How bad is the bad news, how good is the good?

Apologies for the lengthy silence from me in recent months. It’s been a busy time for Social Spider CIC. Amongst other things, we’ve launched a community newspaper and a national mental health blogging project. I’m also heading up The Alternative Commission on Social Investment: an initiative set-up to investigate what’s wrong with the UK social investment market and to make practical suggestions for how the market can be made more accessible and relevant to a wider range of charities, social enterprises and citizens working to bring about positive social change.

The last few weeks have seen (at least) two major events in the UK social investment market. At the end of October, the Ministry of Justice announced the preferred bidders for Transforming Rehabilitation (TR) programme. Then the following week, social investment finance intermediary (SIFI), Social and Sustainable Capital, launched a £30million ‘Third Sector Loan Fund’, complete with £13.5million investment from high street bank, Santander.

The former story is seemingly terrible news. In fact, the apparent failure of charities and social enterprise-led bids to secure any significant contract value as prime contractors for TR may mark the death of the ‘plan A’ vision for the UK social investment market conceived in the mid-2000s.

The wonderful blog post (at least, as wonderful as a blog post can be when it’s essentially a cry of pain emitted through the medium of analysis of a government procurement process) from Big Society Capital‘s Christine Chang and Matt Robinson, explains what went wrong from a social sector point of view.

Ultimately, the key demands of the TR procurement process were not having a great plan, high level skills and a track record of competence in delivery the services being commissioned, they were: be a massive company with the ability to engage in a 13-month procurement process and to provide a ‘Parent Company Guarantee’ worth 100% of annual contract value. Not surprisingly:

Preferred bidder consortia all have at least one multinational member with assets in the hundreds of millions, if not billions, with the exception of one (Seetec with total assets of £43mm).

While many social sector organisations have a role in TR bids, the BSC blog suggests they’re unlikely to end up with big roles and the big resources that come with them.

Ironically, given that Justice Secretary, Chris Grayling, is not widely regarded as a left-wing politician, he has done more than any other individual actor in public service markets to ensure the scenario most feared by traditionally left-wing voluntary sector campaigners – that significant numbers of charities and social enterprises will ditch independent voluntary action to become direct competitors to Serco, A4E and Sodexo in battles for government prime contracts – remains as unlikely as ever to become reality.

Pre-TR, Grayling’s CV in his previous role as Employment Minister, included the creation of the Work Programme – a programme which saw large private companies mop the vast majority of prime contracts, leaving charities and social enterprises to sub-contract themselves towards bankruptcy.

This is not to suggest Grayling hates the voluntary sector and is opposed, in principle, to charities and social enterprises secured large government contracts but that the overarching priority in the commissioning and procurement processes for the Work Programme and TR has been to save public money and transfer risk from the government to organisations providing services.

This is not an issue that’s going to bring protestors on to the streets. Some people to in the UK do strongly support largescale public service outsourcing whilst also believing passionately that this outsourced market should be set up in a way that provides genuine opportunities for charities and social enterprises to win contracts. Unfortunately, while there may almost be enough of those people to fill the away end at a non-league football ground, they definitely don’t represent a social movement big enough to swing the next general election.

On the other hand, for social investment as a market/professional activity, the TR process is a big deal. It’s confirmed once and for all that the current government – for all it’s support for social investment in theory – when faced with competing priorities, does not see a diverse outsourcing market supported by social investment as a priority.

For those, both in the voluntary sector and the social investment market, who were dreaming of a social Serco, this is disastrous news. Those most angrily opposed to social sector contracting will probably be too busy being angry about everything that’s happened since 1976 to even notice the significance of what’s happened. For social sector pragmatists, the death of (at least, a big chunk of) social investment plan A, may help create the space to get on with creating plan B.

If the biggest bit of bad news in UK social investment isn’t necessarily all bad, it’s equally unclear whether the good news is all that good. Once again, there’s no doubt that it is big news. A high street bank, Santander, have made a £15 million commercial investment in a social investment fund.

