The UK government has chosen this week to renew its emphasis on the Big Society, with a direct attempt to encourage greater charitable giving. Several ideas have been floated including an innovative idea to offer people the chance to give at the cash point. As laudable as this is, we must ask the question: why are governments so keen to encourage donations, but less so social investing?
The reliance of the third sector on charitable giving is well documented and. Last year, total donations reached £10.6bn according to figures from the National Council of Volunteer Organisations (NCVO). The government rightly wishes to encourage this. It already provides many fiscal advantages and this week’s announcements represent a determination to do even more.
Such advantages are clearly important and most experts agree that without them there would be much less philanthropic activity. In the US, permissible tax deductions are even more important in fostering a culture of philanthropy. The motives behind states for encouraging greater giving are clear: if they did not, charitable giving would decline leaving them to plug the gap.
One thing those who give do not expect is to get their money back – certainly not to receive any financial return. Such contributions could be said, therefore, to have a certain financial return of negative 100%. Despite this, governments offer no protection. The nature of the transaction is known and understood.
Now let’s take the case of social investment. Here “social investors” seek to create a positive social impact but, in addition, may get their money back and perhaps even a financial return as well. This is no problem if you are wealthy: you are considered a high net worth individual (HNWI) and permitted to engage in this activity. Firms such as ClearlySo (www.clearlyso.com) and others may offer you a chance to make investments into exciting high impact social businesses and enterprises.
However, if you are not an HNWI, you have no chance. Because we now go from charitable giving to investment you are protected by FSA regulations. Firms such as ClearlySo are forbidden to offer any of these opportunities.
So, in essence, if you are not rich, you are free to lose all your money, but if there is any chance you may get some or all of your money back, or some return, then you are blocked from doing so. This is clearly perverse on many levels.
I understand the importance of investor protection, especially when it concerns those of more moderate means. My first career was in finance, but somehow this government must devise a means to encourage social investments, which are a newer, and potentially offer an exciting complement to charitable giving. They should not just be the preserve of the wealthy. Moreover, a government seeking ways to fund the Big Society cannot exclude retail investors. It should rather seek the means to unlock this powerful potential source of funds.
First Published in Third Sector in May 2011.