Focus: Finance and Governance - Outlook - Tax breaks should extend to property

Three years ago, the Government launched a groundbreaking scheme to encourage private investment in community development that promised to channel £1bn into deprived communities.

Community Investment Tax Relief offers an attractive tax break on savings and investments offered by Community Development Finance Institutions, organisations that lend to businesses working in disadvantaged communities.

Three years on, however, and the CITR scheme has been accused of failing to live up to its ambitious goals. Its critics claim that relatively little investment has been raised and that not enough of it has been lent out.

Although some CDFIs did struggle to attract significant deposits, a small number of banks in particular attracted investment relatively easily. At Triodos, we closed the account after only two weeks, having raised £3.8m. Most of the money came from readers of a Sunday Telegraph article, responding to a tax break offering market-busting rates.

This came as little surprise to Triodos - a bank that only finances organisations that benefit people and the environment - because we know that appropriate tax incentives work. In the Netherlands, where Triodos has operated for more than 25 years, the bank's green fund offers a 2.5 per cent tax benefit for investment in Dutch environmental projects. It has enjoyed sustained growth year on year and, at the end of 2005, about £320m was deposited in the fund.

Although CITR proved popular among some depositors, the incentive for borrowers has not been so clear. Other than creating a bigger pool of finance for social enterprises in deprived areas to borrow from, its benefits are limited. With government schemes such as Futurebuilders - a £125m grant-giving fund for the voluntary sector - charities and social enterprises already have a number of options to consider when they're looking to access finance.

Our experience at Triodos is that most of the social enterprises the scheme was created to help are principally interested in borrowing to buy or refurbish property. Although these assets represent a welcome step towards greater sustainability, CITR legislation rules out lending for property in most circumstances.

Triodos, as well as organisations such as the Community Finance Development Association, the trade association for CDFIs, want to extend the scheme to all our lending for property. This would better meet the needs of the organisations it was created to help.

To date, government enthusiasm for the CITR scheme appears to have dwindled as the initiative has failed to live up to expectations. But, with the welcome creation of a new office for the third sector, there is an opportunity for change.

Although CITR's design isn't perfect, we would encourage the office to step up its support for schemes like this. Tax incentives for investors, which connect their money with social enterprises, can deliver - especially when they use banks who understand those markets.

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