Thank you for the opportunity to have this discussion today. It's a real pleasure to be able to do so. Certainly the governments of the U.K. and Canada work closely together on many issues, social investment and social finance not least amongst them.
My name is Kieron. I am a civil servant. I work in the Cabinet Office, so our Office of the Prime Minister.
You'll excuse me for being a bit confused about what tense to speak in, at the moment, on the basis that we are in an election period in the U.K. We have a government; we don't have a Parliament. What I'll be speaking to is the broader policy sense of what has happened over the past 15 years or so within the U.K., rather than within any particular political government or specific political party.
The caveat over, there are a few things I'm hoping to cover today. I also really look forward to the discussion. There are three points I want to cover through the course of this presentation.
The first is narratives—how narratives have been a very strong part of the U.K. experience of social finance, and what narratives have been deployed by a variety of political parties and governments in support of this agenda.
The second is to pull out the U.K. perspective. I've sat on the social impact investment task force set up under the auspices of the G-8, and we've seen across the G-8 countries the important role of policy. I'll pull out some of the distinct policy developments in the U.K. that I think have been quite important for the development of this field.
I'll finish with a perspective on how, as a government, respective governments have tried within the U.K. to use the field of social finance to improve public services and services to the public within the U.K.
I'll give myself the challenge of doing all that in under 10 minutes, but do please let me know if I've gone way over.
A crucial point, I guess, is to talk about definitions. Definitions are everything here. Essentially, within the U.K. there seems to be two broad definitions that sit around the world of social finance. The first one seems to be social finance being about repayable capital that helps social organizations increase their impact. That's very much from the investee's perspective. There's a broader one that we used in the G-8 task force that was talking about social investment being investment that intentionally seeks and measures financial returns and social returns.
I think they're both right. It just pulls out the fact that there's a breadth to this. So much of this field depends on where you sit.
I said that narratives were important, so perhaps I could just give a sense of how this field has developed within the U.K. over the past 15 years. The field has developed out of a strong history and a strong sense of political support for the social economy and social sector organizations. That's really where this field has grown from. It has grown from a sense that as we look at the sorts of policy challenges that face governments in the U.K. and, I would argue, most developed countries, we have challenges where, when we look at demographics and we look at the types of social problems, they are complex, they are costly, and they are deeply interconnected. There's a question of whether public services, and particularly public services provided by the state or by a large government service, can actually be effective in tackling a number of those. There's been a particular and sustained interest in the role of social sector organizations within the U.K. in helping government tackle some of those challenges.
One challenge we've seen in the U.K. is that when you speak to a number of these social sector organizations about what will help them be more successful, or what some of the biggest barriers are that they face, they have historically said that it's access to finance. Now, some of that is reported. It might not be the biggest barrier, but certainly for a lot of organizations they feel it's the big barrier that they're trying to tackle.
I give that long story to say that this is how the field in the U.K. grew. It grew out of trying to tackle essentially the finance gap that exists for social sector organizations that trade and use businesslike approaches to tackle social problems. I think over the course of this discussion, we'll probably pull out that the field around the world is much broader than that. I think the field around the world is increasingly looking more agnostic about the types of organizations that are achieving social impact and looking at the role of finance in helping a broader range of organizations have a social impact. But within the U.K. this very much grew out of supporting finance into civil society or the third sector.
I said that the role of policy has been important. Within the U.K. there's been at least 15 years of sustained focus on how we can support the emergence of social finance and how social finance can be effective in supporting social sector organizations. I point out that it has existed across political parties. So the majority of the work that was started around support for social investment was started by the Labour government under Tony Blair and picked up and accelerated by Gordon Brown. Then our recent coalition government, headed by Prime Minister David Cameron, essentially carried on a lot of the work, and I'll pull out the bits in particular that were carried out. But that is to say that there has been a sustained focus on this that has, among other things, allowed people like me, grey bureaucrats and policy-makers, to really look at and see and learn from what has been tried in the past, what worked from that and what didn't work, and how we should shape public policy as a result.
I won't go into a great deal of detail on all the policy interventions, but essentially there's a framework that we have used over the past six or seven years to think about how government can support the growth of the social investment market. That framework has three elements. The first has been about how we can attract capital into this market. How can you crowd in socially intended capital? The second barrier has been how you build demand for that capital. Put crudely, how do you grow the pipeline of organizations that are looking to take on investment to help them increase their social impact? The third area is how you connect the two. How do you build an enabling environment for social investment to take place?
I'll just very quickly go through some of what I feel are important developments within the U.K. On the supply side, a large initiative has been the development of an organization called Big Society Capital. Perhaps we can go into them in some detail later. Big Society Capital is a wholesale social investment fund, which we colloquially refer to as a social investment bank but really it's a wholesale fund. It is capitalized with dormant bank accounts that have been set up to cornerstone a lot of investments into the market.
