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  1. Wealth
August 4, 2016

Can the Big Society solve the ‘black hole’ of charity spending?

By John Underwood

With the gap between rich and poor widening, social investment feels like a new take on patronage, through the lens of the free market, but who really benefits? John Underwood investigates.

‘What we’ve begun here will spread right across the country, covering it in innovation, local inspiration and civic action.’ Launching the Big Society just weeks after the 2010 general election, David Cameron seemed almost too excited to describe his pet project; a revolution in social solidarity bound to transform Britain forever. ‘When people look back at this in five or ten years’ time, they will say: In Britain… they did something really exciting in their society.’

Looking back something between five and ten years later, precious few vestiges of the Big Society still remain. The term itself has not been used by the government in two and a half years, whilst the public spending cuts that accompanied the programme – cuts which were initially billed as reversible, but later revealed to be permanent – led Ed Miliband (another largely forgotten concept from 2010) to call the Big Society ‘a cloak for the small state’. And the less said about the Big Society Network, the charity that swallowed £3 million in public funds and was investigated for their misuse, the better. In 2016, the casual observer could be forgiven for thinking that the Big Society, and every edifice bearing its name, had quietly died a death.

However, there is one sector in which the Big Society brand has remained steadfast. The UK’s social investment market is now worth in excess of one and a half billion pounds, with thousands of charities and social enterprises benefiting from repayable finance that does good as well as turning a profit. With the gap between rich and poor ever-widening, social investment feels irresistibly like a new take on the venerable tradition of patronage, filtered through the lens of the free market; the haves donate, the have-nots benefit and then the haves get their money back, ripe for reinvestment.

For those who know where to look, there’s no shortage of opportunities for socially conscious speculation. Big Issue Invest, the investment arm of the well-established street newspaper and one of the most well-established entities in the sector, has been operating for more than ten years and makes investments of up to three million pounds at a time. 

At the other end of the scale, crowdfunded initiatives such as Lend With Care allow individuals to loan as little as a few pounds to individual applicants in the developing world. Sample entrepreneurs on its website include a Malawian welder, a seamstress from Pakistan and a Cambodian couple who want to expand their fishpond; each needs just a few hundred pounds, which is incrementally amassed on the website and then lent through a local microfinance institution. In the global village, the idea of a big society can reach far further than our own borders.

But where does the Big Society name itself come in? As it turns out, right at the top. Big Society Capital (BSC) is the last man standing, defying its apparently ill-fated name to make a marked impact in the social investment market. With a £200m investment from the four Merlin banks and an astonishing £400m gleaned from dormant bank accounts, the ‘social investment wholesaler’ has contributed to roughly a dozen charities and social enterprises a year since its launch in 2012, acting through intermediaries to support the growth of the sector as well as the work of individual organisations.

Formerly known as the Big Society Bank, BSC actually has its origins in Gordon Brown’s Social Investment Task Force, established in 2000, and the plans for a social investment bank developed by New Labour over the course of the ensuing decade. The 2010 election arrived at a perfect time for the project, which had already received cross-party support, to be gathered into the Big Society family.

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Perhaps to keep it materially linked to other players in the social investment market, Big Society Capital is unable to invest on its own; any cash contributed from its funds must be matched by coinvestment from philanthropists, foundations or ordinary investment vehicles. Evita Zanuso, BSC’s Financial Relationships Manager, is focused on encouraging traditional investors and fund managers to enter the social investment space.

‘We only want to invest where… we think we can develop the market,’ explains Zanuso. ‘If there is a social investment opportunity that has lots of people wanting to invest in it… then we probably wouldn’t invest. We would only invest if they’re struggling to get additional investment, or where having Big Society Capital as an investor would help them leverage another investor.’ BSC also provides practical support across the sector, helping charities with the practicalities of social investment and acting as a ‘market champion’ on both sides of the field.

Big Society Capital hasn’t had a trouble-free four years, with the most frequent criticism of its business model being that it encourages charities to take on loans (and, therefore, commit to repayments) rather than survive on donations. Speaking to the Public Administration Select Committee in 2011, Sir Thomas Hughes-Hallett, then chief executive of Marie Curie Cancer Care, said that ‘what nearly brought the banking system down was inappropriate lending, but we are now potentially setting up a system to encourage the most vulnerable charities to borrow money.’

With thousands of charities competing for their share of the public purse as well as individual donations, Zanuso sees BSC’s work as a practical alternative that lessens the pressure on the finite funds available to the third sector. ‘Anything that could have a trading model; if they take on social investment rather than take on grants, then that frees up more grant money and donation money… You can have charity shops, but there are things like natural disasters that don’t have a trading model.’ It’s hard to argue; short of building waterwheels on the Somerset Levels and selling power back to the National Grid, some worthy causes will inevitably remain money pits.

The Big Society was much vaunted as the answer to the black hole of charity spending – the free market to the rescue – but Zanuso won’t countenance the suggestion that BSC’s work can replace the traditional income streams of non-revenue-generating charities. ‘I don’t think social investment is a direct replacement for grant funding at all. Social investment is great for organisations that do have a trading arm… but by no means does it replace donations and grants. I know there’s a lot of discussion about cuts and how social investment is a great way of replacing that, but I actually think that’s incorrect – it shouldn’t replace grants and donations, it’s something that they should work in conjunction with.’

Taking on a loan is inherently a higher-risk activity than simply accepting funding from a patron, but it also opens up access to much more capital than many social enterprises will realistically be able to access through fundraising. For those charities with a promising revenue stream but limited resources, it’s easy to see why the risk can be worthwhile. And if investors are prepared (as they increasingly seem to be) to forsake the very highest returns in exchange for a much greater social return on their investment, our interconnected society can only get better – and bigger – as a result. If only there was a snappy name for an idea like that…

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