Our Policy Coordinator Will Thomson’s recent Third Sector piece outlined what SIB want to see from the next Government in the General Election 2019. In a bumper edition, Will explores this from a social investment perspective in more detail.
On his fourth attempt, Boris Johnson finally secured the general election to break Parliament’s Brexit deadlock. With Labour’s detailed manifesto now live, and the more detailed Conservative’s manifesto pending, the positive take away is that – whoever wins – the hegemony of austerity is likely over: both main parties have signalled their intention to turn on the spending taps in a significant departure from the previous Conservative and Coalition Governments. This could mean increased public spending and investment, and a chance to rebuild the public realm in new and progressive ways.
So, now’s the right time to discuss how our work can help tackle some of the biggest problems the UK is facing.
As one of the country’s first social investors, we have provided over £400 million worth of loans and grants to thousands of charities and social enterprises across the country. We have one of the largest, most mature social investment portfolios in the UK to analyse and assess, giving us the ability to draw on extensive data to understand how social investment works and where it is best targeted.
In our experience from running a wide variety of social investment funds and programmes, charities and social enterprises are interested in taking on repayable finance to grow and develop. However, the finance sought by these organisations tends to be relatively small, unsecured, patient loans – the kind of money that is not readily available in mainstream capital markets. We aim to fill this gap by providing much-needed patient capital to charities and social enterprises in ways that prioritise their social impact, while also supporting them to develop more resilient business models.
Cutting through the divisive politics of Leave vs Remain, there are significant domestic issues that need to be addressed. Brexit revealed deep-rooted problems, rather than created them. Economic and power imbalances between cities and towns, between urban and coastal areas, between people with access to opportunity and those without have become entrenched over decades.
Solving these issues is not simple. It requires a multi-faceted, bottom-up approach that invests in communities; giving them the tools, resources and support they need to develop and improve their local area and meet large scale shifts in workforce, economy and climate with sufficient preparedness. Government funding and policy interventions are necessary but not sufficient. A wider network of partnership working between social investors, local authorities, communities and the social sector is needed to design, finance and implement these solutions.
Our job as a social investor is to work out how we can build stronger local social economies, heal divisions and breathe life back into communities, while giving people more power and control over their lives both in the workplace and where they live. The social sector has a key role to play in tackling the biggest challenges we face. The right finance and support can make a huge difference in how effective that role can be.
Here’s some initial thinking on what the next Government’s priorities should be, based on our work and learning to date.
- Reinvigorating ‘left behind’ places with the right kind of finance and investment
The UK is one of the most regionally unbalanced countries in the industrialised world. Interregional inequality in the UK is higher than 28 other OECD countries, including the United States, France, Germany, Spain, Sweden and South Korea – and around half of the UK population are living in areas where income and productivity are similar to that of former East Germany.
There is a complex range of issues affecting the local economies of former industrial areas, coastal towns and rural economies - each feeding into the narrative of ‘left-behind’ places: these are the areas of the country that have not benefitted from the economic and political forces that have shaped modern Britain. Not so much left behind as kept behind, one could argue.
Our current economic system has been unable to generate growth which equitably distributes and recycles wealth across the country and within localities. A new approach should look to build broad local economic networks that combine inclusive growth with community building and workforce empowerment – the social sector will be key to this solution.
From our own experience, we know that the most successful charities and social enterprises are those which sit across a local economic network, connecting to both public and private markets. A social economy that can create effective working links to both these markets is more resilient and sustainable in the long term.
We find that these organisations benefit from broad range of support which focuses on developing resilience, adaptability and flexibility – this requires finance to grow, but also business support to develop the right networks, governance and supply chains. We have a strong track record of working with charities and social enterprises to develop more resilient business models, and the partnerships to leverage our own expertise and make the most of it.
To develop the social economy, stimulate inclusive growth, and create a less divided and unequal society, the next Government should:
- Establish a £1bn Local Social Economy Fund, earmarked from the proposed UK Shared Prosperity Fund, to invest in networks of social businesses in the most disadvantaged areas in the UK over a decade. This should be aimed at building a broad social economy – of goods, works and services – that can connect up to both the public sector (through procurement and commissioning) and private markets (business to business, and business to consumer). This should be deployed alongside a dedicated business support function to help build organisational resilience.
- Broaden and strengthen the Social Value Act, for all public sector procurement – including local authorities – to ensure that community and social enterprises are on a level playing field when bidding to take on public services. This would build on the work of Social Enterprise UK and the UK National Advisory Board and include a minimum weighting for social value of 20% and ensure public bodies are held accountable for the social value of their procurement practices. The government should also encourage and support the private sector to consider social value in this way.
- Investing in buildings and high streets that contribute to thriving local economies
The local economies of left-behind places across the UK have struggled to grow over the past three decades, visible in the slow decline of town centres and high streets across the country.
High fixed costs, including rent and business rates, have forced many retailers and businesses to close, adding to the growing vacancy rate on the high streets – an estimated 29,000 physical retail units have been abandoned for more than 12 months. Community and social enterprises operate on tight margins; high rents can therefore act as a barrier to the social sector embedding itself into the high street and providing much of the energy, as well as the friendliness that helps to sustain footfall in a world of competitive internet shopping.