We have also focused on the role of government subsidy in other ways, in particular tax relief and the role of tax relief in supporting social investment. Last year the coalition government launched a social investment tax relief, which I can go into more detail, but essentially it's trying to attract more private investors into smaller high-growth social ventures.
Then we've also been exploring—just to pull it out as it might be an area to discuss later—some of the ways in which alternative finance can support the social investment market. There's been a lot of work exploring the role of crowdfunding and peer-to-peer financing, and how that can support crowding in capital into a market.
The demand side is a more crucial area from my perspective in terms of the distinct role government can play, we focus a lot on capacity building, specifically to enable organizations to take on investment. Two recent programs that we trialled within the U.K. were part of a broader investment readiness program. The first one focused on larger organizations. This was called our investment and contract readiness fund, a pilot program of £15 million. Essentially that focused on organizations that had been trading for a while but needed some ground support to build up the sorts of business models or financial planning or back-office capabilities that would enable an investor to place money into them. For that pilot every £1 of government grant we put in succeeded in unlocking over £27 of private investment, which if nothing else has made it—and I've checked—the most successful U.K. business support program out there.
We also focused on earlier-stage social ventures, and backed by the Cabinet Office, a number of social incubators, essentially business accelerators that were typically combining public money and then private money, often from large corporates, and putting that into accelerated programs for very early-stage organizations that were looking to have a social impact. I can talk about how, very recently, the U.K. government set up a new foundation to try to build in some of that capacity building for the long term as a sister organization to Big Society Capital.
Also, on the demand side, we focused quite a lot on how we can open up public markets for social enterprises to deliver within. I won't get into a lot of detail on social impact bonds now, but that's essentially where they sit. I will go into some detail on an act in the U.K. called the Social Value Act. It's a very important development, in my opinion. The Social Value Act essentially said to commissioners of services within the U.K. that they have to consider the social value of a service when commissioning it, beyond, for example, just pure economic or short-term cost issues, the idea being that for many commissioners thinking about value in the round, this often means they're getting better value for money than just a very short-term focus on the cost of a service when commissioning it. We feel that things like that are just as important as these initiatives around crowding in finance.
Just very quickly, on the broader environment, I'm always kicked for saying this. It's the boring but important stuff typically. It's looking at very complicated questions such as fiduciary duty, such as the responsibilities of trustees, be they foundation trustees or pension fund trustees, and on what basis they are allowed to invest, and what things they can think about other than pure financial returns. Put very crudely, there are some complexities within the U.K. system, and I know from some experience in speaking to Canadian colleagues that some are replicated within Canada.
Just to give a U.K. example, there's a complexity that I can walk out of this room now, I can be accosted on the street by a charity asking me to give £10 to them. That's great, we can both do that. If they ask me to invest £10 with them, technically we could both be arrested then and there. The reason is that when I'm investing £10, this has stepped into a different realm of public policy and a different realm of regulation. It's the regulation on investments, where essentially punters like me are protected against certain levels of risk. But this is a complex world. If I'm willing to give my £10 to a charity, what risk am I being protected against, given that £10 is a 100% risk investment? So it's those sorts of issues that we're trying to get into.
Finally, one of the things that we noticed from the U.K. was that countries around the world are all looking at these sorts of issues. There's a lot for us to learn from one another. That was essentially behind David Cameron's intent to put social investment on the G-8 agenda, under the auspices of the G-8 to set up a social impact investment task force, essentially just to observe what is happening in each country in this field so that we can share best practices and learn from one another.
I said I'd finish with a third point, and I'm getting very close to my 10 minutes here. The third point is that the U.K. experience has predominantly been around how you build a social investment market from a public policy perspective. We're now increasingly looking at how we as government work with, alongside, and through that social investment market, with and alongside true social enterprises.
One of the areas that brings us to is social impact bonds, or as I like to refer to them, social investment partnerships. Essentially, what are the opportunities where social investment can enable us to think about delivery of services to the public differently, enable us to innovate, at times enable us to attack issues through early intervention, rather than dealing with downstream consequences? Perhaps we can move into that in time and in discussion.
Hopefully, that's given a broad sense that within the U.K. this narrative has grown out of supporting the social sector, but it is now, I think, a much larger perspective on how social investment and the social economy are a large part of our economy as a whole. We focus in terms of policy on crowding in socially intended capital, building demand for it, and thinking about the enabling environment. Now it feels to us like an increasingly urgent challenge for governments: how do you work with and alongside these markets to deliver better services to the public?
