Discussion of social investment developments are taking hold in the blogosphere. Weird and wonderful fiscal experiments are being proposed and reviewed, from Social Impact Bonds and Community Investment ISAs to the Big Society Bank and new tax-breaks for social investors. What does it all mean?
Research into the social investment market has been commissioned by City of London Corporation, City Bridge Trust and the Big Lottery Fund to examine what investment products would most likely bring greater levels of capital to the social enterprise sector. The research will be undertaken by ClearlySo who will interview leading investment professionals about the product preferences of their clients.
Apparently previous studies point to a large reserve of untapped capital. Potential investors increasingly express themselves open to the idea, but relatively few have actually committed any capital.
"There is, it seems, a chasm between potential and reality. If the sector is to make the leap, a huge part of the solution will be finding the right vehicles. We are, after all, in one of the financial epicentres of the world. Coupled with Britain’s leadership position in social enterprise, nowhere is better placed to marry the two." (Tom Cropper, ClearlySo, 09.03.11)
£300m is due to be made available through a new Big Society Bank that will offer loan finance to social enterprises. The Big Society Bank will be wholesale; it will not make direct investments but will rather lend to intermediaries, who will apparently offer a range of financial products.
Part of the rhetoric from the government is that this will help social enterprises and charities to compete for and manage public sector payment-by-results contracts. The Public Service Reform Bill is supposed to look at ways to create a level playing field when it comes to charities competing for public sector contracts.
However, for many charities like Red Kite Learning that have been delivering payment-by-results contracts successfuly for years, the rhetoric does not stack up because the government has put the relevant contracts out of reach, in a drive for 'efficiency'. The flagship skills and employment opportunities - the Work Programme and Apprenticeships - are now only available to large 'prime contractors' who are expected to manage 'supply chains' more effectively than the civil servants have previously. It remains to be seen whether viable sub-contracting opportunities will emerge from this approach to commissioning.
It also remains to be seen what value will be offered through social investment vehicles and loan finance. There is still an important question mark as to whether investors will be willing to forego some financial return in order to invest in a product that delivers social benefit.
James Allen of the National Council for Voluntary Organisation (NCVO) recently wrote a blog article 'Is social investment the future?' where he warns members of potential dangers, including an erosion of donations if social investment is seen as an alternative to charitable giving rather than being additional.
Like most charities, Red Kite Learning will be watching developments in the social investment market with keen interest and intrepidation.
"The problem is that the organisations dealing with most complex issues in the country are the least financially certain...The question is how to connect that social economy to broader pools of capital to build a better financial world for them."
ReplyDelete[Toby Eccles, Social Finance, 17/03/11]
http://www.independent.co.uk/news/people/profiles/toby-eccles-the-money-man-on-a-mission-to-save-society-2244045.html
Martin Brookes at New Philanthropy Capital has recently suggested Ten ways to boost giving (March 2011) that banks should develop new products and services to help stimulate philanthropy. “…They are in a good position to offer straightforward, tax efficient, low-cost alternatives to setting up a charitable trust or foundation. If banks offered new philanthropic products in the UK, there would be benefits not only for charities through increased donations and better giving, but also for the banks themselves, generating revenue through management fees for charitable assets, building deeper relationships with clients, and improving their image.”
ReplyDeleteThree products are suggested - donor advised funds, private ancillary funds and charitable giving accounts – as follows:
Donor advised funds
Donors put money into their funds then use them to donate to charities. Depending on the type of account, donors receive a tax deduction on their contribution. Donor advised funds are common in the US. Similar products do exist in the UK—for example, from the Charities Aid Foundation and community foundations—but these institutions are not nearly as well known to potential clients as banks, and do not have their scale or infrastructure. If banks were to offer donor advised funds, they could increase the market much more rapidly and efficiently than existing providers.
Private ancillary funds
Private ancillary funds—a form of private trust—were established in Australia in 2001. They offer a range of benefits to donors, including tax efficiency, ease of establishment, private control and the facilitation of giving over many years. There is evidence that some individuals who had not previously considered charitable giving have directed significant funds into private ancillary funds (for example, after receiving a significant one-off boost in income).
Charitable giving accounts
One innovative UK giving vehicle is the charitable giving account offered by Coutts, the private bank, which allows clients to transfer money between their charitable and current accounts. The account provides regular statements that make tracking donations and claiming tax relief easy. Standard Chartered Private Bank has established a tailored deposit account that enables clients to give easily to ‘Seeing is Believing’, the bank’s global campaign to tackle avoidable blindness. The account allows credit interest to be transferred automatically and each donation is matched by the bank.