Big Society Bank to receive all money from dormant accounts

Big Society Bank to receive all money from dormant accounts

News

All money allocated to England from dormant bank accounts will go the new Big Society Bank due to start lending next April, prime minister David Cameron pledged as he unveiled the first phase of the Big Society project in Liverpool this week.

While the sums could be as large as £400m, the Co-operative Financial Services, which is working on how to access the accounts, estimates that between £60m and £100m will be available by the time the Bank opens.

However with extra private sector investment Cameron believes the Bank is capable of generating “hundreds of millions of pounds for charities, social enterprises and voluntary groups to fund social projects across the country, creating opportunities for social action and community involvement”.

He says government has a 'crucial role' to play in addressing “the potential problem of locking out smaller organisations out, because they don’t have access to start-up capital” and, more widely, in connecting private capital to investment in social projects.

Other social lenders have welcomed confirmation that the Big Society Bank will be a wholesale bank, using financial intermediaries to provide access to funds for frontline social organisations.

“By forcing high street banks to free up long-dormant deposits and kick-start lending to the social enterprise sector, the future lifeblood of the UK economy, the Big Society can now start to be realised,” says Charles Middleton, managing director at Triodos Bank.

Malcolm Hayday, chief executive of Charity Bank, also welcomes the announcement. “We have called for the ‘Big Society Bank’ to be a wholesale provider of finance to existing independent intermediates so we are pleased that this seems to be the case. The involvement of current social investment organisations will provide the most effective way to leverage the impact of the money available and therefore multiplying the effect of the funds available.
 
“The social sector needs to scale up, and if funds are directed towards intermediary organisations like Charity Bank who are established players working towards the long term sustainability of the sector, this is a positive step.”


It is not yet clear whether the whole £400m can be accessed. The legislation, passed by the previous Labour Government in preparation for its planned Social Investment Wholesale Bank, allowed for money from accounts dormant for 15 years or more to be used meaning new funds would be made available each year.

A statement to Philanthropy UK from the Treasury says the size of the pot available for distribution is "difficult to predict". "This will be determined by the number of banks and building societies volunteering to participate in the scheme, the success of the ongoing campaign to reunite individuals with their assets, and the sums held back for customer reclaim…. It has always been clear that the money from dormant accounts would be released over a period of time, as money will need to be retained in the Reclaim Fund to meet claims from account holders.”

Legislation allows for funds to be divided proportionally with the devolved governments of Scotland, Wales and Northern Ireland, stipulating that it must be used for community benefit.

A spokesperson for the Cabinet Office says: “While there is no obligation on the devolved administrations to take part in the Big Society Bank, we would certainly encourage them to do so.”

Social lenders have aired concern around levels of possible funding. “The detail is still lacking, and plans are not quite as simple as they appear,” says Middleton. “Talk that the bank may have to launch with reserves of just £60m, due to high street banks’ reluctance to turn on the tap, as well as difficulties in accessing dormant accounts, highlights just some of the difficulties the coalition government may encounter in rolling out finance to the social and charity sectors.”

John Kingston, director of CAF Venturesome, also questions whether this sum will be enough. “£60m is a good start for a wholesale bank. However, we’re unsure of the detail and the final remit that the bank will have, so it’s largely dependent on the kind of job the Big Society Bank is asked to do.  Any funds that are brought into the sector will go someway to helping, but it’s probably not sufficient at this stage to create the empowered local communities that the Government wants.”

In addition to the unclaimed assets, the bank may attract additional injections of capital from other sources, including philanthropy, Kingston believes.
 
“The Big Society Bank should catalyse greater philanthropic activity from both foundations and individuals as local groups will be empowered and will need to raise funds in addition to any loan they may have received as a result of the creation of the Big Society Bank.”

At the launch the PM outlined the Big Society project, revealing the four ‘big society communities’ selected to kickstart what he called "the biggest, most dramatic redistribution of power from elites in Whitehall to the man and woman on the street”. They are Liverpool, Sutton, Windsor and Maidenhead, and the Eden Valley in Cumbria.

“These four vanguard communities will be the great training grounds of this change, the first territory on which real and ultra local power is a reality – and the Big Society is built,” said Cameron.

Ideas from the four communities include making budget decisions at street-level, developing local transport services, taking over local assets such as a pub, piloting open-source planning, delivering broadband to local communities, generating their own energy, and building a volunteer programme to keep local museums open for longer.

The Government has pledged:

  • A firm commitment to respond constructively to every request made by the big society communities for new rights and powers to take control of their cities, towns, villages and neighbourhoods.
  • Dedicated support from officials from the Department of Communities and Local Government to help the big society communities overcome and break down any barriers they encounter as they seek to take power and responsibility.
  • A community organiser to help each community coordinate local support for, and involvement in, its plans.