UK

Nice bankers who claim ‘good is good’

  • 4 April 2012
  • From the section UK
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Media captionCash will be used to give to loans to social enterprises

Bankers and politicians have both got a bit of an image problem at the moment, so the arrival of a Big Society bank, shining with goodness and sporting a social conscience, may look like a desperate public relations stunt.

But those behind today's launch of Big Society Capital have ambition far beyond restoring the reputations of the rich and powerful.

It is seen as the catalyst for a dramatic expansion of a new vehicle for delivering public services.

We are used to a simple choice in the provision of services: they are either funded by taxpayers or by shareholders - public or private sector. But there is a third type of provider - the not-for-profit social enterprise.

They exist already, of course, but users may not even realise they are there.

Passengers travelling on the red London buses on route 388 won't spot any obvious difference between their double-decker and the 254 at the same stop.

As you might expect, profits from the 254 go to shareholders at the parent company, Arriva plc. But profits from the 388 all go to subsidising mini-buses for the disabled and elderly in north and east London.

Buses on route 388 are owned and run by a social enterprise called HCT Group. Their mission is not making profit but doing good.

Media captionDavid Cameron: ''Social problems need social action''

It is a successful model that the company has already spread to 11 depots across England with a fleet of over 370 vehicles and a turnover approaching £30m.

They would like to reproduce it even more widely but a double-decker can cost hundreds of thousands of pounds.

The problem for all social enterprises who are looking to start-up or expand is getting a loan.

Traditional banks find it hard to get their heads round businesses that are motivated by "community value" rather than company profits and, without access to capital, social entrepreneurs often find it impossible to grow their brilliant idea.

Enter the Big Society bankers.

The idea is that a social enterprise seeking new capital would apply to Big Society Capital for help in getting a loan at affordable rates. The bank would then approach investors who might be interested in getting a financial return mixed with a social return.

The fiscal rewards would be slightly less than they might get in the conventional market, but the theory is that investors would be prepared to swallow a slightly lower level of profit knowing they were making the world a better place.

The boardroom at Big Society Capital is full of hard-nosed financiers who could squeeze a return from a boulder at forty paces.

Media captionSir Ronald Cohen, chairman of Big Society Capital "We're focusing on organisations that are charitable"

The chairman is Sir Ronnie Cohen, the man known as the father of British venture capital. The chief executive is Nick O'Donohoe, who forged a successful career as an investment banker at Goldman Sachs and JPMorgan.

But they are both convinced there are plenty of institutions and individuals who will be prepared to invest billions in the brave new world of social enterprise - even if it means taking a small hit on their percentages.

Government ministers, of course, love the idea.

Not a penny of Big Society Capital's money has come from the Treasury - £400m from dormant bank accounts and £200m from big banks themselves.

And the thought that a fortune might be diverted into community and other projects without costing the taxpayer a bean is a funding mechanism made in political heaven.

There are concerns, of course. Some social enterprises will go bust with the loss of what may have become a vital service.

Others may operate more like profit-making companies than socially-motivated services, offering fat rewards to successful board members. Some fear that the need to maintain an income-stream to service the loan will deflect social enterprises from the most challenging projects or clients.

The potential of the social enterprise movement will depend on finding ways to monetise the good they do. A project that gets problem drug users off heroin, for instance, will need to calculate how much they save the taxpayer by keeping people clean.

If a metric can be devised, then government might well be prepared to "pay by results", providing the income stream that might then unlock further investment for the expansion of the social enterprise model.

But here is where senior civil servants in Whitehall start to get nervous.

There is little doubt that a problem drug user is a drain on the public purse. There are likely to be costs for the Home Office, the Ministry of Justice, the Department of Health, Department for Education and local authorities, if not many other parts of the tax-funded machine.

But how much should each department or council put in to the pot for the success a social enterprise might have?

One consequence of this new approach to delivering services for the public good may be something our current government regards as a public bad: bureaucracy.

Someone is going to need to check that social enterprises are doing what they say they are doing, that the benefits are what was claimed, that the contracts are in the best interests of all, that the different parts of the Whitehall machine are paying their fair share.

The launch of Big Society Capital today may well be seen as the start of a creative new way of funding projects that genuinely deliver social good.

But many questions remain unanswered.

One thing is for sure: if Big Society Capital does fulfil its promise, it will do no harm to the reputation of politicians and of bankers.