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SOCIAL FABRIC

How to scale social investment: 5 ways to turbocharge investment with a social purpose

Accelerating UK social investment growth
September 9, 2021
How to scale social investment: 5 ways to turbocharge investment with a social purpose

The UK social investment sector has grown substantially in recent years in property investments, liquid social bonds and through lending activities. However, so-called ‘social impact bonds’ have failed to raise investment capital at scale and the Social Investment Tax Relief has been ineffective at incentivising investment into the sector. A re-think and refocus is needed to truly realise the potential of the social investment market."

 

Unlocking new capital for businesses and projects that benefit communities and society

Ever since 2011, when the then Minister for the Cabinet Office, Francis Maude, launched the first “social impact bond” (SIBs) to reduce reoffending at Peterborough Prison, and created Big Society Capital, the British Government has sought to support the UK Social Investment market. However, investment has fallen well short of expectations.

Successive reviews have found that SIBs are complicated to set up, difficult to commission, and often require government or charitable foundations to underwrite some of the investment risk. Meanwhile, the main tax relief for social investment, Social Investment Tax Relief (SITR), has only been used by 110 social enterprises to raise a total of £11.2 million over the seven years of its operation, around 6% of the estimate when it was launched.

In this report, Gareth Davies MP argues that this is because SIBs are not bonds (liquid issued debt) at all, but an innovative form of public service commissioning based on desired outcomes and that the tax relief is ineffective. Instead he argues that the Government should focus on encouraging more corporate issuance of liquid, tradable social bonds, in the same way that companies issue green bonds to support decarbonisation.

In 2020, a record $269.5 billion of green bonds were issued by companies to fund climate investments and the UK Government has committed to issue the first green sovereign bond in 2021, totalling £15 billion. The nascent social bonds sector also had a record year in 2020, with $59 billion now outstanding in the sector.

The report puts forward a series of recommendations to refocus Government efforts to unlock investment at scale for businesses and projects that benefit communities and society in the UK, and strengthen social fabric, including:

  1. End the Social Investment Tax Relief  in the Autumn Spending Review and replace it with a new incentive for corporations to issue liquid social debt in the public markets.
  2. Redirect the Government’s £80m Life Chances Fund investment into a new, social investment mutual fund – investing in listed, liquid, tradable social bonds – managed by Big Society Capital.
  3. Make clear the distinction between social investment and philanthropy, by moving social investment under the responsibility of the Small Business Minister in BEIS, instead of the Civil Society Minister in DCMS.
  4. Expand the mandate for Big Society Capital, by amending UK subsidy rules and overturning the ‘wholesaler requirement’ within Section 18 of the Dormant Bank and Building Society Accounts Act to enable it to directly invest and establish liquid social bond portfolios.
  5. Big Society Capital should consider supervisory control by the British Business Bank who have demonstrated expertise and effectiveness at funding businesses.

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