Social Investment Funding from the Cabinet Office

The Social Outcomes Fund, launched by the Cabinet Office on Friday 23 November 2012, is managed directly by that Department for promotion of Social Impact Bonds through helping charities to win Payment by Results contracts.

The Expression of Interest Form for the Social Outcomes Fund for Social Impact Bonds summarises its purpose:

    “The Social Outcomes Fund is an innovative new top-up fund that will create many more social impact bonds that make a difference to people’s lives. It will attract new money by bringing in investment to help finance early, preventative programmes on some of the most complex and expensive social problems. The fund will be used to provide a ‘top-up’ contribution to PbR (Payments by Results) or SIB (Social Impact Bonds) contracts that are designed to deal with complex and expensive social issues. ….The Fund will only top up a minority proportion of outcomes payments, and the average across the Fund is expected to be 20% of the total outcomes payments. The aim of the Fund is to support 10 – 20 new PbR/SIB contracts. It aims to leverage at least £60m of social investment.”

The Fund operates only in England, with funding for:

  • Government Departments
  • Local Councils
  • Other Commissioning Bodies, like Police Forces or Clinical Commissioning Groups

Applications to the fund must involve PbR and ideally be financed by a SIB. Examples shown include “providing up front funding to a Charity to carry out a project” and “A bid from a Central Government Department for top up payments in a PbR scheme to help problem drug users”

The Expression of Interest Form makes it clear that if applicants don’t offer a Social Impact Bond or Payment by Results concept, there will be no funding.

Page 3 gets straight to the point on the main purpose of the Fund:

    “1.2.What is the Social Outcomes Fund?
    “…The fund will therefore catalyse innovative and/or preventative service provision that will deliver positive social outcomes and generate evidence on what works. Proposals must commission on an outcomes basis using mechanisms such as Payment by Results (PbR) which includes the Social Impact Bond (SIB) model.”

Page 4 Process for Submitting and EoI (Expression of Interest) and Beyond:

    “Decline. The EoI has not demonstrated that there is a PbR or SIB opportunity in this area. The bidder is not eligible to submit a FA based on this proposition.

So bluntly, if there is no Social Impact Bond or Payment by Results, there is no funding. Interestingly, on page 4 of the Expression of Interest form is the following:

    “1.5 Who Can Apply?
    “..It will preference propositions that catalyse new and innovative service provision, encourage active engagement from the Voluntary Community and Social Enterprise (VCSE) sector and enable service redesign. Expressions of Interest may therefore be submitted by any interested party such as a commissioner, service provider, intermediary or investor”.

There is nothing elsewhere in the guidance which defines eligibility for specific types of “Voluntary, Community or Social Enterprise” Huckfield is among many asking what kind or organisations might ultimate benefit from this funding.

Social Investment Funding from Big Society Capital

Big Society Capital has £600mn at its disposal to stimulate the Social Investment Market. Big Society Capital on Monday 14 January 2013 set out its targets:

    “Big Society Capital (BSC), the world’s first Social Investment Bank, has today set a target of investing between £75m and £100m in new projects during 2013 after committing £56m in its first nine months.

    “Since it was formally launched in April 2012, BSC has committed investment to 20 Social Investment projects totalling £56mn. This has included supporting six Social Impact Bonds, and being the cornerstone investor in an array of Social Enterprise funds. In addition BSC has helped develop the Social Investment market in the UK, investing in the development of a social stock exchange; providing funding to support the growth of ClearlySo, a firm dedicated to helping social organisations raise capital; and collaborating with 14 Social Investment Intermediaries to publish best practice guidelines on evidencing social outcomes.”

Big Society Capital’s Definition of Social Sector Organisations includes for profit companies. The requirements for funding ‘For Profit Social Sector Organisations (SSO)’ are described in Big Society Capital’s Governance Agreement.

    “Section 1.2.2
    “have a policy in relation to the distribution of profit after tax that ensures surpluses are principally used to achieve social objectives. Practically this means that the payout of cumulative profit after tax to shareholders will be capped at 50% over time, and therefore ensures that any surpluses generated over time will be mainly:

    • reinvested in the business
    • applied in advancement of its Social Objects or
    • distributed or donated to other social sector organisations

    “Section 1.2.3
    “have a constitutional or contractual lock on its Social Objects, dividend and surplus distribution policy and ensure the disposal of assets is compatible with the Social Objects embedded in its constitutional documents”

Huckfield is surely among many others asking whether for profit organisations should feature among Big Society Capital’s investees.

But there is a further difficulty in this definition of eligibility. Since Big Society Capital only invests in Social Investment Intermediaries, this does not always correspond with the definitions of Social Enterprise required by its investees – as shown below by the example of ClearlySo.

Back to Top

Social Investment Funding from ClearlySo

In April 2012, ClearlySo published its Guide for the Ambitious Social Entrepreneur

Page 7, Chapter 3 The Social Enterprise Sector, says:

    “The common characteristics of a Social Enterprise are:
    “It is a business that trades with the aim of tackling social problems by improving communities, people’s life chances and/or our environment; it has a clear sense of its mission and how its activity addresses a
    particular need.

    “It differs from straightforward Charity because it is run as a business, earning money from trade and making surpluses which in part are used to finance further activities which generate social benefit”.

The ClearlySo Guide then offers 63 pages of other intermediaries, details of Business Support and Investment Readiness Services, Chapters on Measuring Social Impact and Legal and Fiscal Issues.

