Finally, after numerous announcements and fanfares, the Big Society bank, or Big Society Capital as it is now called, was launched today by the Prime Minister. The story the government would like people to hear is that this is wonderful news for charities, social enterprises and the public at large. As charities Minister Nick Hurd tweeted “£600 million to back social entrepreneurs and encourage more social investment. At no cost to taxpayer.”
*Sigh* if only that were even close to the truth.
Civil servants have been working on this for many years. Firstly there was the legislation – www.legislation.gov.uk/ukpga/2008/31/contents" target="_blank">The Dormant Bank and Building Society Accounts Act 2008 - passed four years ago. Legislation does not happen for free. It’s expensive. And that’s just the legislation that was required in order to use dormant accounts and to set up the vehicle for delivering the money.
Then there’s all the work which has been done since then – including the inevitable review of policy when the government changed. I dread to think how much time was spent (and how much public money therefore expended) on changing the name from New Labour’s ‘Social Investment Wholesale Bank’ to the Big Society Bank and then Big Society Capital.
The bulk of the £600m invested in Big Society Capital (and it’s worth pointing out that it’s ‘up to £600m’ – Big Society Capital’s website states that “Capital transfers from dormant accounts could total up to £400m”) comes from dormant accounts. Whilst it’s true to say that this is not ‘public money’ it is money that, as a result of the Dormant Accounts legislation, is earmarked for spending on social purposes. It may not be public money insofar as it’s not raised by taxation, but it is public in the sense that it’s supposed to be used for public benefit.
Perhaps spending £400m on building the market for social investment is a good idea. But we don’t need to blithely accept that this is the only way this money could be used. It could have been used to support the thousands (hundreds of thousdands?) of charities and community groups that have seen their funding cut as a result of spending cuts, or even (as @damehilaryblume has suggested) to help pay off the national debt.
The other aspect of the Big Society Capital spin that infuriates me (and has done since the PM first announced that he had ‘taken the money from the banks’) is the details of the £200m that the big four high street banks have invested. As part of the Merlin agreement between the banks and the government Barclays, HSBC, Lloyds Banking Group and RBS have each agreed to invest £50m in Big Society Capital. This was originally announced as being ‘on commercial terms’ – with the banks seemingly seeking to profit from the deal. Since then there does appear to have been some movement with Big Society Capital’s website suggesting this is a permanent equity investment. But that does not mean that they won’t be expecting a return on their investment.
If Big Society Capital makes money then it can provide a dividend to investors – which will include the Banks at a rate which is proportionate to their investment. I’m told (by my social investment guru, Faisel Rahman) that the Chair of Big Society Capital, Sir Ronald Cohen suggested that the expected returns would be somewhere in the region of 4-5%.
Since the whole point of Project Merlin was supposed to be how the banks were going to increase their positive contribution to society, that’s not a bad return in my view. But there’s more….
As part of the deal the banks have also negotiated a few other things, such as a veto over any changes to what Big Society Capital does that they have a ‘material interest in’, So although each bank only has a maximum stake of 10%, they can veto any changes they don’t like. And they get a seat on the board of Big Society Capital. And they have a “right of preference”, which means that if things go badly wrong (and I’m sure they won’t), then the banks are the first ones to get their money back.
So, if there’s a profit to be had the banks get their slice of it. But if there’s a loss, then they are the last ones to be exposed. Sounds like quite a good deal to me!
I’m getting déjà vu here. When the banks win, they win. When they lose, we lose. Hmmmm…sounds familiar. Isn’t that what happened in 2008-09 with the bailout? Isn’t it time we stopped subsidising the banks?
The final myth that appears to need busting is the idea that Big Society Capital is going to fund social enterprises and charities. It isn’t – at least not directly. It’s a wholesale investor. Big Society Capital will be putting money into community finance providers – community development finance institutions (CDFIs) – who then lend money on to social enterprises and charities. CDFIs don’t cover all parts of the country and of course there’s no knowing which CDFIs will apply to Big Society Capital for investment. The reality is a long way from being ‘available for social enterprises’ whatever the government might say.
The launch of Big Society Capital is not bad news…but it’s nothing like the good news you’d be forgiven for thinking it was if you listen to the government’s spin.