Budget Resolutions and Economic Situation

Thérèse Coffey Excerpts

Friday 22nd March 2013 Commons Chamber

[Mr Duncan Smith]

It is despite the fact that he knows nobody trusts him with the economy, which is why he looks more and more like an angry Mr Potato Head. It really is appalling and the idea that the alternative to the Chancellor is the shadow Chancellor is, frankly, enough to make one leave the country.

[Dr Thérèse Coffey (Suffolk Coastal) (Con)]

The list of initiatives that my right hon. Friend has read out illustrates that this Government are part of the aspiration nation, wanting people to own their own homes. That is one of the greatest things to which people aspire, and it is fantastic that we are doing everything we can to help the construction industry and help people achieve that dream.

[Mr Duncan Smith]

I congratulate my hon. Friend on arriving at a really good statement: the aspiration nation. She is absolutely right, and the fact that she has come across it herself is testament to her brilliance on the Back Benches. This is about an aspiration nation, and the alternative—as somebody just remarked to me—is Mr Potato Head to infinity and beyond on borrowing. That is about the end of it.

The Budget also includes further measures, which I want to go through because some are really good.

--- Later in debate ---

[Nick de Bois (Enfield North) (Con)]

I am grateful to follow the hon. Member for Houghton and Sunderland South (Bridget Phillipson) and I thank her for a thoughtful contribution to the debate. I will be extremely non-controversial and talk about two technical measures regarding social enterprise investment, which I hope will attract hon. Members’ interests, but it may not attract the interest of all hon. Members.

To pick up briefly on growth, we heard from the Opposition claims that this is not a Budget for growth. Whatever is said in the House, I take comfort from what those outside the House say, such as the Federation of Small Businesses, to which I referred. It said how much it welcomes the Budget and the contribution that it believes it will make to creating jobs, which is fundamentally what this is about. The CBI has welcomed many of its initiatives on a micro-economic level. The main people who are doing the business, not talking about it as we are doing, are broadly supportive of many of the measures and recognise that they will bring growth. I suspect that it is they who can give us a non-partisan, objective look at what will happen. The measures on national insurance, housing, fuel, the business bank—we await further details on that—corporation tax and anti-avoidance are significant moves towards what we all want: more jobs and people being lifted out of difficult times.

I will now turn to the specifics. Over the past few years, particularly the past two and a half years, there has emerged a thirst for social enterprise, the use of local community development finance initiative funds and housing to help drive change in local communities. At present, the tax system does not go far enough to help to encourage that. I and others have lobbied the Chancellor to encourage tax changes so that we help mobilise private capital towards local community development finance initiatives. CDFIs are vital, since the non-bank CDFIs—this is a crucial difference—are running out of money at a time when demand for their funds has never been higher, as a result of the need for alternatives to high-interest lenders for disadvantaged and financially excluded communities.

What does that actually mean in practice? Let me set the scene. Capital funding for CDFIs has more than halved in the past two years. That means that they do not have enough money to support the requests for funding from CDFI initiatives. In fact, the demand for lending from CDFIs rose by two thirds over the same period that their capital was halved. The disbursals remain unchanged, but that poses a threat, because their balance sheets are getting weaker as a result of lending more money. Members might be surprised to learn that barely 20 CDFI houses have less that £500,000 left each for lending, which means that at least half the sector is struggling and we are facing a problem.

Despite some of the tax measures, such as the aptly named “community interest tax relief”, with which I am sure all Members are familiar, private sector support for those CDFI houses is low. Money is going to the banking institutions that run community development finance initiatives—banking CDFIs—which, of course, are not focused entirely on lending to those who are slightly more disadvantaged or to more of the social enterprises. However, under the present tax regulations for CITR, those banks are claiming 70% of virtually all the relief available. The wrong people, who are not lending at community level, have most of the money and are getting most of the tax relief. The Treasury has listened, or so it indicated in the Budget, about the challenge that presents, and I am pleased to draw Members’ attention to page 74 of the Red Book, where the Treasury sets out that it will look at CITR and consider measures to help social investment tax relief from private people.

[Dr Thérèse Coffey]

I support community investment tax relief—Foundation East is my local CDFI. However, I encourage my hon. Friend to go further than simply restricting it to CDFIs and allow direct investment in community interest companies, because CDFIs can often be middlemen. We need to expand the scheme and not keep the focus narrow.

[Nick de Bois]

My hon. Friend raises an interesting and technical point that I will move on to later, because it relates to a model in north London. There is a need to find a CDFI to manage the investment that goes out and its disbursal to local businesses and enterprises, and I will touch on that point briefly.

Essentially, I am arguing that we should tailor tax changes to the non-banking CDFIs that would allow private capital to come in, in very small amounts if necessary, as well as from small businesses that might want to take their corporate social responsibilities to a level at which they just want to fund local activities and be assured that those funds can go into just those activities and that they do not necessarily have to manage the whole programme. If the Treasury, as part of its review, looks at measures that are more flexible and allow multiple different types of vehicles to attract the tax relief, there will be advantages for the investor and it will increase the capital of the CDFIs, some of which are in danger of being unable to function for much longer. A more realistic tax scheme would mobilise private capital towards those institutions, and we could even start mobilising capital from very successful crowd funding exercises.

That brings me to an example that we are putting together in north London, which alerted me to this problem in the first place. I have been ably assisted by the local Member of the European Parliament, Syed Kamall, and by my hon. Friend the Member for Richmond Park (Zac Goldsmith). Essentially, we have been working on a scheme for north London crowd funding so that we can back start-ups, particularly for young entrepreneurs who are looking at it as an alternative to full employment. It is based on the Kiva model— I recommend that Members look at it—which derives capital from small loans from individuals, and even an option for small and medium-sized enterprises and corporations to meet their corporate responsibility ambitions. Kiva is aimed at the third world. An individual can give as little as £25 to the scheme and choose someone to support. They do not make a profit, but they are lending at a reasonably attractive rate to people starting small businesses, such as shops. I want to change that and bring the model to north London so that people can have a stake in investing in their community and roll it out worldwide. All that I am asking the Treasury to do, in its review, is try to introduce attractive tax investment incentives, perhaps as simple as ticking a box, so that the £25 can become £30 or the £10,000 can become £12,000. I think that it is a win-win situation.