Big Society Capital promised a lot, but what does it actually deliver? Gordon Hunter queries.
David Cameron officially launched Big Society Capital at the London Stock Exchange on 4 April 2012.
It’s the culmination of six years of hot air leaked originally from the “Commission on Unclaimed Assets”. At first we were told that the cobwebbed vaults held £2bn worth of dormant funds (bank accounts, insurance policies, pension funds). The Commission, in its July 2007 report, claimed £250m.
What we’ve actually got is £600m (one-third of it equity from the banks, the Merlin Agreement - abracadabra… Pooooof!).
The Lincolnshire Community Foundation urged the Commission to allocate its £250m to area pots, in permanent endowment, giving the interest to small charities. That way, Lincolnshire would have held £4m and generated about £200,000 every year in grants. Instead, Big Society Capital has emerged - yet another layer of staffing and offices, lending (not giving) wholesale to another layer of lenders (community development finance institutions like Triodos, Charity Bank and Big Issue Invest) who in turn lend to charities.
Obviously the money goes to big, mainstream charities, often with capital projects, delivering public services at lower cost. It doesn’t go to the thousands of small, volunteer-led groups that form the safety net of civil society and that we, as a Foundation, are dedicated to nurturing.
What would some 16th century benefactor make of it? He’s left £10,000 in his will to buy clogs for Lincolnshire workers. By the 20th century, the Trust is “frustrated”: there’s no-one to give the money to, there are no trustees still alive, the money sits, frozen, on the bank’s bottom line.
Instead of unlocking that cash and making general grants, the money goes to Big Society Capital where, let’s say, 20 per cent contributes to core costs. £8,000 is lent to a social financier. Fifty per cent (a figure derived from actual examples) goes to marketing the financier’s product (say, a social investment bond) and another 20 per cent towards core costs. Finally £2,400 gets lent to MegaCharity Inc. Interest rates along the chain are 4 per cent to 6 per cent.
I’m not sure it’s philanthropy as originally intended.
And the commercial banks own 40 per cent of Big Society Capital!
As Professor Paul Palmer, associate dean at the Cass Business School, said: “I don’t remember the Good Samaritan saying ‘I’ll give you £100, but I want it back with 15 per cent interest in three years’.”
This piece had previously incorrectly stated that banks were providing a commercial repayable loan to Big Society Capital. They are not. They are investing permanent equity.