CICs 10 years on – It’s taken a while but now I’m a convert

I couldn’t quite believe it’s been 10 years since CIC’s were created. I suppose the main thing I would say about them is that I have become convinced that they are a useful additional to the governance options for social purpose organisations. Suffice to say I did require some convincing.

I remember Stephen Lloyd often recalling how – half joking – he had ‘invented’ CIC’s in a wine bar in the City. I tended to respond – half joking – that they should have stayed there. I wasn’t convinced that there was any need for them. Charity and company governance allowed you to do what you wanted to do in order to further your charitable objects, so why muddy the water?

I saw CICs as a way for weasely people who wanted to hide behind a veneer of social benefit without the same level of accountability as charities. I’d seen it before – with weasley words that weren’t illegal but were, in my view, design solely to be misleading. So charity Christmas cards could be ‘for charity’ and the ‘profits go to charity’ when in reality only a tiny percentage of the sale cost actually did. I had a similar view of CICs to begin with – that they were unnecessary and you’d only want to set one up if you didn’t want to allow yourself to be held accountable for your actions.

It’s only in the very recent past that I began to see a few instances where company and charity governance are limiting and where a CIC could be the answer. I don’t think that means that they aren’t a potential vehicle of choice for people with dubious views. But I can see that where there’s a desire to secure investment that may not be available in traditional governance – such as equity investment or patient capital – a CIC can be helpful.

I think that over the years the form has become more widely understood by funders too.  And whilst there are still some who are not able (or willing) to fund CICs, there are growing numbers of grant makers that now recognise them as a legitimate entity for their grant-making activity. The asset lock is clearly key here and the role of the regulator. No doubt there will come a time where the form comes under strain with some sort of scandal or misuse of assets – but for now it appears to be holding up well so far (at least from my somewhat uninformed perspective).

Despite the growing awareness of CICs among charitable trusts and foundations, understanding and awareness is still fairly low within the public sector (at least outside of a pocket of Cabinet Office civil servants concerned with social investment). CICs also sit in a rather peculiar position within the taxation system – with some specific (beneficial) treatment of CICs coupled with a general exclusion from the charity tax regime. Special social investment tax breaks are growing and it appears as if Treasury have got their head round the idea which is the key to bringing Whitehall with you. Obstacles to investment – like the dividend cap – are being removed and tax breaks to encourage investment in CICs (and other forms of social enterprise) are being introduced. These all help the growth and development of CICs. Despite this, CICs are not part of the tax regime for registered charity – and nor, in my view should they. receive the same tax advantages as charities. However I do think that one area where could be looked at is statutory business rate relief. I know of some instances where it is killing social businesses for them to have to pay full business rates. As they aren’t a registered charity they don’t qualify for mandatory relief and there’s precious little discretionary relief going around these days. I’d like to see CIC’s given the same rate relief as charities are – so long as the community interest test is robust and CICs are able to prove their social value to justify this.

On two separate occasions I recently found myself recommending the CIC model to social entrepreneurs I was working with, something I don’t think I would have done when they were first established. Both of these entrepreneurs were suspicious of the charity form and nervous of giving up control of their ‘babies’ to a board of trustees over which they had no direct control. They both wanted to be able to earn a living, though neither appeared to harbour aspirations of great personal wealth through their endeavours. They were keen to secure future investment in their social enterprises, and found the prospect of social investment attractive (compared with alternatives from venture capital or mainstream bank finance).

And yet they were both looking at private companies as the vehicle for their ventures for no other reason than it was known to them, simple to set up and had been recommended to them by people (who knew or cared very little about their social objectives). So, in that context I suppose a CIC is a better option – as it locks in community benefit rather than private benefit and enables at least the prospect of social investment. (I still have some reservations about that, but those debates are for another day).

Despite this I still believe that in most instances charities and limited companies are the appropriate model for most social ventures. And yet I must admit that I have come to recognise over the past 10 years that CICs have their place in the governance landscape of the social sector.


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