The Independent View: What is Big Society Capital – big, new or just Big Society nonsense?

In its first transaction, the £600m fund has invested £1m in Private Equity Foundation, an organisation helping disadvantaged teenagers find jobs when they leave school; £400m of the fund will be unclaimed assets left dormant in bank accounts for more than 15 years, with the rest coming from HSBC, Lloyds Banking Group, Barclays and Royal Bank of Scotland.

The Independent, 29/07/2011.

The Indie report then goes on to tell about the first “social impact bond” project, which is an “investment” in measures to reduce re-offending in Peterborough.

So The much vaunted “Big Society Bank” – sorry – “Big Society Capital” (what´s in a change of name?) – has launched. With a capital of £400m drawn from The Reclaim Fund, (i.e. all the little lost deposits which UK citizens have forgotten about for at least 15 years), plus £200m from “The Big Four” banks, (i.e. HSBC; Lloyds Group; Barclays; & RBS) as part of The Merlin Agreement, BIG should be equipped to make a difference. It sounds like great news, but is it really anything “new”?

On closer inspection, some reports suggest that the “investment” in Private Equity Foundation is being funded by The Big Lottery Fund, which is not new, and has been making funds available to good causes for years. And the Peterborough project was launched in March 2010, before the last election, when the BIG was just a twinkle in the eye of the Conservatives´ Manifesto. So what is new about this news?

On the 15/06/2011 The Daily Telegraph reported that the launch of the Big Society Bank / Capital would be delayed at least until “the beginning of next year”, due to the need to address European regulators´ concerns that using The Reclaim Fund in this way would not contravene rules about “state aid”. How could the EU construe in this way? It seems odd that putting assets to work to help disadvantaged members of society could be considered “state aid”. So what really lies behind the EU´s concerns?

The same Telegraph report said that there is still no agreement with “The Big Four” about their £200m contribution.

Surely The Merlin Agreement was finalised around Christmas time last year, in time for the banks to make their bonus payments? So what´s behind the delay in capitalising BIG? Is it that the GBP was not part of Merlin after all, or that the banks are being stingy with the parts of Merlin which are not to their advantage? Did “The Big Four” commit their £200m only in the last two weeks, and if so, surely EU regulators should not be concerned in these banks making this investment, so why cannot BIG put these funds to good use immediately? There may be a very reasonable answers these questions – could anyone provide them?

I was present at BIG´s presentation to the Social Enterprise Conference in March 2011 at the O2 Arena. Four bright young things from The Cabinet Office talked of HMG´s “Six Rings” Policy to aid the Third Sector´s delivery of health and social care: i.e:

  1. The Big Society Bank at the centre
  2. opening up public services to non-state service providers
  3. giving tax incentives (no details)
  4. supporting businesses
  5. building portals finance (possibly creating a social business “stock exchange”
  6. cutting “red tape´” (how does this square with the current problems with EU regulators?).

Then Nick O´Donague (BIG´s CEO) told us that the new bank would be a wholesale provider of funds to the existing finance houses engaged in this sector, of which there are many, and would make loans, not grants, as this was the only way to create financially sustainable organisations. Yet the Private Equity Foundation transaction is described as an “investment” and not a loan. Has BIG changed its investment criteria since last March as well as its name?

There appears to be much confusion, with BIG claiming credit for “social impact bonds”, which is an idea which pre-dates it, and BIG re-branding Lottery monies in its own name. Old news and old promises of money are being re-hashed and re-broadcast as something new – one of the oldest tricks of governments.

It is clearly a great idea to put the £400m of forgotten money to work, and to leverage a further £200m from the banks, but when will this NEW money be put to NEW uses? And by “uses”, let us be clear, the only thing that matters is the delivery of front-line services to disadvantaged members of our society. These are the press releases which we await. To this outsider-looking-in, the rest is just Big Society nonsense.

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