Apr 23
Big Society Capital – playing the long game
I still have a paper written in 1999 by Iain Tuckett from Coin Street Community Builders, where he argued for a £500m national investment vehicle for community enterprise.
“The national intermediary would not itself become involved in small-scale loans but would lend on to regional and local intermediaries,” wrote Iain. “These more local intermediaries would also specialise in the third sector and thereby tailor their products more closely to that particular market in their locality.”
Well, it took thirteen years, but finally Big Society Capital was launched earlier this month. In many respects, yes, it does represent the fulfillment of Iain’s vision. Big Society Capital will have £600m, of which £400m will come from dormant accounts and the remainder will be commercial bank finance. It will lend money to intermediaries, such as the Social Investment Business or the Key Fund in Yorkshire, which will then be able to make investments in front-line organisations, including we hope the members of Locality.
This could be a big opportunity to capitalise our sector, and drive forward growth. But, in practice, will it really live up to expectations? I have some questions:
Will the finance help or hinder small or medium community-based organisations? There is little doubt that high levels of debt, with punitive interest rates, would be a disaster for our movement, operating as it does in marginal economies. The learning of the last decade is that individualised and responsible funding packages, combining loan and grant and equity-style finance, are much more likely to nurture resilient and high impact organisations.
Will there be enough support to help organisations travel the journey, to reach the point where they have capability to use new types of finance? £10m has been made available for an Investment and Contract Readiness Fund so that’s a good start, but only a small start. The need is probably ten times greater, and must not be focused solely on the big players.
Will this new finance reduce or increase dependency on the State? The intention is that a great deal of Big Society Capital investment will be for organisations wanting to play a bigger role in public service delivery. But given the hugely uncertain state of public sector procurement, especially at a time of spending cuts, that’s an investment proposition fraught with risk.
Finally, will this finance end up distorting the very nature of social enterprise? Certainly, if Big Society Capital seeks too high a rate of return to appease its private backers, it will struggle to generate sufficient deal-flow. The temptation then will be to direct the funds towards for-private-profit enterprises, and justify this mission-drift by asserting these are ‘social businesses’ because, for example, they operate in deprived areas.
This last concern is perhaps the biggest risk it seems to me – a subtle, or not so subtle, erosion of our values and vision.
I am pleased that David Robinson from Locality member Community Links was appointed to sit on the oversight body Big Society Trust, and that Hugh Rolo, Director of Innovation at Locality, was also appointed to serve on the Advisory Board. They are, it seems to me, the guardians of the flame first ignited by Iain Tuckett all those years ago.
It has taken far too long to get to this point, and it feels that this is still just the beginning, but that just goes to show, that as well as tackling the immediate challenges (and goodness knows there are plenty of those for our movement), sometimes we also need to play the long game.
12 comments
Mitra Hedman
Posted 23/04/12 at 8:52 am | Permalink
I wonder if Big Society is going to be Big help for latent homelessness in the UK..
Nigel Farren
Posted 23/04/12 at 9:42 am | Permalink
Community organisations need equity investors more than loans.
Will Big Society Capital and/or the intermediaries take equity stakes?
Yvonne Deane
Posted 23/04/12 at 10:00 am | Permalink
Steve Wyler’s blog post is excellent. I share his concern that so much of this new style ‘funding’ is pushing community organisations towards delivery of public sector contracts at a time when the market is contracting. It privileges larger organisations and includes minimal capacity building for smaller ones.
Alan Wallace
Posted 23/04/12 at 11:13 am | Permalink
Existing social investors have in some instances behaved no better than their more commercial joint investors. Will this mark a change?
We could do with one or two model “applications” now with an explanation of how we want to see the Bank repsond. If someone is prepared to put their head above the parpapet we might build a profile of the initiative that we want to see supported.
The profile could: point to a mix of debt and equity; urge imaginative early stage repayment arrangements for the debt element; renew the case for Social Return so that its successful achievement displaces some of the financial repayment.
No doubt these matters are part of the case being made by Locality and others, – should we not see real movement on them, what then?
