Social investment is part of the New Labour and Coalition Government response to austerity. 

Following the Chancellor’s 2014 Autumn Statement, the Institute for Fiscal Studies projects that there are still £55bn more public expenditure cuts to come.

So the Government is relying heavily on more private investment to deliver public services. By spinning out central and local government units to become so-called public service mutuals, and through stimulating and subsidising private social investment, the Government wants to shift delivery risks to private and third sector organisations, as in the Work Programme and Transforming Rehabilitation. 

In this way, the public purse funds only the marginal cost of one more unit of output, especially through payment by results or social impact bonds, leaving infrastructure and indirect costs borne by private and third sector providers through external and more private funding. 

New Labour started all this in April 2000, when Gordon Brown, as Chancellor of the Exchequer, set up the Social Investment Taskforce.

The April 2010 Final Report of Sir Ronald Cohen’s Taskforce, Social Investment Taskforce: Ten Years On, says: “If 5% of the £86.1bn estimated to be invested in ISAs (Individual Savings Accounts) were also directed to social investment, this would generate a flow of an additional £4.3bn. Taken together, these four sources – philanthropic foundations, institutionally managed assets, grant funding and individual savings accounts – could generate £14.2bn for social investment.”

The Coalition Government’s White Paper published in February 2011, Growing the Social Investment Market: A Vision and Strategy  simply echoes this (in chapter two): “UK charitable investment and endowment assets alone account for nearly £95bn. If just 5% of these assets, 0.5% of institutionally managed assets and 5% of retail investments in UK ISAs were attracted to Social Investment, that would unlock around £10bn of new finance capacity.”

The Hype and the Reality

The risk is getting away by the hype. The First Billion: A Forecast of Social Investment Demand, published in April 2012 by Boston Consulting Group and Big Society Capital, was breathtaking in its extravagance, stating: “Our study shows that demand for social investment could rise to £286m in 2012, and then to £750m in 2015, finally reaching around £1bn by 2016 if trends continue as forecast.”

Impact Investment: The Invisible Heart of the Market, the Report of the Social Investment TaskForce, on September 15 2014, once more chaired by Ronald Cohen, was even bolder. This report depicts a massive international commitment of resources for social investment promoted by the UK Presidency of the G8 Summit in June 2013. Page 18 even talks about "The first trillion of social impact investment".

But the harsh reality on the ground is shown in the first two annual reports of Big Society Capital, which demonstrate clearly the very slow growth of the social investment market.

Big Society Capital’s First Annual Report, published in May 2013, said: "By the end of 2012 we had committed £56m to 20 different intermediaries, £19m firmly committed and £37m subject to matching finance being raised.”

In May 2014 Big Society Capital’s Social Investment: From Ambition to Action: Annual Review, Report and Accounts 2013 said that “19 investments with a value of £47.9m have been signed and £13.1m has been drawn down”.

Even allowing for any qualifications of this meagre £13.1m drawing down from Big Society Capital in 2013, its disparity with projections above of the “first billion” and “first trillion” is alarming.

The Real Need and Demand

From its own research, in its Information Memorandum of September 2014, the Scottish Community Reinvestment Trust – a Senscot initiative – for social enterprises identified three main financing gaps: 

−    Unsecured loans
−    At the smaller end (£2,500 to £35,000) which most providers find uneconomic
−    At the £100-£100,000 level for investment in soft assets 

Social investment responds to none of these. Similar funding gaps were identified by several speakers and contributors during the Alternative Commission on Social Investment Social Enterprise Question Time in January. 

How much more research is needed? Big Lottery, ClearlySo and New Philanthropy Capital contributed to a massive survey of 7,000 voluntary, community and social enterprise organisations which led to the Investment Readiness in the UK Report in July 2012.

Page 32 shows that only 8% would consider social investment: “Three quarters felt that charitable money should be spent on delivery, not on repaying loans.”

Don’t those organisations read their own reports?

To sum up... 

The Cabinet Office keeps unveiling a steady stream of funding programmes to support social investment. Big Lottery has been persuaded to subsidise returns to investors up to 20%. The Chancellor is extending Social Investment Tax Relief. Others, led by UnLtd, keep pressing to widen even further the list of eligible organisations. All of this means that, especially in England, it is now almost impossible to know what a social enterprise really is. 

Would it not be better if all these funds were used to provide low cost loans, grants and other operating support for genuine social enterprises to meet their real needs? A start could be made by channelling some funds through an organisation such as the Big Society Trust. 

If more people knew how unclaimed bank accounts were being spent, they would be mighty angry.

Photo credit: Maurice