On 21 March last year, the Minister for the Cabinet Office and I updated the House on proposals and next steps for establishing a big society bank that would act as the central initiative for growing the social investment market in the UK, helping provide a third pillar of finance for the social sector, alongside philanthropy and the state. This is an important element of our strategy to help the sector become more resilient and effective.
The big society bank formally opened its doors to the public on 4 April as Big Society Capital. The new institution has been capitalised with the first tranche of dormant bank accounts and Merlin bank money, and we will thus have met a coalition priority
“to use funds from dormant bank accounts to establish a “Big Society Bank”, which will provide new finance for neighbourhood groups, charities, social enterprises and other non-governmental bodies.”
Today I would like to update the House on how Big Society Capital will work and progress made over the last year.
Big Society Capital (BSC) is the first social investment institution of its kind anywhere in the world. We are keen to support more social enterprise, whether it be new mutuals, social organisations delivering public services or community groups taking over assets. The purpose of BSC is to make it easier for these social entrepreneurs to access the capital they need. A new initiative is needed because the mainstream financial institutions are not yet providing that capital. BSC will build a bridge between mainstream finance and the social sector. It will do this by helping to grow the embryonic market of social investment—money that is prepared to blend financial return with social impact.
BSC will be capitalised using the estimated £400 million in unclaimed assets left in dormant bank accounts for more than 15 years, alongside £200 million equity investment from HSBC, Barclays, Lloyds TSB and RBS.
In line with the social investment strategy that we published in February last year, BSC has been set up with four core principles:
Independent from Government;
BSC will not be making grants. It will always invest because it needs to cover its costs and the mission is to prove and develop the concept of social investment. The wholesale function means that it will only invest in front-line organisations through intermediaries such as Big Issue Invest, Charity Bank, the Private Equity Foundation, and Bridges Ventures. There is widespread consensus on this positioning. If we were to set it up as a retailer, then we would distort the market and undermine the very intermediaries that we need to grow it. BSC will act as a cornerstone investor looking to support innovative methods of tackling social problems, such as social impact bonds, and encourage others to co-invest, significantly increasing the amount of finance available to the social sector.
Ahead of BSC opening we made early proof of concept investments to build the pipeline for the new organisation. To date, seven in principle investments totalling £7 million have been agreed, including: money to help the long-term unemployed set up their own businesses; two schemes supporting vulnerable young people to get into employment; an affordable housing fund; two community energy projects; and the development of the world’s first ever social stock exchange.
All of these investments will provide jobs and help disadvantaged groups or communities, supporting economic and social recovery.
We are grateful to Sir Ronald Cohen and Nick O’Donohoe for the invaluable support they provided in setting up this institution.