‘Impact economy’ contributes 15% to UK GDP – new estimate
New Philanthropy Capital claims to have made the first estimate of the scale of the UK’s impact economy, bringing together impact-led businesses, charities, universities, political parties and others, while omitting co-operatives and employee-led businesses, in new research.
The ‘impact economy’ contributes £428bn to the UK’s economy, representing 15% of the country’s GDP, according to new research by think tank New Philanthropy Capital (NPC).
Impact UK, published today, intends to be the first attempt at mapping the economic contribution of the UK's broad ecosystem of entities “prioritising impact over private gain”. These include charities, social enterprises, impact-led businesses (including B Corps), as well as universities and political parties.
The study calculates the gross value added (the value an organisation creates through its activities) of impact economy entities, rather than their income, to avoid double-counting and mirror the method used to calculate GDP.
“Seeing the impact economy as a single, connected whole helps us recognise its dynamism and the significant contribution it makes to the UK,” says Jonathan Simmons (pictured), CEO of NPC, in the report’s foreword. “It represents a shift in mindset from a fragmented set of sectors, often operating in isolation, to a coherent system, intentionally seeking to solve the challenges we face, together.”
The research points to recent momentum in favour of the impact economy, including policy developments like the government’s creation of the Office for the Impact Economy, and a four-fold increase in the number of “impact-led” businesses in 10 years
Chief secretary to the prime minister, Darren Jones, who launched the Office for the Impact Economy in November, endorsed the report. He said: “This report highlights the vital role of purpose-driven businesses, charities, philanthropy and investors in our society. That’s why last year we launched the Office for the Impact Economy to help these organisations work more closely with the government to unlock billions in investments in our communities across the UK and drive national renewal.”
In: universities and charities; out: co-ops and employee-owned businesses
Within the ‘impact economy’, £105bn is created by what the report calls the “regulated impact economy” – organisations that are bound by their legal form to provide benefit to society or the planet. Higher education is the largest sector in this subsection, representing £34.2bn in GVA. Also included are charities that resource less than half of their expenditure by trading (£40.6bn), trading charities (£8.6bn) and community interest companies (£5.1bn).
Within the ‘impact economy’, £105bn is created by what the report calls the “regulated impact economy”, including charities, universities, CICs, housing associations and others.
The “self-regulated impact economy” represents £323bn, most of it from what the report defines as impact-led businesses, and includes companies that are considered impact-led but have not adopted a binding legal structure. NPC collaborated with Deloitte to gauge the scale of the UK’s impact-led businesses. Deloitte carried out research in 2016 with the then government’s Office of Civil Society and Innovation to review ‘mission-led businesses’ in the UK. This year’s figures on impact-led businesses are an update of that research, albeit with a slightly different methodology.
The impact economy is a major economic force shaping the future of the UK for the better – James Perry
Co-operatives and employee-owned businesses are not included in NPC’s research, because, while they “incorporate elements of value sharing”, they do not “clearly satisfy” the report’s definition, it says.
The report says it aims to grow the impact economy, and to help build a “shared identity”. By demonstrating its size and value, it hopes to “inspire people to join in, contribute, and invest” in the impact economy.
James Perry, co-founder of social enterprise COOK, and co-chair of B Lab UK, said: “The report shows that the impact economy is a major economic force shaping the future of the UK for the better. Its scale demonstrates what happens when purpose-driven organisations, investors and communities pull in the same direction.”
What is the ‘impact economy’, according to NPC?The report defines the impact economy as follows: “The impact economy can be described as an ecosystem of individuals, organisations, and capital intending to prioritise public benefit over private gain.” Key to be considered as part of the impact economy in the report is intentionality: the intention of creating positive impact (social and/or environmental); whether this impact has been achieved is not considered – the study makes it clear it didn’t seek to measure impact. The requirement for intentionality excludes entities that accidentally have a positive impact. The study only includes organisations that are non-governmental, so public hospitals and schools, for example, are not included. Included are: charities, universities, community benefit societies, trade unions, housing associations, political parties, community interest companies, impact-led businesses, friendly societies, mutual insurers and credit unions. |
Simmons adds the definition of ‘impact economy’ adopted in the report is voluntarily broad: “But being part of the impact economy is a starting point, not the finish line, and we must be careful of excluding organisations from ‘our club’ before they have even begun.”
The research was funded by Mishcon de Reya, Esmée Fairbairn Foundation, Lloyds Bank Foundation and Better Society Capital, and supported by Forster Communications, Deloitte and Pro Bono Economics.
The impact economy can be a foundation for navigating the century ahead – Kieron Boyle
Kieron Boyle (pictured), professor at the LSE Marshall Institute, and chair of the Impact Investing Institute, argues in the report that “the impact economy can be a foundation for navigating the century ahead” and that a “new playbook” was needed to “unlock the full capacity of the UK to deliver change”.
He adds the impact economy should be considered alongside its “financial engine” made up of philanthropy, social investment and institutional impact investment, which he claims is currently worth around £100bn in the UK, according to a recent report by the government’s Social Impact Investment Advisory Group.
Top image: Frozen meals social enterprise and B Corp COOK (which would fall under the NPC definition of 'impact-led business'), co-founded by James Perry, offers jobs to people facing barriers to employment while supporting sustainable agriculture and farming. Photo courtesy of COOK.
Portrait of Kieron Boyle by Maria Moore.
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