Big Society Bank one step closer as government endorses outline proposals
On 9 May the Big Society Bank took a significant step as Francis Maude, Minister for the Cabinet Office,endorsed outline proposals for its development by Independent Advisors Sir Ronald Cohen and Nick O’Donohoe. He also announced the formation of an Investment Committee comprising six experts in social and financial investment to “provide support to social investment organisations enabling them to increase their capability”. The Committee members are:
- John Kingston OBE, Director of CAF Venturesome and Chair of the Investment Committee
- Anna Southall, Big Lottery Fund
- Nat Sloane, Chair of Big Lottery Fund’s England Committee, or his nominee
- Dawn Austwick, Chief Executive of Esmée Fairbairn Foundation
- Sir Ronald Cohen, Independent Adviser on the Big Society Bank
- Nick O’Donohoe, Independent Adviser on the Big Society Bank.
The suggested structure of the Bank also includes a charitable foundation whose purpose would be “to receive charitable donations aimed at supporting the [Bank]’s mission, for example, by way of grants to venture philanthropy organisations whose purpose is to increase the investment readiness of strategic social organisations”. The foundation would receive donations from third parties as well as any profits the Bank decided to donate, but it would not provide grants alongside Bank investments.
Sir Ronald Cohen, who was instrumental in the formation of the Bank, said: “Over the last 10 years very significant progress has been made in the development of social investment in the UK…The Big Society Bank is the first organisation of its kind in the world. We believe it will revolutionise the way that the social entrepreneurs and the social sector are funded in the UK.”
The proposals follow the publication by the Cabinet Officein February of Growing the Social Investment Market: A vision and strategy. This document sets out the government’s vision of “a thriving social investment market where social ventures can access the capital they need to grow, allowing them to do more to help build a bigger, stronger society”. It outlines a strategy for achieving the vision, explaining how government, philanthropists and others can act. It says philanthropists can help by seeing social investment as a “core proposition in their portfolios and not just as a marginal product”, according to the document.
“High net worth individuals are early targets to encourage social investment,” says a Cabinet Office spokesperson. “We hope they will also play a part in creating new financial products.”
The Big Society Bank will act as a wholesale investor and champion of the market. It will be capitalised by an injection of £200m over two years from the largest UK banks, beginning this year but ‘on commercial terms’ – these are still under discussion.
The Bank will also receive all money available for spending in England from dormant accounts. It is estimated that the first year’s release in 2011 will be in the region of £60–£100m, with the total value of dormant accounts being around £400m. However, there has been criticism that the Bank’s remit to be “financially self-sustainable from the outset and operating on a commercial basis” threatens to run contrary to its mission of ensuring charities and social enterprises have access to affordable capital.
Speaking in the House of Commons at the end of April, Cabinet Office Minister Oliver Letwin said the Bank would not expect the commercial returns of a hedge fund, but would require a high social return on its investments together with “reasonable” financial returns.
The Bank hopes to be able to make the first investments using dormant account money from mid-2011. These will be administered by the Big Lottery Fund while the Bank waits for approval from the European Commission under state aid rules.