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World’s first social investment bank launches at London Stock Exchange

4 April 2012
photo of David Cameron

‘For years the City has been associated with providing capital to help business expand... Today, this is about capital to help society expand.’

Prime Minister David Cameron

Venture capital pioneer Sir Ronald Cohen today called for a £1bn government funding pool and tax incentives for social investment – as he addressed the Prime Minister, the chair of the London Stock Exchange and national media representatives at the long-awaited launch of the world’s first social investment bank.

Big Society Capital was launched today by Prime Minster David Cameron, with £600m of capital – £400m from so-called dormant bank accounts and £200m from the Merlin agreement with high street banks.

The launch marked more than a decade of work by Sir Ronald and many others, harking back to recommendations by the former Social Investment Task Force that Sir Ronald chaired.

Mr Cameron said he was proud that the government was ‘actually delivering’ on its promises around social investment and the Big Society. ‘For years the City has been associated with providing capital to help business expand,’ he told the gathering at London’s Paternoster Square. ‘Today, this is about capital to help society expand.’

He added: ‘We have seen social enterprises and voluntary bodies are capable of delivering at scale... Big Society Capital is going to put the financial muscle behind them.’

Sir Ronald, who chairs Big Society Capital, paid tribute to the vision and commitment of the Prime Minister, the team at the Cabinet Office and many in the UK social business world who had campaigned to make the vision a reality.

He said his long term vision is was to see Big Society Capital catalyse around half a dozen ‘social venture funds’ with around £20m each that would back entrepreneurs with scalable social models and the ability to achieve scaleability but not necessarily a high rate of return. Existing examples included Big Issue Invest, Bridges Ventures and Venturesome.

He also hoped to see four or five £50m ‘social outcome funds’ that would invest in social impact bonds and other types of outcome – or ‘payment by results’ – securities, where social performance is correlated with the financial return.

But Sir Ronald also used the launch to push some new agendas around government investment, tax relief and also around how foundations use – or fail to maximise – their assets for social good.

He said a pool of £500m to £1bn should be deployed by government for its departments to invest in ‘payment by results’ type vehicles such as social investment bonds.

In addition, he said a new tax relief was needed that would give a ‘real incentive to invest’ in social finance.

He added that of the £100bn in assets that UK foundations were sitting on in stocks and shares, a relatively tiny amount found its way each year to delivering social objectives. Globally the money available was a huge amount more. ‘It’s obvious that some trustees of foundations are becoming anxious about the intractability of some social issues and are looking at new ways of dealing with them,’ he said. ‘They need to use their balance sheets.’

Addressing the comments on tax – echoed by others in the audience – Cabinet Office minister Nick Hurd said there was ‘an opportunity to work together to see whether we can build an argument’ for some kind of tax relief.

Hurd is already credited with getting the review of the tax regime around social investment into the recent Budget.

Below, you can see the film created for Big Society Capital’s launch by our sister company Matter&Co and film partners Be Inspired Films:

 

Some reactions from across the business and social sectors on the launch of Big Society Capital:

Daniela Barone Soares, CEO of Impetus Trust:

‘In a time of widespread disillusionment about the Big Society agenda, Big Society Capital is a fantastic example of the government working at its best – a long term programme to get more private money to charities and social enterprises. With the sector feeling the pinch of an unprecedented funding squeeze, the next stage is crucial: making charities, social enterprises, philanthropists, investors and foundations aware of what they have to do in order to benefit from the available funds.

‘The government could do much more to reduce the bureaucracy for smaller charities that bid to deliver public services. The Chancellor made a terrible mistake during the 2012 Budget by curbing crucial tax reliefs for donors. Our verdict, and the verdict of the charities we fund that work in some of the UK’s poorest communities is that the Big Society talk is fine in principle but the Government can and must do better.’

Peter Holbrook, CEO of Social Enterprise UK:

‘The setting up of the world’s first social investment bank is to be wholly applauded… The capital is likely to be in high demand as traditional pots of funding become more difficult to secure as a result of the economic downturn.

‘Time and time again, research tells us that access to finance is the dominant concern of social enterprises, frustrated because they cannot grow their businesses. That is why the review of the finance barriers hindering social enterprises needs to happen as soon as possible and be independently chaired to result in real change.’

Professor Cathy Pharoah, Cass Business School Centre for Charity Giving and Philanthropy:

‘Big Society Capital represents the most ambitious attempt so far to stimulate the growth of social enterprise… But BSC will face the same fundamental challenge as other top-down initiatives in the history of social investment, namely how to deal with the tensions between social and economic returns.

‘As a private sector body, all-be-it with a “locked-in” social mission, BSC has to maintain long-term sustainability, and although its role is only to support other finance intermediaries who will carry frontline risk, ultimately there will be a bias towards safe lending. BSC will attract investors who want market rates of return while doing some social good, and its funding will go to projects with good track records in attracting substantial contracts from government or funds from the Big Lottery. It will not be able to help small innovative social projects dealing with high needs and high risk clients or service areas where social returns may be high and economic returns low. Its main value may be less in stimulating a new form of investment or asset class, but as a lever for re-configuring mainstream public welfare provision through helping new providers enter the market.’

Mark Lyonette, CEO of ABCUL:

‘Although Big Society Capital has an ambitious programme which will be difficult to achieve, if it is able to meet its objectives it will have a significant, positive impact on the development of credit unions and other social enterprise sectors.’

Alastair Davis, CEO of Social Investment Scotland:

‘Scotland's third sector plays a significant role in Scotland's economy, contributing more than £4.4bn a year, and should benefit greatly from the funding available through Big Society Capital. However, as with any new initiative, the devil is in the detail, and we now need to see the terms and conditions of this funding including the lending criteria, application process and turnaround times for distribution of funds.’

Unite union national officer Sally Kosky:

'The £600m funding Big Society Capital - much of it coming from dormant bank accounts - is a drop in the ocean when starkly set against the £4.5bn that the not-for-profit sector will lose during the life of this parliament.

‘The Prime Minister is being disingenuous, as this money can only be “lent”, if there is a case made that a profit can be generated. So while the “bank” is welcome, it ought to be additional to funding streams – and not a paltry replacement.

‘This latest move by David Cameron to breathe life into the exhausted corpse of his Big Society idea is motivated by right-wing ideology, and not a genuine commitment to the long-term financial needs of the not-for-profit sector.’

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