As Social and Sustainable Capital (SASC)’s chair, Nat Sloane tells Civil Society: “What excites me most about this is the mixture of philanthropic and commercial capital.” He adds: “Santander has come in on the same basis it would make an investment in a mainstream fund.” While Bridges Ventures have recently attracted some private money to their Social Impact Bond Fund, both the level of investment from Santander and the fact that it’s in a loan fund do mean that SASC have achieved something significant.

There is a ‘but’, though. The ‘but’ is that it’s one thing to set up a fund and another thing to successfully invest the money in charities or social enterprises (let alone successfully get it back with interest). After years of hype, many in the social sectors now greet SIFIs’ announcements of new funds with the same level of scepticism they deploy in response to government ministers’ announcements of ‘new money’.

It’s important to remember that in its latest annual report, Big Society Capital had made £149.1million worth of commitments to SIFIs but that – at that point – only £47.9million had actually been invested in funds and just £13.1million had been drawn down by frontline charities and social enterprises.

SASC should be congratulated for doing the first part of their job really well but, while the fact that a high street bank is involved in this deal is pretty exciting for social investment insiders, it’s of no major relevance to charities and social enterprises trying to work out whether what’s on offer is appropriate to them.

Ultimately, not investing Santander’s money is not significantly more useful than not investing the government’s money. The number of charities and social enterprises in the UK in the market for a loan of £250,000-£3million is pretty small – the average UK social enterprise has an annual turnover of £187,000. The hardest part of SASC job is still ahead of them.




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4 responses to “How bad is the bad news, how good is the good?

  1. There was an interesting critique last week on Stanford Social Innovation Review which debunked the myths of social impact bonds:

    It provoked a discussion on Linkedin (can’t find it now) in which former MP Tom Levitt came across as a SIB supporter.

    With hindsight its a litle ironic that I petitioned David Cameron in 2010 to support the concept of investing in this kind of innovation, albeit without the for-profit intermediary. We’d reasoned that the reduction of cost in transitioning children from institutions could reduce state costs. That clearly isn’t what the financiers had in mind.

    Seemingly there’s little hope for those who put people ahead of profit.


  2. Hi David – in relation to whether the good is good, I think the mainstream involvement is signiiicant; but this fund won’t solve the finance challenges of small social enterprises and charities (who number in the majority) – I don’t think it’s trying to, and most social investment intermediaries seem to be experiencing a pick-up in pipeline for this type of fund, at least from what I gather anecdotally. As ever, the proof is not in the announcement, but in the delivery + implementation (i.e. judge on the investments).

    The same can be said of TR, to some extent. I would have liked more of the social primes / consortia to have won..and have some sympathy with BSC’s position on the process in relation to that, but we are at risk of overlooking the fact that social enterprises and charities are very well represented (including, via 3SC, lots of smaller ones). And we don’t know the finer detail of the contracts / sub-contracting arrangements: perhaps there has been learning from the Work Programme, and they are better; again, time and the delivery will tell. But I think writing off TR entirely is probably being too black and white about it – NACRO, P3, Addaction, Shelter, CRI, 3SC et al might agree. And this scale of delivery, for those who think this is the way to go, may help bolster the sector’s strength in terms of both bidding and bargaining next time.


    • Beanbags admin

      Hi Nick,

      Thanks. Don’t disagree. On TR, I suppose it depends what you mean by writing it off. I’m definitely not writing it off as an opportunity for charities and social enterprises to pick up work, my point is that the step change that the ‘Plan A’ model of social investment was meant to deliver – that charities and social enterprises could compete on level/more level playing field with private sector outsourcing giants – has not happened and, as BSC blog illustrates, it hasn’t happened due to policy decisions.

      It’s unclear how long it will before central government has another opportunity to create the conditions for that step change to take place through the shaping of a national outsourcing programme – or under what circumstances a government might be inclined to attempt to do so. One way or another (for better or worse), I think a moment has passed.

      Agree on SASC. Look forward to seeing the deals being announced! Broadly enthusiastic about this stuff at the upper end of the market grinding into action – as long we continue to recognise how relatively marginal it is.


  3. You’ll be delighted to learn that the Social Investment Task Force who have a lot to do with where we are now, have come up with a new Profit-with-Purpose business model.

    Allegedly, this has been influenced by other models fom the US.

    Just inagine what this group cost us, to re-invent what was shared freely two decades ago.


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