesting the above amendments, CFG has also outlined its own vision for what it bills “a more comprehensive and joined-up system of social investment support for charities, at all stages of their development”.

This involves the government developing a comprehensive programme of early-stage support for small charities which are looking to expand, and giving increased support to frontline charities to help them access social investment. This could be by committing to expand the Investment and Contract Readiness Fund, suggests CFG – though not, it stresses, at the expense of other support to charities.

The umbrella body also desires that the government opens a dialogue with the four major social banks to explore what can be done to encourage greater levels of unsecured lending to charities.

Finally, CFG encourages funding for a training programme for charities on social investment, and research into the kinds of social investment which would best meet the needs of charities in different circumstances.

BWB: State aid is elephant in the room

Elsewhere, law firm Bates Wells Braithwaite (BWB) has labelled state aid “the elephant in the room” and says that it risks "torpedoing” any new relief.

BWB partner Luke Fletcher explained that HM Treasury wishes to bring the relief into force via the Finance Act 2014, in advance of any state aid notification to the European Commission – which means that, at least in the early stages, the relief would have no specific state aid clearance.

“At the moment, the Treasury is proposing that the amount of any investment benefiting from the relief will need to be below what is known as the de minimis threshold, which is €200,000,” said Fletcher. “In practice, this would make the relief available for only the smallest investment opportunities and is likely to seriously inhibit take up of the new relief.

“In fact, many charities and social enterprises seeking investment will not be able to use the de minimis state aid exemption for the relief, as they will already have exhausted the €200,000 threshold with investment readiness grants and other public grants.”

Fletcher said that this creates the risk of the relief not being taken up at a meaningful scale and, if it is not taken up at scale, there is no guarantee that HM Treasury will ever seek specific state aid clearance in future.

“It seems to us that, at this point, HM Treasury has not fully analysed the state aid issues and whether alternative and more favourable interpretations might be possible,” Fletcher continued.

“We very much hope that the Treasury will seek expert advice on state aid in advance of any further design of the relief and will consider whether specific state aid clearance should be sought in advance of the relief’s introduction.”