Banking on the Big Society

| No responses | Posted by: Jack Graham, Jon Huggett | Theme: Social Innovation & Investment

This May the government endorsed a Big Society Bank to invest an unprecedented £260M in social enterprise. This looks pretty impressive against the £360M that Labour injected into social investment over 13 years. Big Society rhetoric promises better public services provided by social entrepreneurs, but the reality, sadly, seems to be privatisation to a handful of large companies. The competitive field for government contracts is sloping in favour of private firms and, in our view, the Big Society Bank will not help social enterprises play uphill.

Simply put, to be sustainable, social enterprises need revenue to cover their regular costs. To grow, they need investments of capital. The Big Society Bank – whilst containing the words ‘Big’, ‘Bank’ and ‘Society’ – will not be a bottomless slush fund for charities and social enterprises. Instead, it will offer capital (in the form of loans and the like) via intermediaries. It will not replace revenue from fees, donations, foundation grants or, most valuable of all, government contracts. As the eagle-eyed Guardian readers among us may have noticed, the government spending pie is shrinking, and social enterprises are getting a smaller slice than ever. For example, 16 out of 18 prime contractors of the Coalition’s Work Programme are commercial organisations; voluntary organisations are relegated to less profitable sub-contracts.

To attract mainstream social investment, social enterprises need a financially sustainable business – that is they need revenue that covers the cost of what they do. But without the chance to make money in a sustainable way, what good will a loan do?

The Big Society Bank will not fund the kind of intensive (and often non-financial) support that we know from our work is required to help social enterprises stop living hand-to-mouth and work towards the sustainability investors need.

One venture we’ve worked with and supported at the Young Foundation, Working Rite, pairs disadvantaged youngsters with tradesmen, mentoring and bringing them into work. Even though it had achieved better results – in terms of progress into employment – for youngsters from tough backgrounds than its larger, commercial competitors, it took support for Working Rite to develop a financially sustainable business model before it could attract capital to its apprenticeship-style work preparation programme.

Fearing that he would have to forfeit social impact for sustainability, it took time for Working Rite’s ex-trade unionist founder, Sandy Campbell, to begin pursuing new sources of revenue. By working with the Young Foundation over a period of months, Campbell made the hard changes to build a new, more sustainable model of generating income.

All entrepreneurs struggle to secure revenue to cover costs, but social entrepreneurs are facing a steeper uphill struggle in the fight for government contracts. Large contractors can afford systems to deal with the beast of bureaucracy and tick the reporting boxes. Social entrepreneurs often find “evidence-based” reporting to be anything but, or even Kafkaesque. Campbell often finds himself working harder for his government clients than for the young people he was originally driven to support.

Working Rite is by no means alone in requiring support to develop a sustainable business model. According to our NESTA-commissioned report, Growing Social Ventures, investors deem only 16% of the social enterprises that approach them as ‘investible’. The ethical bank, Triodos, had to close a large fund for social enterprises after just one investment due to a lack of quality applications and anecdotally other social investors often tell us “it’s the business model, stupid.”

Yet in the face of this, the Big Society Bank makes only a loose commitment to helping social enterprises become ready for investment. Ventures with the potential for real social impact – the kinds of ventures that can help people most vulnerable to cuts – will not have support to become competitive. The field will be left open for large, commercial contractors to dominate.

From on high the government claims that social enterprise is critical to the success of the big society, yet on the ground it feels quite a lot like soft privatisation. In the ever-tougher fight for government contacts, the government needs to level the playing field now. Shrewd social entrepreneurs like Sandy Campbell will continue to scrape and scramble to offer better services. We think more ventures like his should be given a fair shot at winning public revenue, become sustainable, and freeing themselves up to focus on their social impact.
The government must design intelligent commissioning processes and invest in the kind of support services that we know are critical to helping social enterprises fulfil their potential. Otherwise the bias towards large, commercial contractors – fitting a depressing agenda of ‘small society’ cuts – will deprive us all of a new generation of values-driven businesses.

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