If what emerges as Big Society Capital’s direction of travel is not in the A to A* range in how it responds to Steve’s questions, then I rely on Steve, Andrew and Hugh to say so loud and clear, and if it is only in the B- or below category, to walk away.
Ben McCall
Posted 23/04/12 at 11:58 am | Permalink
Unfortunately Steve’s post is only excellent if you agree with the Big Society and its (gross oversimplification, but in summary) attack on the welfare state. Locality and has made a strategic error in becoming so associated with BS, as have the members who are delivering elements of it. As a movement, we have not been critical enough of terms like “dependent” now or as they emerged over the past ten years.
We are the state. Of course it needs reclaiming and certainly criticising when it is inadequate and paternalist, like most development trusts do directly or indirectly in their work. But the answer is not to throw our hand in with the people who justify inequality as the inevitable bi-product of a dynamic market.
Surely Locality leaders and members realise that it will take more than minor policy tweaks to change larger organisations’ privelige, or other forms of privelige for that matter?
Trusts and settlements have shown that we can achieve real and positive change for our communities, rather than moaning on the sidelines. That does not mean we should become short term pragmatists, but retain a more profound critique of ‘the system’ and root all that we do to our long term aims.
While we are distracted by minor policies, the next iceberg of ‘naked credit default swaps’ – and other variations on the ‘complex financial instruments’ that destroyed New Labour’s “end of boom and bust” delusion – is looming under the water.
We can do something to prepare for this with our communities who will suffer most; but it is not helping to peddle the “we’re all in it together, we just have to tighten our belts and be a bit more competitive” guff that insults our intelligence, let alone our experience.
If our movement is anything it is practical. We now need to work with our partners such as NEF on a long term strategy (eg. The Great Transition) and base our short and medium term objectives on contributing to that.
Bill Clarke
Posted 23/04/12 at 12:30 pm | Permalink
In my opinion this funding will only be taken up, and probably can only be taken up by larger, already established organisations. What is needed is a growing of smaller groups that are responsive to local issues, probably new, and without the capacity to take on the responsibilities of Government loans.
Many causes that need support can not be seen as financially sustainable so would not attract this funding.
The voluntary sector already must make it’s services match government (local and national) agendas before those lucrative contacts are awarded. This type of funding concerns me because it appears that the the future thrust of the voluntary sector will be to become business that generate income from its service users.
David Floyd
Posted 23/04/12 at 12:43 pm | Permalink
I think all these questions are important ones. I think if they were answered in the way Steve suggests – not focusing on commercial level returns but on making money work harder than under traditional grant arrangements – then Big Society Capital could have a very postive impact.
Unfortunately, the rhetoric so far seems to be about marginally lower than commercial returns on investment, over a slightly longer timeframe than the market would usually expect.
I don’t think there is – or is likely to be – enough genuine social ventures that will be able to take money and pay it back on that basis. And I agree with Steve about the big risk that flows from that.
Alan Wallace
Posted 23/04/12 at 12:46 pm | Permalink
I agree with much of what you say Ben, but I dont see Locality as having signed up to Big Society Bank (I dont know about the BS programme in general). In Steve’s blog, Locality has challenged the Bank to go forward in the right way. This means that Steve and Hugh and Andrew now face a challenge to “keep the faith”.
We need finance in the sector (as well as the energy, inventiveness, grit and hard work of committed locally accountable people who need to control that finance ). So when government comes out with something like this (BSBank) then let’s tell them how we want it to work – or walk away.
To the work of partners like NEF with whom you want Locality to work Ben, let’s add the work of Tim Jackson and Peter Victor in the search for how to make a no-growth model function, alongside communtiy ownership and control.
This (BS Bank) might not be the right bathwater, but we need to see what kind they come out with; if it’s not what we want, then I hope Steve and Hugh and Andrew hang on to the baby – which is the needed patient, mixed, accessible, asset-transfer-supporting,
equity taking, social and environmental return-accepting finance that the sector still needs.
alan wallace
Posted 23/04/12 at 12:49 pm | Permalink
At the end of the second paragraph in my last post I meant to write:
– or, if we dont get that, walk away.