The Big Society Social Sector Definition says:

    “The statute which governs the establishment of BSC defines them as organisations that “exist wholly or mainly to provide benefits for society or the environment” This definition includes regulated social sector organisations such as charities, Community Interest Companies or Community Benefit Societies”.

As an investee, how does ClearlySo reconcile this looser definition when deploying Big Society Capital investment which is governed by different rules of eligibility?

Back to Top

Social Investment Funding from Big Venture Challenge

Big Lottery Fund has given a £15.5m boost to fund social enterprises. UnLtd will receive just over £8.5m to run the next phase of the Big Venture Challenge. Following an earlier pilot, in January 2013 Unltd, ClearlySo and theShaftesbury Partnership launched the Big Venture Challenge:

  • “For Entrepreneurs
    The Big Venture Challenge is an intensive 12 month programme that is designed to help you raise external investment (debt or equity) of between £50,000 to £250,000. This means working with you to build a compelling growth story, finding investors, making strategic connections and supporting you as an entrepreneur during the journey”.
  • “For Investors
    We are looking for investors – private individuals (angels), foundations, family offices, institutions and corporations – interested in investing £50,000 – £250,000 in some of the most exciting early-stage social ventures in England.

  • “For Supporters
    We are building a network of supporters – individuals and organisations– who can help 30 of England’s most ambitious social entrepreneurs to reach scale.

The Big Venture Challenge Application Guidance Notes show on page 4:

    “Social entrepreneurs with ventures of any legal incorporation form may apply – that includes charities, not-for-profit Companies Limited by Guarantee, Community Interest Companies or for-profit Companies Limited by Shares”.

This gets more complicated when the Social Investment Business which “will support Big Venture Challenge winners by managing the match-funding process”, refers inquirers to KnowHowNonProfit, part of NCVO, which includes another definition of ‘Social Enterprise’:

    Diagram Two - A Spectrum of Organisational Models

    Diagram Two – A Spectrum of Organisational Models

    “There is a greyed-out box cover circles 2-6. This is labelled ‘Grey area in which organisation are often loosely referred to as Social Enterprises’.

Conclusion from this Section. The example of Big Venture Challenge and others above demonstrate that often the Government, the Social Investment Intermediary and the final beneficiary may each have a different definition of ‘Social Enterprise’.

HUCKFIELD therefore asks who is keeping track of these significant sums of funding in a wide range of funding programmes – and there are many more – and who knows what kind of organisations are the final beneficiaries?

There is surely a risk that main beneficiaries claiming a “social purpose” may be Companies Limited by Shares owned by private shareholders or companies?

Back to Top

Does Any of This Work?

Finally, on Payment by Results, on which much of the above is based, the Payment by Results Report from the Kings Fund, November 2012 after 10 years of Payment by Results in the NHS, in its Conclusions on page 41 says:

  • “Overall, our assessment is that PbR in its present form is not ‘fit for purpose’ if the NHS is to meet the challenges it faces”
  • “It provides almost no incentives for health promotion and disease prevention, and
    in its current form does little to support improvements in the efficient allocation of funds or innovation”

  • “Our review of the international experience suggests there is no blueprint for moving in this direction. What is clear is that activity based funding has limits and that all countries are seeking to modify the basis on which they pay for services”.

Back to Top

Does Social Enterprise need Social Investment?

Firstly, Huckfield believes that it does little to solve some of the real public spending difficulties of many local authorities shown above. Though the Closing Date for Expressions of Interest for the Social Outcomes Fund to promote Payment by Results and Social Impact Bonds is not until Friday 01 March 2013, Huckfield still lacks evidence of tumultuous interest from Local Authorities.

Cabinet Office/IPSOS Mori National Survey of Charities and Social Enterprises National Results in December 2010, showed that many organisations were not ready for Social Investment:

  • Page 16 shows shows that in 2010, Access to Loan Finance for your Organisation was Not Applicable for 59%, with only 3% Fairly Satisfied
  • Page 18 shows that in 2010 only 9% showed that Income from Investments was most important for the Organisation’s Success

None of this seems to show any great enthusiasm for the kind of loans and investment on offer from Social Investment intermediaries above.

NCVO’s David Kane – Loans and Finance: How Much does the Sector Borrow? Thursday 05 April 2012:

    “A whole range of finance is available to charities; here I’m going to focus on loan finance, as it is the area with the most information. However, data on existing use of loans finance is scarce – partly because of some of the difficulties outlined below, and partly because it is still an emerging area.

    “In 2001/02 we found the total value of loan finance to the sector was £1.7 billion – estimating current values of loans from these figures would suggest the sector has £3.5 billion in loans – around 21% of its total liabilities. This is very much an estimate though.

    “If Big Society Capital’s full £600m value was used by the sector, it would represent a 17% increase on its current loans. However, in comparison to the sector’s asset base – including all its buildings, investments and other assets – £600m is a drop in the ocean, just 0.7% of the sector’s total net assets. Defenders of the fund would argue that this is just the start of developing a market for social finance.”

NCVO’s UK Civil Society Almanac shows that this ratio of loans to liabilities has not increased between 2001/2002 to 2009/2010.

Despite the lack of enthusiasm for Social Investment finance, what all this does show is that if there was any great enthusiasm for Social Investment finance, there is a significant asset base, with a current ratio of loans to assets much smaller than either the public or private sectors.