Budget 2024: UK Government will create social impact investment vehicle to deliver its missions

The UK government has committed to create a new social impact investment vehicle to “mobilise private investment to deliver positive social impacts” in its 2024 budget, unveiled yesterday by the chancellor Rachel Reeves.

“The government is announcing that work will begin to develop a social impact investment vehicle, led by the chief secretary to the treasury, working with DCMS [Department for Culture, Media and Sport], to support the government to deliver its missions,” the budget document reveals. 

“This will bring together socially motivated investors, the voluntary sector and government to tackle complex social problems.”

The announcement was welcomed by the impact investing community. Robin Hindle Fisher, chair of social investment wholesaler Better Society Capital, said: “This announcement is a hugely significant one. We have seen through the growth of the social investment market the value that impact-aligned capital can provide to tackling complex social problems.”

• Read more: UK social impact investments reach £10bn in 2023 but growth slows – Better Society Capital

No money has been committed so far and further details are to be announced in the spring spending review. The vehicle will be “designed and developed through engagement with the sector”, according to the budget.

A fund of this kind could play a crucial role in delivering the government’s five missions and creating growth in all areas of the country

Seb Elsworth, CEO of social investor Access, the Foundation for Social Investment, said the news was “significant and hugely welcome”. 

He added: “While details are yet to emerge, a fund of this kind could play a crucial role in delivering the [government’s] five missions and creating growth in all areas of the country and we look forward to learning more about how this vehicle will operate.”

The Labour government defines its five missions as ​​driving economic growth, developing clean energy, reducing crime, improving the education system and saving the health service.

The announcement follows a recent roundtable on impact investing between ministers, impact investors and sector representatives hosted by the chief secretary to the Treasury Darren Jones, which already suggested the Labour government was considering impact investing to help fund its pledges.

Sarah Teacher, co-CEO of the Impact Investing Institute (pictured), said this year’s budget was “a significant advancement in recognising the essential role of impact investors as partners with the government to achieve mission-driven objectives”.

She added: “The proposed social impact investment vehicle highlights the government’s dedication to leveraging the UK’s £77bn market for the benefit of communities across the nation.”

• Read more: UK impact investments reach £77bn at the end of 2023, Impact Investing Institute reveals

Bonnie Chiu, co-founder of the Pathway Fund, an impact investment wholesaler dedicated to catalysing opportunities for Black and Ethnically Minoritised communities across the UK, said the organisation was pleased to see the government recognising the “power and potential of social impact investment”. 

She added: “If we bring together socially motivated investors, as this vehicle will – whilst ensuring that it focuses on delivering social investment to the most deprived and underrepresented communities – then material inclusive growth will be delivered for the social enterprises that Pathway Fund’s working to catalyse, over the long term.”

Immediate needs, rising costs

But the picture is more nuanced when considering the immediate prospects the UK social impact sector is facing – especially as the chancellor announced a rise in employers’ national insurance contributions and minimum wage, which could badly hit social enterprises already operating on a tight budget.  

Nick Temple, CEO of social investor Social Investment Business, said: “At Social Investment Business, we are pleased to see the recognition and commitment to social investment in the Budget, including from Treasury. We look forward to informing what new vehicles and approaches might emerge.

“However, we know the more immediate financial effects for the charities and social enterprises we support will be from the rise in employers’ national insurance, the rise in minimum wage (however welcome), and from how local government settlements play out.”

Representatives of social enterprises – which are not specifically mentioned in the budget – are calling on the government to take steps to prevent such measures from negatively affecting them.

“While we strongly support employees being paid well, we also appreciate that paying a real living wage, as well as rises in employer national insurance contributions, must be recognised,” Chris Martin, CEO of Social Enterprise Scotland (pictured), said. 

“This should always mean appropriate, matched increases in funding for social enterprises delivering public sector contracts and public services.”

Dean Hochlaf, head of policy at Social Enterprise UK, echoed this message: “The increase in employer national insurance contributions risks placing a greater burden on social enterprises that deliver vital public services and those creating employment opportunities, often for those furthest from the labour market. 

“It is important, for example, that public sector bodies are able to offer a fair funding settlement so they can meet these higher costs.”

Invest, invest, invest

Hochlaf said the budget “delivered a decisive shift to higher levels of public investment”. 

In her speech to parliament yesterday, chancellor Rachel Reeves said investment was the only way to build an “economy that is growing, creating wealth and opportunity for all”.

The concern for the impact sector is to make sure new public investment reaches areas that need it most. Hochlaf said: “The question now is how this additional spending can deliver fairer, greener outcomes and build inclusive growth. Mission-led businesses that are driven by more than profit and create wealth for the common good must be central to this.”

Some are reassured to see money already flowing towards their priorities: Power to Change, a “think-do tank” that supports community businesses, welcomed the confirmation of a promised £1bn in “levelling up” funding to be allocated to revitalising high-streets – a lifeline for community businesses. 

• Read more: Levelling Up: A missed opportunity to reform capitalism, say UK social enterprise leaders

Power to Change CEO Tim Davies-Pugh said:  “Honouring the commitments made to communities is the right choice for government to make – one we commend them for making in difficult circumstances. People who live in the areas promised funding will be greatly relieved that the government is keeping to the commitments made to these places.”

The question now is how this additional spending can deliver fairer, greener outcomes and build inclusive growth

When it comes to private investment, the chancellor highlighted the “National Wealth Fund”, an investment vehicle dedicated to catalysing private funding into clean energy and some industrial sectors. Dubbed the “UK’s impact investor” by the government, the fund aims to mobilise £70bn in private finance to fund “impactful projects that would not have happened otherwise, and unlocking growth opportunities across the UK”, but does not specify this needs to have measurable social or environmental impact (usually required for a fund to meet the “impact investor” definition).

But the focus in green energy could be an opportunity for mission-driven organisations, according to Unity Trust Bank’s chief impact officer Joshua Meek: “There is great potential for organisations and communities to benefit as we green the UK energy system and this should include lessons from the successes from the UK’s leading social impact investing sector.”

Header image: Chancellor Rachel Reeves delivers the Autumn Budget 2024. Picture by Lauren Hurley / DESNZ

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