The electoral aftermath and the impact on the social finance sector

By the time you read this, the UK general election will have taken place and, if the pundits are to be believed, David Cameron will be the Prime Minister presiding over either a small majority, a coalition with the Liberal Democrats or some smaller third party or parties, or be trying to rule within a minority Government.  In nearly every possible constellation, except for perhaps a coalition with the Liberal Democrats, the Conservatives will be in a relatively weak Parliamentary position, vulnerable to pressure from disaffected members within its own ranks or to bye-election defeats.  Despite his pleas to the contrary it does not look as if the United Kingdom will give David Cameron the electoral mandate he desired and, for so long, looked likely.

Nevertheless, it’s my challenge to try to write before the election results are in about the prospects for the social enterprise, investment and finance director thereafter.  I have written in our ClearlySo Social Business Blog, about the inherent advantages which social businesses and enterprises possess in terms of their ability to raise capital more cheaply and secure talent, products and services more efficiently.  This will make the sector popular in the aftermath of an election as a source of private sector solutions to public sector problems.

For a Conservative party looking to provide momentum to its concept of the Big Society, the sector offers a great deal of opportunity.  In particular this has to do with the areas of community ownership and “re-mutualisation” (including, among other things, perhaps financial institutions like Northern Rock).  There is no doubt the Tories possess conviction concerning local ownership and accountability in public service delivery.  Both social enterprises and community owned organisations, will be able to assume ownership and management of local assets; a likely feature of a Conservative government.  I expect the Tories to move rapidly in this area as they seek to contrast their approach with what they have characterised as “Labour dithering”.  I expect many mistakes along the way, which will undoubtedly be picked up by the appropriate tabloid papers, however I welcome such experimentation–the existing models certainly have not worked.

Where I also expect the Conservative Government will be equally hyperactive is with respect to financial innovation.  The social impact bond, which I have discussed elsewhere, has been has been incubated under Labour government but has been proceeding at a glacial pace, thanks to the Treasury.  I expect the Tories to move quickly to unleash this and other instruments which enable financially innovative solutions to address social problems, such as prison reoffending, which the first social impact bonds seeks to address.  In many areas where traditional practices have made progress impossible I expect the Tories to be radical.

One final area of likely progress involves the long-awaited Social Investment Wholesale Bank (SIWB).  Although proposed years ago and debated endlessly, Nick Hurd MP, the shadow Minister for the Third Sector, has made it abundantly clear that he will move quickly to release the funds from dormant bank accounts to such an SIWB.  There are suggestions that the remit of this institution will be more narrowly focused on facilitating other capital flows.  Although the details on the proposals are still to be released-one welcomes a speedier and more narrowly defined implementation of the broad concept.

Under nearly every possible configuration of the next Government, we can expect accelerated growth in the social finance sector.  The U.K.’s financial crisis compels this.

First Published in Third Sector in May 2010.