5 Apr 2012

Editor's view: accountants are key to Big Society Capital

Richard Cree, editor of economia, considers the Big Society, and how accountants will determine the success or failure of the new £600m charity fund

Ever since he arrived in the top job, like most politicians before him, David Cameron has had half an eye on his legacy. Should this turn out to be a one-term government, it is likely it will be remembered above all for overseeing an age of austerity. Not surprisingly, Cameron’s political ambitions are for something a little more positive. The big idea he wants us most to associate with him is the Big Society.

It’s a theme he returns to regularly and has been since he took control of the Conservatives (or at least became their leader) in 2005. It fits well with his ideal public image as the model, one-nation, compassionate Conservative.

After a couple of weeks dodging bullets on granny tax, pastygate and a petrol crisis that wasn’t, it was no surprise to see him return this week to the big society to get some positive coverage before Easter. This week it was the launch of Big Society Capital.

Speaking at the launch of what was previously known as the Big Society Bank, Cameron claimed, “For years the City has been associated with providing capital to help businesses expand, today is about supplying capital to help society expand. Finance from the City is going to be essential to help tackle our deepest social problems.”

Releasing £400m of funds held in dormant bank accounts, topped up with £200m from the High Street banks, the fund will invest in social investment financial intermediaries (SIFIs), which in turn will make loans available to social enterprises, charities and community groups.

The key words here are lending and loans. Big Society Capital is not a new mechanism for handouts or charitable donations. It is about lending money that will be repaid with interest and then used again. It is a bold move and marks a major shift in support for organisations that, despite having many of the same capital and financial requirements as businesses, have traditionally found it very difficult to secure lending from mainstream sources.

But this is also a sector where definitions are almost as hard to pin down as finance. What makes a social enterprise different from a traditional business that gives lots of time, energy and money to charity? When does an enterprise become social? What proportion of profit does a business have to give away to social causes to be a social business? Is a charity running shops an enterprise? A huge multinational corporation giving 5% of its profits to charity is doing more good for society than a loss-making business that claims to give 100% of profits to good causes.

As the recent scandal around government contracts with employment services firm A4e – a company previously at the heart of “business as a force for good” movement – shows, it is difficult to know where to draw the boundaries in this area. In some cases the rows are mere semantics (witness the debate as to the difference between a social firm and a social enterprise). But when the lines between charity and business start to blur, things get complicated. Few would have problems with employees and owners getting paid, but what about when it comes to shareholders taking dividends?

There are some well-versed financial brains behind the Big Society Capital project and hopefully it will have the transformational impact they claim it will. Those more cynical about the sustainability of the project point to the unfortunate tradition for charities to be badly run and inefficient. Such cynics say the scheme will fail either because it sets investment criteria too high (and ends up lending to very few) or too low (and loses most of the money).

What we need to make sure the project succeeds is the army of volunteer chartered accountants (both working and retired), many of whom already do excellent work as charity trustees. These are the very people we need to step in to get the potential recipients, whether social enterprises, charities or community groups, in the right shape to take the right sort of investment or loan at the right time.

More importantly, they can also make sure the organisation is in an even better shape to pay it back when the time comes.

Every year ICAEW recognises the impact of chartered accountants working in charities across the UK through its Everybody Counts awards. The deadline for nominations for the 2012 awards has been extended to Friday 27 April 2012. For more details, visit  www.icaew.co.uk/everybodycounts


Richard Cree is editor of economia