Government has high hopes in social finance (private finance that makes social as well as economic returns) to help preventative, innovative projects prove their potential. But will ‘Cinderella’ services go the social finance ball? Young Foundation analysis of the youth sector for the Catalyst Consortium reminds us that investment – even when it offers sub-commercial rates and returns – does not come about by magic.
Social finance promises youth services some financial breathing space. Whether through finance to start-up, scale-up or smooth cash-flow pressures, capital investment could help voluntary and community organisations adapt to tough economic times. Social finance offers freedom too to youth services frustrated by their dependency on restrictive project-based grants. But social finance also brings tougher financial discipline. Let’s not forget the tricky thing about an investment: a loan needs to be paid back, an equity stake paid out. Whether social or purely commercial, investors need to be confident they can make a return relative to the risk they take on.
Community and voluntary services are far from confident in their income streams. About 40 per cent of the total income for such services for young people comes from the government. Overall, local authorities’ Early Intervention Grant is a cut of 10 per cent in 2011/12 on predecessor grants. But now competing with the full range of services for children and families locally, those for young people are facing far larger cuts. With little security of public sector spending, private capital investment is high-risk.
Financial returns, even when they are lower than they would be purely commercially, will not come easily to the voluntary and community sector. Asking charities to shift from paying back nothing of their income, to paying back over 100 per cent of it is a big ask. Only seven per cent of voluntary and community youth sector organisations are confident they could pay off a loan at a rate of 7.5 per cent. Compared to the costs of dealing with youth offending or unemployment, youth programmes can be a bargain. But proving the difference and savings services make – and turning them into cash for the public sector – is hard.
Social finance could help charities and social enterprises to thrive, to transition away from a dependency on grants, and focus increasingly on their impact. But before that, they need some security that their services can survive. If they want to be in a better position to take on social finance, voluntary and community services for young people, and other groups, need to do three things.
First, services need to be able to tell a strong story about their impact and value. Robust evidence for the difference services make to young people’s lives, and the savings this brings for public agencies, would help both investors and commissioners with tough decisions about what services to cut. An Audit Commission review, however, found only 17 per cent of youth programmes surveyed collected data that would allow for any assessment of value for money.
Second, organisations need to work together better. The half a billion pounds going to the voluntary and community youth sector is widely dispersed: a quarter of organisations are turning over less than £100,000 a year, and a further 40 per cent are operating at under £1 million. The recent ‘merger’ of Fairbridge and The Prince’s Trust may be the start of a positive trend.
Thirdly, above all, the voluntary and community youth sector needs to rethink its business models. Social finance offers no escape from finding ways to pay for the day-to-day provision of good services with and for young people. However much money goes into Big Society Capital, it can only go out to voluntary and community services that are ready for investment. To take on social finance, Cinderella services need help to develop new networks, skills and ways to pay for their work. That means practical support and money, not magic.