Few in local government are likely to have missed the interest, excitement and occasional controversy surrounding the announcement of the first local authority Social Impact Bonds in August.
Hailed as an exciting funding solution for tackling intractable social challenges, such as re-offending and problem families, Social Impact Bonds provide a new source of investment in preventative measures, which should deliver better outcomes and savings to the public purse.
While undoubtedly full of potential, new research from BDO, in association with Solace, has found that SIBs are just one reason why local government should be interested in the growing, and increasingly high profile, social investment market. Defined as investment for social as well as financial return, it can offer new sources of investment in local services, as well as support new models of service delivery by organisations such as social enterprises.
However, our research found that most local authorities have yet to consider their role in harnessing social investment for local benefit.
In its most simple form, this could mean councils supporting the development of local social enterprises which can access social investment. For example, they might design new criteria for the awarding of seed funding for new enterprises, as Barnet’s Big Society Innovation Bank has done. They might review procurement procedures in order to create a more level playing field for social enterprises, or find ways to help them become ready to win and use social investment.
Councils can also act as an intermediary, working with social enterprises to lever social investment as well as fresh thinking into an area. AGMA’s support for the FranchisingWorks pilot in Manchester, which gives local unemployed people help and finance to set up franchise businesses, is a good example of this.
The future could see the development of more radical models, with local people and councils themselves becoming social investors. Community investment – whereby communities raise the money from within to fund a local project – could be actively supported by councils. Bristol is planning to explore whether local government could become the “platform” for investment by local people, rather than the “vendor” which passes on funding.
Councils could also set up their own local social investment funds to support local social enterprises, or set up new vehicles in which they can invest, such as a Community Interest Company (CIC). The Westminster Hub, a CIC set up by LB of Westminster with two external investors, provides workspace and learning for new social enterprises. The CIC is predicted to generate a financial surplus, which the council and its partners in the CIC are planning to use to establish an Impact Venture Trust. This will enable them to target further investment in the borough’s most deprived communities.
There is no doubt that such activities require local authorities to embrace new and entrepreneurial ways of working, in addition to being creative and open-minded about how and where they seek the means of achieving the best outcomes for their community. This will not be easy.
However, BDO’s research demonstrates that some councils are already doing just this. With local authorities facing unprecedented budget cuts and mounting political pressure to open up public services, social investment can offer new ways of funding local projects, services and enterprises, whether delivered, commissioned or simply supported by local authorities. With councils on the search for new ways to navigate financial constraints, social investment must be part of the answer.
Andy Mahon is Head of Local Government Advisory at BDO.
‘New Finance for a New World: how local government can harness social investment for social goals’ is available on BDO’s website.
If you would like to discuss social investment with BDO, please contact Andy Mahon.