Stripping away the spin about Big Society Capital

Finally, after numerous announcements and fanfares, the Big Society bank, or Big Society Capital as it is now called, was launched today by the Prime Minister. The story the government would like people to hear is that this is wonderful news for charities, social enterprises and the public at large. As charities Minister Nick Hurd tweeted £600 million to back social entrepreneurs and encourage more social investment. At no cost to taxpayer.”

*Sigh* if only that were even close to the truth.

Civil servants have been working on this for many years. Firstly there was the legislation – <a href="; title="Click to open” target=”_blank”>The Dormant Bank and Building Society Accounts Act 2008 – passed four years ago. Legislation does not happen for free. It’s expensive. And that’s just the legislation that was required in order to use dormant accounts and to set up the vehicle for delivering the money.

Then there’s all the work which has been done since then – including the inevitable review of policy when the government changed. I dread to think how much time was spent (and how much public money therefore expended) on changing the name from New Labour’s ‘Social Investment Wholesale Bank’ to the Big Society Bank and then Big Society Capital.

The bulk of the £600m invested in Big Society Capital (and it’s worth pointing out that it’s ‘up to £600m’ – Big Society Capital’s website states that “Capital transfers from dormant accounts could total up to £400m”) comes from dormant accounts. Whilst it’s true to say that this is not ‘public money’ it is money that, as a result of the Dormant Accounts legislation, is earmarked for spending on social purposes. It may not be public money insofar as it’s not raised by taxation, but it is public in the sense that it’s supposed to be used for public benefit.

Perhaps spending £400m on building the market for social investment is a good idea. But we don’t need to blithely accept that this is the only way this money could be used. It could have been used to support the thousands (hundreds of thousdands?) of charities and community groups that have seen their funding cut as a result of spending cuts, or even (as @damehilaryblume has suggested) to help pay off the national debt.

The other aspect of the Big Society Capital spin that infuriates me (and has done since the PM first announced that he had ‘taken the money from the banks’) is the details of the £200m that the big four high street banks have invested. As part of the Merlin agreement between the banks and the government Barclays, HSBC, Lloyds Banking Group and RBS have each agreed to invest £50m in Big Society Capital. This was originally announced as being ‘on commercial terms’ – with the banks seemingly seeking to profit from the deal. Since then there does appear to have been some movement with Big Society Capital’s website suggesting this is a permanent equity investment. But that does not mean that they won’t be expecting a return on their investment.

If Big Society Capital makes money then it can provide a dividend to investors – which will include the Banks at a rate which is proportionate to their investment. I’m told (by my social investment guru, Faisel Rahman) that the Chair of Big Society Capital, Sir Ronald Cohen suggested that the expected returns would be somewhere in the region of 4-5%.

Since the whole point of Project Merlin was supposed to be how the banks were going to increase their positive contribution to society, that’s not a bad return in my view. But there’s more….

As part of the deal the banks have also negotiated a few other things, such as a veto over any changes to what Big Society Capital does that they have a ‘material interest in’, So although each bank only has a maximum stake of 10%, they can veto any changes they don’t like. And they get a seat on the board of Big Society Capital. And they have a “right of preference”, which means that if things go badly wrong (and I’m sure they won’t), then the banks are the first ones to get their money back.

So, if there’s a profit to be had the banks get their slice of it. But if there’s a loss, then they are the last ones to be exposed. Sounds like quite a good deal to me!

I’m getting déjà vu here. When the banks win, they win. When they lose, we lose. Hmmmm…sounds familiar. Isn’t that what happened in 2008-09 with the bailout? Isn’t it time we stopped subsidising the banks?

The final myth that appears to need busting is the idea that Big Society Capital is going to fund social enterprises and charities. It isn’t – at least not directly. It’s a wholesale investor. Big Society Capital will be putting money into community finance providers – community development finance institutions (CDFIs) – who then lend money on to social enterprises and charities. CDFIs don’t cover all parts of the country and of course there’s no knowing which CDFIs will apply to Big Society Capital for investment. The reality is a long way from being ‘available for social enterprises’ whatever the government might say.

The launch of Big Society Capital is not bad news…but it’s nothing like the good news you’d be forgiven for thinking it was if you listen to the government’s spin.


18 thoughts on “Stripping away the spin about Big Society Capital

  1. Thanks for this – Stripping Away the Spin for us in the charity sector is just what we need! Funding is getting tighter and tighter – and 26 page application forms that yield nothing are very demoralising

  2. Hi Toby, An interesting read on the development and launch of Big Society Capital. One thing that has never really been talked about is what happens if people who actaully own these "dormant accounts" suddenly start coming forward to claim the money which is rightfully theirs? The pot of funding might not be as big as predicted. Although I’m sure some organisations will be able to benefit from Big Society Capital, most won’t be able to or are not in a position to do so. Those which are in a position to do so also already have the choice of utlising commercial money from existing social lenders and organisations and businesses such as Triodos Bank or Charity Bank who are CDFI’s themselves. What makes Big Society Capital so special? If the loans issued through CDFI’s aren’t in any way any more commercially favourable than what the likes of Triodos offers etc then quite simply what’s the point? (Weren’t CDFI’s were also supposed to be the last port of call for those organisations rejected by the banks who cannot get finance or loans.? An interesting dichotomy when Triodos is both a bank and a CDFI)

  3. @Sue – thanks. some of those problems are nothing new – eg 9/10 charities applying to a grant fund might be rejected… – but there is some new stuff about social investing being the silver bullet to solve all the sector’s ills. what gets me frustrated isn’t what government are doing in setting up big society capital, but all the guff they shroud it in.@Simon – the banks (as part of the legislation) take out insurance against anyone coming forward to claim the money. so they aren’t exposed in any way (the dormant accounts pay for the insurance). Interestingly in 2007 the treasury select committee estimated the value of dormant accounts at around £5bn, but when it comes to handing over the money in 2011 it was down to £400m! they must’ve just been very good at reuniting people with their money :)in answer to your question ‘what makes BSC so special?’ the answer is nothing…apart from having £400m of ‘free money’ that they can use to subsidise their other capital (to make it cheaper).

