*UPDATE* Here’s the Written Ministerial Statement on the Big Society Bank – 21st March 2011
WRITTEN MINISTERIAL STATEMENT CABINET OFFICE
21 March 2010
Minister for Civil Society:
Big Society Bank
Nick Hurd:On 14 February, the Minister for the Cabinet Office and I published a strategy to grow thesocial investment market, giving charities and social enterprises access to new capital tohelp them to increase their impact. The strategy explained the central role of the BigSociety Bank as a cornerstone of the market, acting as both a champion and wholesaleprovider of capital.
In February we also announced that we would work with leading social investment expertsto develop a proposal for the establishment of the Big Society Bank as an independentprivate sector organisation. Since then, we have been engaging with the social investmentsector, and we are pleased with the ideas coming forward. Today I would like to updatethe House on the next steps.
As we announced in February, Sir Ronald Cohen, former chair of the Social InvestmentTaskforce, and Nick O’Donohoe, former Global Head of Research at JP Morgan, aretaking the lead on developing a proposal for a Big Society Bank. They are engaging withthe sector, and we expect that they will present their proposal to Government within thenext few weeks. At that point, we expect to make an in-principle decision about whetherthe organisation they are proposing to establish could be the recipient of unclaimed assetsfrom dormant accounts, subject to further development work and state aid approval. If thedecision is made to go ahead, detailed set-up work for the Big Society Bank would then beable to commence, including recruitment of its Chair and Board.
By making this statement today we want to ensure that everyone has the opportunity tofeed in comments on the development of the proposal, or on our approach more generally.Separately, we are currently working to secure the State Aid approvals from the EuropeanCommission that would be needed in order to capitalise an independent Big Society Bankwith money from dormant accounts and to provide it with the flexibility it needs to grow themarket. We are also working with the Big Lottery Fund on interim arrangements that willenable investments to be made as soon as dormant accounts money becomes available inthe summer, using existing state aid exemptions. We will make further announcements indue course.
Social impact bonds were created by the social entrepreneur Ronald Cohen, whose social equity firm Social Finance created the first £5 million bond in the context of re-settling ex-prison offenders. Should the scheme be successful and crime by ex-offenders reduced, they will receive a pay-out of the savings made by the government on policing, prison costs, welfare, and so on; should it fail, then these private investors carry the risk. Such ideas are excellent, and developing a social investment market that enables them to be more widely used is a laudable aim.
It is with such examples in mind that the Government published ‘Growing the Social Investment Market’ – an outline of exciting visions and strategies intended to drive forward the Big Society: empowering organisations beyond the state to take social action. The papers focus is on social ventures, bodies that work to tackle social issues and, crucially, generate revenue in doing so, enabling them to be financially self-sustaining.
The role of social ventures is radically expanding in British society in a way that encourages a capacity for financial self-sufficiency. To achieve this, it needs to be easier for these organisations to access the capital and advice they need.
Government initiatives to open up public services should drive demand for social ventures. The government commitment to create incentives for prime contractors to invest in their sub-contractors is cited in the strategy. However, the most important role will be played by the ‘Big Society Bank’.
Drawing on a 2009 consultation on the creation of a ‘Social Investment Wholesale Bank’, the Big Society Bank will have a “clear social mission” to catalyse the development of a sustainable social investment market.
The Bank will play two key roles in pursuit of its social mission. Firstly, it will work as a wholesale investor, retaining flexibility and so able to act as a co-investor, an underwriter or as a guarantor. It will not invest directly in individual frontline social ventures or take deposits – as this would place it in direct competition with other social venture intermediaries – but will rather invest in products developed by social venture intermediaries, such as social impact bonds (like those created by Ronald Cohen) and social ISAs, as well as perhaps aiding investment readiness work or providing working capital.
It could also provide funds to build market infrastructure, aiding the development of better measures of social return and the introduction of social risk ratings. It could work to provide a web portal or gateway to help social ventures connect with the right sources of finance and support. Some of these functions spill over into the second key role the strategy assigns to the Big Society Bank, as “a champion for the social investment market”.
This role could also encompass advising the government on opportunities to open public services to social ventures and on incentives for investors, as well as itself keeping abreast of government policy and sharing knowledge, expertise and best practise.
Although the paper gives very few concrete commitments to these actions, there is no doubt that a vibrant social investment market would be of great benefit to the voluntary and social enterprise sector, and to society more widely.
This post is based on a LGiU members briefing (£) written by Toby Hill.