To reverse urban decline, high streets must become dynamic public spaces where people come together to share a collective experience that sits at the intersection of retail, leisure, arts, business and community gathering. We’ve seen that communities can run pubs and libraries, but there is also potential to refocus the high street business model on local people, with additional benefits in making shopping greener, cleaner and more affordable.
Bringing high street real estate into community ownership so that it benefits local people, rather than making profit for landlords, can provide a low-rent environment for the social economy to operate and scale in ways that commercially owned property cannot. It can also ensure that access to good local food shopping is sustained for everyone.
We have been exploring high street economic modelling that will identify the optimal mix of traditional retail, independent shops, social businesses and community ownership to support thriving high streets for the future. These models can be used to co-design a plan for the high street with the local community that builds upon the unique history and character of the place.
Working with communities to create a plan for the management and use of the buildings on their high streets – ensuring that they meet the diverse needs of local people – will help to save, stabilise and develop local economies.
To revitalise communities and kickstart urban regeneration, the Government should:
- Create a £1bn Community Asset Fund, as recommended by Locality, to facilitate and increase community asset ownership. This should aim to build the capacity of community organisations so that they are better equipped to take assets and secure the future of community buildings and land in their local area.
- Explore options for the transfer of disused or at-risk urban heritage buildings on the high street to custodians who will restore, manage and safeguard these assets for long term public benefit. These buildings can then be used to provide the low-rent environment needed to allow the social and community businesses to develop and help to regenerate local economies. This is work already being piloted by our partners the Architectural Heritage Fund.
- Allocate funding for the development of Future High Street Economic Models, earmarked from the Future High Streets Fund. These models will inform how individual high streets need to adapt to the changing retail environment and shifting consumer behaviour in ways that meet the needs of local communities. This modelling should be done in partnership with local authorities and the High Streets Taskforce.
- Creating fairer employment and empowering the workforce
Shifts in the UK labour market towards a service and knowledge-based economy have dramatically changed the nature of work – especially for younger generations.
Employment patterns over the life course have changed with increasing numbers of self-employed workers managing portfolio careers for which the existing regulatory and welfare systems are unsuited – this includes those in the gig economy, on temporary or zero hours contracts, freelancers and dependent contractors.
These structural changes have knock on effects for people including precarious income and poor bargaining power, as well as diminished employment rights.
Shared ownership business models have the potential to transform employment through better economic redistribution, increased workforce solidarity and more accountable corporate governance. These include worker cooperatives, mutuals, employee owned businesses, as well as hybrid-shared ownership models across different sets of stakeholders.
These models have several advantages that respond to challenges presented by the future of precarious work and economic inequality in the UK. They are more equitable in the redistribution of returns of capital, they pay higher wages, and they tend to provide a richer set of benefits to their employees.
Despite the benefits of shared ownership models, the UK has a disproportionately small cooperative sector compared to France and Germany. There are a several routes available to increase the number of shared ownership businesses: conversion of existing private business, ‘socialising’ of private businesses through purchase by non-profit / cooperative organisations, and the expansion of shared ownership schemes – to name a few.
We are interested in the ways that social investment can be used to grow the number of shared ownership businesses in the UK. Cooperatives, employee-owned businesses and mutuals need finance like any other enterprise – but shared ownership businesses need investment products that are long term and do not compromise on member or employee control. Social investment can provide the patient, engaged and flexible capital that is aligned to the social purposes of these organisations, rather than extracting short-term value or seeking high returns.
To build an economy with fairer employment and a more empowered workforce, the next Government should:
- Create a dedicated fund to invest in the conversion of businesses to employee ownership. Converting to a shared ownership model through, for example, an Employee Ownership Trust is an expensive and lengthy process. This fund should look to provide catalytic capital that can speed up the conversion process and encourage business owners to explore shared ownership models as a business succession option, following the examples of Aardman or Riverford or Richer Sounds.
- Support investment in cooperatives and mutuals by establishing criteria that allow cooperative societies to benefit from Social Investment Tax Relief; and explore additional options for tax and financial incentives available for the expansion of cooperative business models.
- Develop the model of multi-stakeholder cooperatives for the most precarious workers, starting with those in the caring economy, 50% of whom are on zero hours contracts and 83% of whom are women.
Our vision for post-Brexit Britain
Eventually, our politics must move past the corrosive debate over Brexit. There is an urgent need for a new economic settlement that can remedy the long-standing fissures in British society and deliver inclusive growth across the country.
Boris Johnson began his time in office talking about the need to support left behind places, while Labour’s 2017 manifesto declared that it would create an economy that works for all. These pledges need to be more than just rhetoric.
We know that social investment and the wider social sector have an important role to play in addressing the significant challenges facing society, but without Government funding and policy attention our impact will be limited. It is therefore vital the next Government, whatever the party, make a concerted effort to kickstart genuine inclusive growth by providing finance to develop the social economy, investing in local buildings and places on behalf of the community, and testing fairer business models that empower the workforce.