  4. Isn’t is just a scam to get their hands on free money, just like the London fund thats used for the public but since they don’t publish accounts, we have no idea where it’s going? I’m a bit miffed they go and launch a new back when they had a perfectly good one a few weeks ago and sold it at a bargain. I would have switched all benefits to run through that bank and then started making money FOR the public, easily undercutting the private banks, driving them out of business and the UK debt could be paid off easily if all the banks profits now go to the one bank. Why would you sell a business making that much money for so little – and hold on to the toxic debt as well – and then open a bank to help the public (like we believe the words ‘bank’ and ‘help’ fit together in the same sentence.

  5. @Keith, Big Society Capital isnt really a bank in the sense that you or i might understand the term. it’s a ‘wholesale investor’ so all it’s doing is passing the money on to financial institutions (not high street banks but community finance organisations – who often provide services to people who the high street banks fail to provide for).Selling Northern Rock wasnt, in my view, a great deal for the taxpayer…but i think they just wanted any money they could bring in to shore up the creaking finances (which are falling well short of their own predictions).i dont think you can nationalise all the banks and it’s worth rememebring that a healthy banking sector is good for the economy. but, an overly risky (and risk averse!) banking sector that causes massive global meltdown that will take generations to sort out, is not so good.i do believe there’s a way forward to create incentives for more pro-social bank behaviour, through this sort of thinking:

  6. On the plus side, the fact that BSC has finally been launched does at least mean it will now stop occupying the role of Godot in the theatre of social enterprise. I agree with all your points, Toby – while re-emphasising the point that, while I’m not against social investment, the big problem for most social ventures in the UK right now is lack of revenue. BSC will – indirectly through intermediaries – help some good organisations to start-up or (more often) scale up but that doesn’t answer the question of who buys their goods or (mostly) services. There’s been plenty of money in the social investment sector already that hasn’t been spent because their haven’t been enough social ventures with business models that would enable them to repay investments (with or without interest).

  7. Hi Toby, Thanks for your reply earlier. David Floyd (last post above) makes a very interesting and extremely important point about a lack of revenue being a big issue in terms of new social ventures and who buys there services and goods. Most of our high streets are struggling as evidenced in many recent surveys and through the the launch of the Portas review. As the purchase of goods and services has shifted from the high street to the internet and out of town retailing and other avenues it remains to be seen how in a depressed economy how smaller and emerging social enterprises will survive the long term. Unless there are some pretty unique ideas being developed in niche market areas its difficult to see how an enterprise model on its own will be the way forward. There’s no doubt that some will enjoy great success but what about those that don’t. Many people are realising that we are likely to have austerity for the next ten years at least and there’s hardly going to be a huge pool of people with spare cash to spend on whatever goods and services will be produced through the new enterprises anyway.

  8. Good stuff, Toby! Do we have any up-to-date figures on how much is actually sitting in forgotten bank accounts, discarded life insurance policies and Premium Bond prize funds, and who’s going to benefit? In 2008, the Telegraph Unclaimed Assets Register has calculated that there could be £5bn in dormant savings accounts, with a total of£15.3bn in unclaimed assets.

  9. Interesting take, Toby – I’m more optimistic, but maybe that reflects our different memberships / constituencies. Not that I underestimate the challenges ahead for BSC. Certainly no-one I know in the social investment or social enterprise worlds is talking about it as a silver bullet or panacea.One note worth making is that BSC will invest in what they call social investment finance intermediaries (SIFI) not just CDFIs. As you can see from whom they list on their website as part of the market ( and in their directory ( which is itself a useful resource.Cheers

  10. @Nick B – the Telegraph was quoting a Treasury select committee report that estimated unclaimed assets in bank accounts at £5bn. i’ve no idea what the total of all the other unclaimed assets would be.@Nick T – perhaps. and i do understand soc ent/comm finance’s enthusiasm – it’s potentially good news for them. but what i dont understand/buy is the wholesale lack of detailed analysis, critique and how people just conveniently ignore or dont understand some of the detail.i did know BSC were going to invest in CUs and other orgs as well as CDFIs, but was conscious of not getting too technical about this…not really my bag or my intended audience 🙂 thanks for the links though…sure people will find them useful (i’d already trawled BSC’s website)

  11. Social Enterprise from what I have investigated in person is another form of state benefit. All SE’s need some sort of "encouragement". Usually help with rents or mortgages to use a location before they can start work or subsidy against tax as they do the work. The 2 major barriers to entry.When people tell me they are Social Entrepreneurs, it makes me weep. They are hard working skillful people like anyone else. They are "Entrepreneurs". Why are they so timid about this.Why are they not asking "I’m willing and able to work. Hard and well. So what exactly is stopping me from finding it? Why do I need hand outs?"Should not this Big Society fund be used to investigate this central question first? "What are rents and taxes so high". Else involuntary welfare, charity and benefits will proceed forever."Charity is no substitute for justice foregone"

  12. I was just relating to David Floyd, how much resistance we’d found when attempting to introduce P-CEDs work in leveraging social investment since 1999 in Russia,I nearly contributed more than I wanted last years when discovering my Santander ISA account had been marked as dormant, indicating that the departure of others could also have been greatly exaggerated.The roots of our work are in civic activism including a fast for economic rights and a model which had no profit making intermediaries with non-domicile status.

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