Message from Steve Wyler

Message from Steve Wyler
Locality
13.05.13

Dear All,

Last Thursday I attended an event organised by Big Society Capital to celebrate its first year of operation. The event was packed with City investors, social lenders, and journalists.

As Nick Hurd and other speakers pointed out, the UK is seen internationally as a social investment pioneer, with countries all over the world eager to learn from experience here.

The scale of ambition was much in evidence. Sir Ronnie Cohen, Big Society Capital’s outgoing chair, described the social sector as a ‘powerful engine with its pieces lying about on the floor’. He believes that Big Society Capital’s task is to bring the pieces together and build that engine, by drawing massive private investment into the social sector, building a market in the gap created by declining state resources and the limitations of the purely for-profit sector, and ultimately ‘generating innovative, more effective approaches to tackling persistent social issues’.

Drawing on funds from dormant bank accounts, Big Society Capital has so far invested £56m in twenty intermediaries, allowing them to make investments in front-line social projects. In some cases Locality members have already been able to access this finance; for example the Southmead Development Trust in Bristol has received funds to install solar panels on its Greenway Centre.

This is how Alex Kittow from the Trust sees it: ‘Installing solar panels has enabled us to reduce our operating costs and generate some much needed income so that our services remain affordable for the local community. The loan [via social lender PURE] is at an affordable interest rate and spread over a time period to suit our needs, which ensures we can meet repayments and benefit immediately from feed-in-tariffs savings.’

So, a promising start, and Locality is currently advising Big Society Capital on ways to establish a dedicated fund for community asset ownership.

But, as even the most enthusiastic advocates of Big Society Capital concede, there are immense challenges ahead. Low-margin investment returns may make it difficult to attract new sources of finance from the pension funds and other big City investors, or even from endowed charities. The absence of grant funding in the Big Society Capital offer, and the marginal economies in which most social enterprises operate, especially those working in the most deprived neighbourhoods, mean that even where there is demonstrably high social impact and long term business viability, many excellent community enterprises may be left out in the cold.

Therefore my biggest worry is that investment in businesses like the Southmead Development Trust – which I see at the very least as the starting motor, if not the dynamo, of Ronnie Cohen’s powerful engine – will prove the exception rather than the rule.

A not-so-subtle process of redefinition is underway, with Big Society Capital and others inventing a whole new language: ‘social sector organisations’, ‘social impact investment’, ‘social venture intermediaries’, all intended to normalise for-private-profit encroachment in this space, and I fear this is where the big money will flow.

The Ministry of Justice has confirmed that privatisation of much of the probation service will proceed with just 21 contracts on offer: each likely to be a value of £30m a year or upwards, for ten years. I challenged Nick Hurd about this at the Big Society Capital event, not least because there was much talk about the new probation services becoming a growth market for the social sector. I told the Minister that I believed the contract size was ‘a mistake of gigantic proportions’, totally out of reach of the social sector.

It seems incoherent, to say the least, that on the one hand government creates investment vehicles like Big Society Capital to boost the role of social enterprises, but on the other, creates a virtual monopoly where only a handful of giant corporates can take on the starring roles, and those who can best deliver the lines are relegated to the supporting cast.

To his credit, Nick Hurd has fought a valiant rearguard action with the Ministry of Justice, in an effort to safeguard the position of charities and social enterprises in the prime-contracting supply chain.

That’s something, certainly, but it’s really not good enough. It doesn’t allow social entrepreneurs, whether in Locality’s membership or elsewhere, to become the driving force, the agents of change, and it certainly doesn’t fit well with Sir Ronnie’s vision of a ‘powerful engine’, operating in communities across the whole country, producing new solutions to the persistent problems we face.

Too many pieces are still lying about on the floor.

If you’d like to leave a comment on any of the above, please visit my blog on the Locality website.

Hope your week works out well.

Steve Wyler
Chief Executive, Locality