Warren Escadale
Posted 23/04/12 at 12:59 pm | Permalink
A good post that highlights key issues. I’d like to highlight one more if I can.
To date the sector has mostly used mortgage loan finance and I can’t see other investment risks being worthwhile (as you rightly note: investment in public service delivery capacity is “an investment proposition fraught with risk”).
So the question for me is , to what extent will the Community Right to Bid (for assets of community value) alongside a nationally available loan fund undermine local public sector asset transfer activity?
I expect locality members are in an extremely good position to assess whether or not this is happening. Or is it too late already?
Hugh Rolo
Posted 23/04/12 at 3:01 pm | Permalink
Not sure if I can deal with all the wide range of comments above -Locality and BiG Society is perhaps part of a wider debate about engagement or non engagement –I believe we need to continue to engage in order influence policy and try to come up with workable solutions.
We continue to campaign on other issues, Community allowance, Just finance, around the bigger picture and perhaps can claim some contributory success around the Social value Act and the Localism Act. Too early to tell quite what opportunities will flow from the localism
Act but at least we have some clear avenues to engage around rights to challenge, bid and build.
BSC is but one piece of the jigsaw where as we know other pieces are missing, available when needed, hijacked by other players, or belong to a different puzzle–Locality members all over the country are coming up with creative solutions to work with what we have got.
I think its worth a look at initial range of BSC investments http://www.bigsocietycapital.com/how-we-invest/5/supporting-responsible-businesses/ to get an understanding of the broad range of investments they are considering–note also the investment partners helping to put together a cocktail of funding.
I agree with Alan that getting the right mix of equity and debt is always going to be important and I believe BSC will provide good long term finance to the SIFIs under some kind of quasi equity provision which should enable them to offer similar terms to social and community enterprises.
More dependent on the State? Or the State more dependent on social enterprise to deliver? It seems to me that most Locality members are operating deprived communities where the economy is substantially public sector –the opportunity, unpalateable as it may be, is to find cheaper ways of delivering better quality services and as the cuts continue to bite especially in local government co-production/co-design of service delivery must be one of the options. Aligning social finance to well thought out outcomes based service delivery seems like the best opportunity right now.
There is an implicit drive to scale in some of the thinking behind social investment which if it relates to scale of long term ambition I have no problem with–if it muddles supposed “economies of scale”, Prime Contractors, ease of administration with quality outcomes then I am dead against. For the very small organisations social finance may never be appropriate–working out the appropriate size of the next step is always the issue for any ambitious organisation
Alastair Ballantyne
Posted 24/04/12 at 4:26 pm | Permalink
Responding from the perspective for Big Society Capital, I would like to say Steve makes some excellent points. We are attentive to the concerns raised and, as you point out, we do have ongoing engagement with Locality to understand your views and concerns.
Firstly, I would reiterate Steve’s point that the idea for a Social Investment Bank dates from the turn of the millennium and is an idea that was promoted by the Labour Government who introduced the necessary legislation in 2008 with cross party support. Regardless of your views of the Big Society policy in general, BSC has a mission to develop additional funding for organisations with a social mission.
We agree that investment readiness is a key issue. However, BSC is precluded by statute from providing grants and is not able to fund front line organisations directly. What we do hope to do is, as part of our market championing role, to encourage major grant providers including Foundations to support social entreprise investment initiatives by giving them confidence that subsequent later stage financing will be available to grow organisations.
We also see the state as a big purchaser of social value and so helping social enterprises to do more in public service markets is an important part of our role.
Finally, BSC has to be sustainable. It is one of our fundamental operating principles. The organisation needs to demonstrate that social investment is viable and encourage others to invest alongside it to achieve social as well as financial return. BSC is constrained by statute to only invest in organisations with a primary social purpose and its governance, particulalrly the Big Society Trust board, will hold BSC to its social mission.
We look forward to engaging with you and listening and responding to your concerns as the social investment market develops in the future.