Tax breaks for investing with a conscience are expected to appear in next month's autumn statement from the Chancellor, in a timely boost for alternative finance following the meltdown of the Cooperative Bank.
The government wants to encourage social impact investing, where individuals and businesses subscribe to projects with social outcomes, which may deliver a return but allow the capital to be recycled to a new project.
George Osborne is expected to announce tax relief for investors in social impact bonds (SIBs), modelled on the Enterprise Investment Scheme, with potentially a regional variant for Scotland.
Scotland's first SIB attracted investors to a programme for young people not in education or employment, created by charity Perth YMCA and launched 18 months ago. It offered investors returns linked to measurable social outcomes, and was one of six across the UK sponsored by the Department of Work and Pensions.
This week the Institute of Financial Planning (IFP)gave impact investing specialist Worthstone a platform to address financial planners for the first time, at its Scottish conference in Edinburgh. Worthstone founder Gavin Francis said the Perth project had attracted investors with as little as £5000 and up to £50,000. "We are not talking about really wealthy chunks of investment here. People are looking for more of a connection with their money, what is their money being used for, is it going to deliberately productive purposes?"
Mr Francis said: "The reason people invest is to see lives change, communities change and society change, and they like the fact they get their capital recycled and maybe a bit back on top of that, with the added bonus that it can work again. It's different from a charitable donation which is minus 100% of your money, and from ethical investment where people are still focused on the financial returns and trying to optimise risk and return."
Mr Francis said the initiative might appeal to disappointed supporters of the Cooperative Bank, which "had an ethical strategy and thought that was enough". He said financial planners got to know their clients' lives and motivations and what drove them, and many would believe in "weaving in their values in the way they do their business day to day".
The government sees SIBs as one way of relieving the pressure on public sector budgets, targeting the corporate social responsibility budgets of bigger companies as well as philanthropic investors and charitable trusts.
The IFP next week stages Financial Planning Week, after a year which has seen the banks withdraw their financial advice service to all but the wealthiest customers. Steve Gazzard, chief executive of the IFP, said: "The Money Advice Service is doing some good things, but consumers need more support. We are trying to create that demand for financial planning and understanding its worth."
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