With an election coming, ever widening inequality and the UK having just tipped into a recession, it’s clear that we need a different approach to how we grow an inclusive economy.
It is imperative any solution to revitalise Britain’s economy and communities must be strongly rooted in local solutions. The reality is that much of the UK’s economy is already local, with 48% of workers employed in small (usually local businesses), rather than national companies.
We’re already seeing this reflected across the political spectrum, with Labour’s recent report on community ownership highlighting the importance of place-based funding to enable communities to take control, and the Conservatives’ programme of Levelling up funding.
At the same time, there is increasing activity from investors of all types who want their money to have a positive social impact in local areas. We recently saw the launch of the second phase of the Community Investment Enterprise fund, which Big Society Capital (BSC) have invested in alongside Lloyds to help small businesses across England and Wales access finance.
The fund marks the first entry of a mainstream bank to invest in Community Development Finance Institutions – socially motivated lenders which already lend around £10m every year to underserved small businesses and social enterprises, often in more deprived areas. Building on Social Investment Scotland (SIS) and BSC’s pioneering facility launched in 2018, the investment will unlock a further £60m of investment to reach almost 800 small businesses.
What communities, investors and policy makers may not know is that this is part of a growing movement of place-based impact investments. These range from local impact funds dedicated to investing in social enterprises and growing their local social economies, such as Bristol One City Funds or Local Access Redcar, Cleveland and Hartlepool, through to communities taking ownership of renewable energy generation. A recent example of this is the transferral of eight UK solar farms to local community groups, which we helped to finance alongside Abrdn and was facilitated by BSC and Power to Change’s £40m Community Owned Renewable Energy (CORE) investment.
All these investments bring new types of money and expertise into communities that have often been overlooked. But why are such solutions so important right now?
First, they reflect the important role small enterprises play in the communities they serve. Social enterprises have been shown to employ two million people and contribute £60bn to the UK economy, creating and sustaining over 600,000 jobs in the most deprived communities.
Second, they harness the capacity and expertise of dedicated investors who understand local areas – investors like Key Fund in Sheffield and BCRS in Wolverhampton. Many of these bring decades of experience, including in reaching parts of the country that have been systemically underserved. They can also act as vital partners for national investors who are bringing capital at scale to tackle issues like homelessness and inequality.
Finally, they bring together the skills and money from partners across the spectrum of government, private and philanthropic capital. Often referred to as blended finance, this kind of investment can provide an essential bridge between the needs of enterprises and investors, who are often managing money on behalf of pensioners and savers.
We have seen the power of this approach, learning from the pioneers of community investment and enterprise, as well helping to seed and scale some of these innovative approaches through our own investments. We also see appetite from other investors like local government pension schemes to do more to invest locally: in affordable housing, social and green infrastructure and businesses.
Despite the need and momentum of place-based impact investment, it isn’t happening everywhere – yet. To see this type of approach reach its full potential, we think three crucial changes are needed. Policymakers at local and national level need to better understand how to use their resources and policy levers.
At the same time, more mainstream financial institutions need to commit to channelling capital into generating meaningful impact in place (while living up to their obligations to depositors and pensioners).
Finally, communities need access to the right tools, advice and capital to be able to unlock the enterprising capacity of local people.
