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In its report, Social Investment Pilots: Action Research Final Report, published in November last year, the Office of the Third Sector (OTS) looked to catalyse wider development in social investment.
This can be seen as a culmination of many years’ growth in successive UK governments’ promotion of social investment.
Social investment is a term of multiple interpretations and Philanthropy UK defines it as any type of investment that combines social and financial returns. One of the earliest initiatives of this type was the Local Investment Fund (LIF) in 1995, a £3m public-private partnership, to provide loans to social enterprises that had no access to mainstream finance.
LIF focused on the funding gap in deprived communities in England and was led by the then Department for Environment, Transport and the Regions (DETR) and NatWest Bank. LIF received further funding from a variety of government and private sources. It was re-named The Social Enterprise Loan Fund (TSELF) in July 2008. It has made 150 loans, totalling over £7m, and has created or maintained 2016 jobs and 3984 training places.
The current government continued this trend by injecting credit into deprived communities, particularly through the third sector, using social investment initiatives such as the following.
The Phoenix Fund, launched in 1999 to facilitate access to finance and business support in disadvantaged communities, utilised a £150m fund to provide capital, revenue and loan financing for community development finance institutions (CDFIs) across England. Before it closed in 2006 it also funded the establishment of the Community Development Finance Association (CDFA), on the recommendation of the Social Investment Task Force (SITF).
The SITF, examined in more detail within Table 1 of ‘In recession, investors seek a different sort of return’, is an important element of the government’s interest in social investment.
Other SITF recommendations were also supported by government. Community investment tax relief (CITR), introduced in 2001, offers individuals and businesses tax relief of 5% of the amount invested in accredited CDFIs. Another recommendation was the establishment of a community development venture capital fund, and Bridges Ventures, was launched in 2002 with £20m of private sector investment matched by £20m from the Department of Trade and Industry.
The government set up the Adventure Capital Fund in 2002 to test venture capital-style funding for community enterprises in England. The £12.5m fund supplies a combination of loans and grants known as ‘patient capital’. The initial investment ceiling of £400,000 for individual transactions has risen to £750,000, with loans available over 10 years, at competitive rates, with initial payment holidays of up to five years.
On the recommendation of HM Treasury’s Cross Cutting Review (2000), which examined the role of the voluntary sector in public service delivery, Futurebuilders England was set up in 2003. Established with a £150m fund to help third sector organisations deliver public services, it primarily provided them with loan financing. The second phase of the fund, which in 2008 grew to £215m, is being run by the Adventure Capital Fund, and is open to all third sector organisations delivering public services. This month the Department of Health awarded the administration of its £100m Social Enterprise Investment Fund to a Futurebuilders-led consortium.
Unlike its English counterpart, the £18m Futurebuilders Scotland fund specifically made grants to social enterprises delivering public services, in Scotland. The fund closed in March 2007.
The government’s Social Investment Pilots report includes two projects, led by Charity Bank and Investing for Good, and by Equity Plus, through which the government examined the development of social investment. Kevin Brennan MP, Minister for the Third Sector, said, “I believe this could be a defining time for social enterprise and social investment.”
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