Momentum is building in government around the potential benefits of social investment. The development of the Social Impact Bond was discussed here recently, and I highlighted potential difficulties with outcome oriented investment in public services. Last week, Nick Clegg spoke about the government’s commitment to a social investment strategy, drawing in the financial sector to fund public projects that would otherwise fall victim to impending cuts. It will be vitally important for the government to go about encouraging wider commitment to social investment in the right way. The government has hinted at the institutional lynchpin it envisages, in the form of the Big Society Bank. The success of the Bank depends on its ability to act as the catalyst, as the first risk-taking investor, to arouse the interest and create conditions for wider commercial investment in socially productive outcomes. The question for the government is whether the Big Society Bank is up to the task.
The Bank is planned to go live sometime this year with between £60-100m drawn from dormant accounts across the UK. High street banks were originally said to be considering paying £1bn directly into the project, but the actual contribution is likely to be far lower. This is against a background of around £70bn in lending to small and medium enterprises more generally. In any case, Santander has already withdrawn from the scheme, leaving others such as Lloyds, Barclays, and HSBC to fill the hole. Commitment is subject to the dragging of bankers’ feet, and the deal is intertwined with negotiations with government over bonus payments within the industry. That one of the UK’s largest banks has withdrawn potential investment at this early stage, even as part of a sector-wide deal to neutralise the toxic issue of bonuses, may be rather telling of a lack of institutional rigour surrounding the scheme.
But even if the optimistic projections of the bank’s capacity do materialise into cash it is doubtful this will be adequate to fulfil the catalytic role envisaged of it. There is an £81bn sized hole where public spending used to be. Social Finance estimates that £250m in start up capital would leverage £750m in additional funding over 5 years and allow the bank to break even. It is clear from this analysis that the bank is not even going to approach the level of investment required to leverage sufficient funds to ease the squeeze on public finance . The remit and structure of the bank remain unknown, but so much will depend on the actual sums that the Bank is able to muster when it opens for business later this year.
