A central plank of David Cameron's 'Big Society fightback' (as it's been tiresomely dubbed) is the launch of the new Big Society Bank, which is supposedly intended to funnel money into social enterprises. Nice principle – and some of the criticisms levelled at it seem unfair, to say the least. But has the Government really thought through how this will function in practice as a commercial enterprise (as apparently it must)? On today's evidence, we're not completely convinced….
The first point to note about the Big Society Bank is that it won't be a charity; the Government expects it to run as a commercial enterprise, so it makes a big enough return on its investment to cover its costs. This might sound slightly at odds with its supposed social function, but it's actually no different to the way venture philanthropists work – and this has surely got to be a better long-term model than being reliant on external funds. Equally, the fact that it's investing via other funds rather than trying to pick winners directly also seems perfectly sensible: building up this capability in-house would be expensive and time-consuming.
There's also been some criticism of the size of the pot - there'll be £100m of Government money, swiped from dormant bank accounts, plus £200m from the banks via the Project Merlin agreement. But again, this seems misplaced. The whole social investment market was estimated to be about £200m last year. So an investor with £300m to spend can make a big difference. Any bigger, and it might struggle to spend the money.
Nevertheless, there are plenty of flaws in the plan. The political difficulties are obvious: principally the inevitable accusation that this is just a paltry substitute for all the public services being cut, not to mention the awkwardness of the fact that the banks, far from handing over that £200m out of the goodness of their hearts, are expecting commercial rates of return (at a time when, according to a new report, they're being subsidised to the tune of £32.5bn a year by the taxpayer). And private sector providers in this space may cry foul about the entry of a state-backed vehicle that will surely never be allowed to fail (hence why the EU needs to approve it before it can go ahead).
Equally, it seems to us that whoever ends up running the BSB will face a number of practical difficulties. For a start, given the political sensitivities, will they able to pay decent enough salaries to attract and retain talented staff? After all, the bank's effectiveness will depend to a large extent on the quality of its decision-makers? Will there be enough viable opportunities to invest this money, at a time when the voluntary sector is shrinking in size (and studies suggest it may actually contract further as state spending falls). Should it be investing in particularly deprived areas, or wherever offers the best possible rates of return? None of this stuff is particularly clear from today's release.
There’s nothing wrong with the idea, or the model, or even the pot. But this plan still seems to lack some hard-headed commercial nous.