Five ways to nurse social enterprises and charities into recovery mode
Social sector organisations – and those they exist to help – have been deeply shaken by Covid-19. As they tread slowly towards a longed-for recovery phase, Big Issue Invest CEO Danyal Sattar shares five actions social investors can take now to support them.
As we think more about recovery, it’s worth taking stock of how much has been achieved since March, when the economic impact of a sustained shutdown of activity first became clear.
At Big Issue Invest, we saw an immediate lockdown effect on our portfolio. It has been tough, but so far, we have not seen any of our 200 or so portfolio organisations fail. If you take on deep-rooted social problems, you have to be pretty tough and the incredible resilience of the sector is clear. But, while some sectors (such as housing), continued with some disruption, any public-facing organisations temporarily shut down. Arts, culture, performance and community spaces closed their doors. Anything trading did a sprint to online sales where possible.
There was a rapid social sector funding response, too. Grantmakers, the National Lottery Community Fund, private trusts and foundations, community and corporate foundations – all moved fast to open up funding streams. From government, priorities at a national level were to preserve viable companies affected by the pandemic and to keep the people working there in employment. These two measures aimed to reduce long-term economic damage.
In six weeks, we have had seven investments approved, totalling £1.8m – which for us, is a good run rate
Government schemes such as furlough have helped our sector. The big lending programmes, Bounce Bank Loans and the Coronavirus Business Interruption Loan Scheme, moved the dial as well. We don’t know how much money has flowed to charities and social enterprises, but anecdotally we hear of a number of successful bids to mainstream banks. Big Issue Invest is directly participating in a CBILS scheme, the Resilience and Recovery Loan Fund operated by Social Investment Business and initially funded by Big Society Capital, that lets us put applications under CBILS through to the Social Investment Business for investment. In six weeks, we have had seven investments approved, totalling £1.8m – which for us, is a good run rate. That’s been good for the organisations we’ve got support to, working in areas from community housing to dentistry.
So much for the immediate response. As we look to past day-to-day survival, what will help our social enterprise and charity sectors with the recovery?
Think prevention instead of cure...
I remember well the mid-1990s interest from a new generation of City investors, looking – sometimes for the first time – at deep-rooted societal problems. They were staggered that we spent so much money as a society on things like imprisonment, when the outcomes were so poor. If nearly two-thirds of short sentence prisoners re-offended within a year of release, surely there was a better way of spending money to solve the reasons for reoffending and prevent that expenditure in the first place? That question led to the world’s first social impact bond, at Peterborough prison, developed by Social Finance.
Now, social impact bonds and outcomes-based contracting have their critics. But there is a really good core premise in here. Cutting the cost of the problem saves money. In a time where there is going to be sustained pressure on public finances, investing in problem-solving that saves money has got to be worth it. It may not involve new money. If it is shifting agricultural subsidies upstream in a catchment area to solve flooding problems downstream, or social prescribing to prevent poor health, or mental health services that bring people back into the employment market – all these reduce costs to the system.
Cutting the cost of the problem saves money. With sustained pressure on public finances, investing in problem-solving that saves money has got to be worth it
Our investments totalling nearly £2m into The Mental Health and Employment Partnership (MHEP) – a social impact bond set up in partnership with Social Finance – illustrates this. MHEP works to help people with severe mental health issues into work. It was set up in 2015 because 70-90% of people with mental health issues would like to work, but only 37% are in paid employment. For people with severe mental illness, this falls to 7%. Yet evidence-based models, such as Individual Placement and Support (IPS), have a track record of delivering outstanding job outcomes for this group. The Mental Health and Employment programme aims to scale up these service models.
Backed by investment from ourselves and funding from the National Lottery Community Fund and the Life Chances Fund, the initial set of co-commissioned services launched in 2016 in Tower Hamlets, Haringey, and Staffordshire and have since expanded to Barnet, Enfield, the West London Alliance, Camden and Shropshire. MHEP aimed to support around 4,500 people with mental health issues and support a third of them into paid employment. We need to hunt out preventative investments like this.
...Including on a macro level
The other side of prevention is the big economic picture. The latest Living Standards report by the Institute for Fiscal Studies shows the impact of inflation on eroding real incomes; it is the thief that picks the pockets of the poor. Depreciation of the pound post-2016 triggered several years of inflation. The economy has just received a massive stimulus and market support programme. The Bank of England seems optimistic it can keep inflation low, but inflation can disproportionately hit the basket of goods and services people on low incomes or in poverty rely on. The headline inflation figures may stay low, but the real impact of inflation can be disproportionately high on the very people we exist to serve. While we often call for more funding for charities and social enterprises, inflation makes all our lives harder. So, let’s keep that macro policy level pressure up to keep inflation low.
Identify the economic impact of charities and social enterprises
When it comes to funding, money into charities and social enterprises is direct into the economy at the grassroots level. You want to pump money into the left behind? Our sector can do that. This is spend directly related to GDP. We avoided an unemployment recession after the 2008 global financial crisis. It was bought at a cost of no, or negligible, real wage increases over much of the last decade, delivered by a flexible workforce. The gig economy got us through. We are in a different situation this time round; it looks highly likely we are going to see a scale of unemployment we have not been used to these last decades.
If we want the support of policy makers, we have to look through their lens as well as ours and make a jobs-based case
While we are all hoping for a “V”-shaped recovery this time round, I think there is a great case to be made for getting our sector back on its feet, because this might have a disproportionate, positive effect on employment numbers. Social Enterprise UK estimates there are 2 million people employed in social enterprises in the UK, while NCVO figures show 870,000 people are employed by charities. As social investors, usually we are most interested in the impact that the charities and social enterprises have on the lives of the people they exist to benefit. But as we move into higher unemployment, let’s use the skills of our analysts and economists to continue to support the wider economic case for charities and social enterprises: backing social enterprise has a double benefit – employment and a social outcome. If we want the support of policy makers, we have to look through their lens as well as ours. I’d rather not have to make a jobs-based case, but that is the environment we are moving into.
Support the great British public to give
The campaign to increase gift aid from 20% to 25% is a brilliantly simple way of increasing the flow of money to the sector. No new government spending is required: it simply backs the action of ordinary individuals who choose where their money goes, by increasing the amount of tax that can be claimed back. While the campaign is calling for a modest increase from 20% to 25%, I would say – given the hit in donations this year – there is a strong case for running it at the top rate of tax of 45% this year and drop it in 5% steps for the next five years. This is a way of putting the choice back into the hands of the public. Their donations determine where money flows, not government policy or sector strategy.
We need funding for innovation. So dust out every overused piece of business terminology and back that pivot to a new business model
Back the pivot
I am the boy that didn’t cry wolf. I’ve spent years saying bread-and-butter, simple, risk-taking loans are what our sector needs, rather than funding to innovate (innovation is such an overused word). But what we’ve seen during this pandemic response is, time and time again, people doing things in a few weeks that would otherwise have taken months or years. So now let me cry wolf – we need funding for innovation. So, dust off every overused piece of business terminology and back that pivot to a new business model. This time, I don’t cry wolf, I howl at the moon.
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