£200m investment in Big Society Bank receives mixed welcome

By: 

Cheryl Chapman

Managing Editor, Philanthropy UK

The announcement that the soon to be launched Big Society Bank will receive £200m from the four major banks as part of their newly-struck Project Merlin deal with government, in addition to between £60m and £100m from dormant accounts, has received a mixed welcome.

Whilethe news has been broadly welcomed there is concern around the fact the money will be loaned to the voluntary sector on a commercial basis and not granted.

John Low, Charities Aid Foundation (CAF) chief executive says: “An additional £200m for investment in civil society organisations would be very welcome, however, according to the Treasury Statement this money will be provided ‘on a commercial basis’. This leaves the true role of the Big Society Bank even more uncertain.

“Increasingly there seems to be confusion around the role of the Big Society Bank from commentators in both media and political circles, with some suggesting that it will be able to offer direct financial assistance and grants to organisations.

“More needs to be done to explain how £200m of wholesale finance ‘on a commercial basis’ is going to help the voluntary sector. At best, the impact of the Big Society Bank will be long term rather than immediate, and it is unlikely to solve the problems of the thousands of charities who are currently experiencing difficulties because of increasing demand for their services, difficult economic conditions and funding cuts.

“Social investment is set to play an increasingly important role as part of a diverse funding landscape for the voluntary sector, but it is a very new market and it is still being developed. It is unclear whether the financial needs of many civil society organisations will be met through social investment on purely commercial terms. It is important not to raise false expectations and present the Big Society Bank as a financial panacea for the charity sector. Loans must be repaid!”

Urban Forum CEO Toby Blume also criticised the fact that the additional £200m is to be provided on a commercial basis and will earn the banks a return, instead of being provided as a founding grant as with the dormant bank accounts. “It’s hardly a grand gesture,” he said.

Sir Stuart Etherington, NCVO chief executive says it is “a good start which demonstrates that the government is listening to the sector’s concerns about the challenges ahead. Going forward, a clear timetable for the set-up of bank functions will help the sector to plan with confidence and give a steer on when funding is likely to become available.

“The success of the bank will also rely on securing sufficient additional private capital, above the amounts available from unclaimed assets, and on the levels of financial capability and investment readiness in the voluntary and community sector,” he added.

Sir Stephen Bubb, CEO of chief executives’ network Acevo, was more optimistic saying the announcement ‘breathes life back’ to the Big Society.

Malcolm Heyday, chief executive of Charity Bank, welcomed the news while again highlighting the fact that loans are not necessarily the answer to the funding gap currently facing the sector. “We look forward to learning more of the detail and to the potential role that Charity Bank can play in their effective disbursement. However, much of the funding being lost through cuts are grants that cannot automatically be replaced by loans. An effective sector needs a healthy mix of financial instruments."

Charles Middleton, managing director of Triodos ethical bank said it remains committed to helping realise the Big Society Bank, but said further detail is required before we can establish exactly how it, and the Big Society more generally, will come to be realised. We welcome the news of the additional capital from the mainstream banks which will support those already bringing their Big Society ideas to fruition and also help those with good new  ideas to be able to get them off the ground.," he said.

Daniela Barone Soares, chief exectuive of Impetus Trust, the UK's pioneeting venture philanthropy organisation, said while she was 'delighted' to hear that the amount of money in the Big Society Bank is going up, she questioned whether it was a' token gesture'.

"The ethos of the Big Society is that everyone has to play their part, and we would question if this is  the banks genuinely doing all they can, or just a token gesture, given bonuses that may reach £7bn this year.

"The more urgent question, however, is how to make best use of the money that is in the Big Society Bank. We remain concerned that current thinking suggests that money will only be disseminated in the form of loans and equity, which will be unappealing to many small and medium-sized charities and social enterprises piloting the greatest social innovations and with the greatest potential to scale up.

"Impetus believes that a portion of the Big Society Bank’s money should be earmarked for supporting “intermediary” organisations that can grow the capacity of these high potential charities to the point where they are more “investment ready” to benefit from financial instruments the Big Society Bank has to offer, " says Barone Soares.

The £200m is touted by the Treasury as part of £1.2bn package to support ‘regional growth and the Big Society’. However, the £1bn promised for regional growth, even though the money is supposed to be aligned to the objectives of the Regional Growth Fund, will only be used to increase the size of the previously announced Business Growth Fund –an equity fund targeted at businesses with a turnover of £10-£100m.