In December 2005, Gordon Brown got a lot of people excited when he announced that unclaimed assets held in bank and building society accounts, a product of the nation’s collective bad housekeeping, would be used to support good causes.

At that stage, the long process of defining and identifying exactly what constitutes an unclaimed asset, and determining how they should be distributed, had already begun, and that process continues, with a Treasury consultation currently underway examining possible distribution methods.

While the consultation has already suggested that the money should be distributed using the Big Lottery Fund (BIG), momentum has been building behind the idea of using at least part of this windfall to launch a social investment bank.

If developed along the lines of the model proposed by the Commission on Unclaimed Assets in a report published earlier this year The Social Investment Bank: its organisation and role in driving the development of the third sector the wholesale bank would use methods derived from the investment banking world to bring new capital into the sector.

This would offer new resources to existing social lenders and funders, from Charity Bank and Futurebuilders to small grant-making organisations, thus putting them in a stronger position to offer grant, loan and quasi-equity finance to more frontline voluntary and community sector organisations. The Treasury Consultation is open until August, with both its report and that of the House of Commons’ Treasury Select Committee current inquiry into Unclaimed Assets due in the autumn.

Despite the government’s public backing for BIG as the primary distribution mechanism, members of the Commission have told the press that the prime-minister-in-waiting has endorsed the idea of the social investment bank in private; and after representatives gave evidence at a hearing of the Select Committee’s inquiry on 5 June, several key members of the committee offered the Commission very positive feedback.

None of this guarantees the bank will be given the green light, but if government does endorse the Commission’s plan, the necessary legislation could be included
in the next Queen’s Speech, and the process of setting up the bank itself could start next year.

But there is still scepticism in some quarters. One member of the Treasury Select Committee, George Mudie MP, asked the Commission’s representatives at the hearing to explain how an organisation that would help fund other organisations, which would in turn fund frontline organisations, would be the most direct way to help people living in deprived areas within his constituency.

In response, the Commission’s Chairman, Sir Ronald Cohen, and its Commissioner Ed Mayo argued that existing organisations’ attempts to alleviate poverty in Mr Mudie’s constituency, such as the work of credit unions, was hampered on a fundamental level by the inadequate levels of capital available – precisely the problem that the social investment bank would be designed to address.

“It’s clear that voluntary and community organisations are best placed to support communities in the hard-to-reach parts of society, but when we looked at organisations trying to do anything in those areas the thing that was most striking is the utter lack of investment in the sector,” says Toby Eccles, secretary to the Commission.

Moreover, he continues, when funds are made available they often have overly prescriptive conditions attached to their use. Of course, funders are also hampered by the lack of investment in the sector. “A lot of these funders say they don’t like to advertise, because they don’t want too many people to ask for money – and then the government says they can’t see the demand,” says Eccles.

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The bank

The aim of the new bank would be to push the concept of social investment closer to the mainstream of financial services to help draw new capital into the sector in such a way that it can be used more effectively. Eccles gives the example of equipment leasing; very common in the commercial sector, but rare among smaller third sector organisations because of their financial instability in the eyes of commercial lenders and companies.

A social investment bank could easily fund some kind of guarantor scheme. Additional positive effects would include greater job security and career development potential within the sector, thus helping organisations attract the best personnel.

The bank would also stimulate further development in financial services for the sector. “As of yet there is no overall market for finance for third sector organisations,” says Jonathan Bland, chief executive at the Social Enterprise Coalition. “The SIB could support this market’s growth and development.”

James Gilbourne, chief operating officer at Charity Bank, agrees that the bank would help make social investment more credible within the mainstream financial sector. “It could bring third sector banking organisations closer to mainstream financial sector organisations,” he says. “Whether that would then mean commercial partnerships between third sector and financial sector lenders I couldn’t say, but it would encourage more working together, which can only be good.”

But are these changes not already happening anyway, following the development of funding schemes such as Futurebuilders or Venturesome in recent years? Richard Gutch, chief executive of Futurebuilders England, thinks so, but believes the creation of the bank would accelerate these processes. “We don’t invest in what we would call bankable projects, so you would expect to be moving further along the risk spectrum over time, because we would expect more third sector organisations to be considered bankable by commercial sector lenders,” he says.

“The other thing that will happen is that the third sector will become less risky, so third sector managers will become more willing to consider loan finance. I think those things will happen anyway, but the introduction of what would be a new source of investment would undoubtedly help them happen faster.”

If given the go-ahead, the time before money from unclaimed assets becomes available (at least 18 months to two years) could be used to iron out the remaining uncertainties over how the bank would function and be governed, and to run some pilot projects. The Commission envisages a small organisation, with perhaps no more than 20 or 30 staff. It has stated that the bank should be accountable to the third sector, while the NCVO is among those stressing that it should be accountable to parliament, not government.

Sir Ronald Cohen outlined a possible template for governance to the Select Committee in which trustees were appointed in the usual way, to act as guardians of the mission and to pick a board and CEO using conventional public appointment procedures. The bank would then perhaps be required to report to parliament on an annual basis.

The Commission has calculated that the bank would require a minimum of £150 million initially, and would cost £330 million to run over its first five years, after which it could become self-sustaining. However, there is still some debate as to how much money will actually be available. There has been widespread speculation that the banks and building societies are continuing to underestimate the sums that will eventually be released, as happened when a similar scheme was carried out in the Republic of Ireland, when the total amount was ten times as large as initial estimates.

Representatives for the British Banking Association (BBA) told the Select Committee that the Irish example is misleading, because few Irish institutions had started to try and track down asset owners, as has already started in the UK, and Post Office accounts were included, which will not be the case here.

“We have been, I think, conservative, but that is very different from the conjecture other people are offering,” stresses Paul Chisnall, executive director for financial policy and operations at the BBA. “We generally believe that the estimates we’ve put forward are in the right area. We think it’s really important that people don’t go over the top. There will be some more money coming through in subsequent years, but it will be in the low tens of millions of pounds. Therefore we need to think very carefully about how it should be spent.”

The Commission, and all those who support the idea of the bank, now urge interested parties to contribute to the consultation process, to try and make sure the government understands the case for the bank.

“Government needs to understand the value of a wholesaler in the market, connecting what is effectively a parochial world in social investment with a broader market,” says Eccles. “The worst case scenario is that government will seek to commission more activity from social enterprise, but because there isn’t enough investment in the third sector we end up with a whole bunch of privately run services which don’t do what the third sector does, that don’t focus on the end user’s needs and not just the people who pay the money. For me, a lack of investment, and a lack of developing an investment model into this sector is actually quite a big threat.”

By contrast, the bank would unlock potential capacity and talent in third sector organisations currently stymied by that lack of investment, and build financial capacity into the sector’s future.

As Sir Ronald Cohen told the Select Committee: “It’s not like spraying water on the desert. This is about creating an organisation that can act as a help for a voluntary sector that is akin to an engine which has all its pieces lying around on the ground. If we do this then ten years from now, when we look back upon it we will see it as a crucial part of funding voluntary organisations in this country to do a job that neither private sector nor government could do effectively.”

To take part in the Treasury Consultation on Unclaimed Assets Distribution, and for
further information see:

www.hm-treasury.gov.uk/ consultations_and_legislation/consult_liveindex.cfm

For more on the Commission on Unclaimed Assets visit:

www.unclaimedassets.org.uk

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