Social investment could help charities and voluntary organisations through the tough times ahead. But only if they know what they're taking on
Social investment is one of those delightful put-together phrases that pairs two words that are generally thought of as good, so we imagine that the combination of them must also be good - or even better than each on its own. It is little wonder then that it has become the latest phrase that excites the wonks in public services and the third sector at the moment – even more so if you take into account the version know as Social Impact Bonds.
The whole idea could almost have been dreamed up by the Big Society marketing men; it gives a sense of charities running many more services, which is what many in the Coalition rather oddly badge as localism, and couples it with an entrepreneurial and market-friendly approach to the third sector.
Meanwhile, in the less rarefied world, charities and others at the sharp end of delivering services to those in dire need have been knocked for six by the Autumn Statement. It revealed that the tough times are not just something to be endured just for a couple of years but will last for a considerable period. With reserves being eroded and funding harder to come by many voluntary and social organisations hope that social investment might be the answer to their funding gap. So what on earth are we talking about here?
Social investment is perhaps best thought of as a loan. That immediately makes clear the obvious but oft neglected fact that social investment is not grant funding – it has to be paid back - and so charities using it need to ensure they are investing in activities that will bring money in. Otherwise they will be in serious trouble.
For some with decent income streams, who want to innovate –and so want some risk capital – or want to scale up an already successful scheme, it can work well. For instance the thoughtful not-for-profit outfit, Turning Point, have used it to expand their offering of health, housing and social care services. Many more will find it an important and well suited means of financing for their activities. But charities should not be leaping towards this sort of finance before they have really thought it through.
As we at NPC have found, there is a great deal of confusion at the front line as to what social investment is and whether it is really about to take off. That's why we have just published a guide for charities Best to Borrow? to help them think all this through.
If charities are up for this will there be enough money available? Views are mixed on this. We estimate that some £500m has already been invested, while Big Society Capital, the new quasi governmental fund established from dormant bank accounts, will add to this when it begins operations next year. On the other hand other research suggests that not that many charities are in the position of having ready-to-go propositions to be funded.
If it does develop, some think that social investment will have very radical implications for the third sector. If for instance payment-by-results became the only of getting government contracts and SIBs became a significant way of funding, then charities would end up having to take on much more risk than they are used to and only those who could cope with it would prosper.
All of this is at the speculation stage of the ideas cycle and we must not get carried away. Let’s remember that although SIBs are exciting interest all over the UK – and elsewhere - we only have one project running (about reducing reoffending in Peterborough) which has only been going for a year. In addition, most of the money that has gone into it is ‘soft’ in the sense that it is at a pretty low rate and that those investing are not really in any sense ‘commercial’ . They are not going to scream blue murder if they do not get their money back.
It’s good to keep innovating and exploring new methods. But as I know from my experience in government there are many false dawns in public policy. The key is to sort out what works, keep a sense of proportion and avoid disasters. Let’s hope we get it right this time.
Dan Corry is chief executive of New Philanthropy Capital and a former Downing Street adviser
