‘To build back better’ we need a new economic and social model to replace the one that preceded the crisis. Because before the crisis hit, our communities were in trouble.’
Responsible Finance welcomes Danny Kruger MP’s Levelling Up Our Communities report, its proposals to sustain community spirit and the affirmation that we must not return to economic and social doctrines which have caused us to become the most regionally unequal country in the developed world.
The era we are entering needs to address the UK’s chronic social challenges by putting communities at the heart of policy making, and we stand behind his recommendations.
Community power can be harnessed if the Government commits to investing in and enabling civil society as a priority, to help a bottom-up, local system to flourish.
The UK was already one of the most regionally imbalanced countries in the world, with communities in the industrial heartlands of the North and Midlands and rural and coastal communities left behind. COVID-19 will likely compound this, with educational inequality worsening, unemployment set to hit 13% next year, and 500,000 young people predicted to enter long-term unemployment.
Social enterprises are central to the economy we are aspiring to build. Community Development Finance Institutions (CDFIs) are social enterprises; they operate commercially but exist for a ‘purpose beyond profit’. They invest in the UK’s most deprived communities to create wealth, opportunity, social value and employment. CDFIs use finance creatively to support all regions of the UK including the old industrial heartlands and the rural, agricultural and coastal communities that are often left behind and face a number of social and economic challenges.
‘For 40 years governments have hoped that the former industrial towns would prosper as labour and capital sought each other out through the laws of supply and demand. New investment would come to these towns because of the low labour costs, and people would move to find jobs elsewhere. It didn’t work out that way.’
CDFIs are actively working to address the gap in investment in these left-behind areas. They have a strong presence in the North West and the Midlands, and they deliver the Northern Powerhouse, Midlands Engine and Cornwall and Isles of Scilly Investment Funds, which each address structural regional imbalances through their expertise and specialised nature.
Whether the proposed Levelling Up Communities Fund (LUC) is to address financial inclusion and invest in social enterprises and community assets, or to be used as a general fund for long-term, transformational projects in local communities as Danny Kruger suggests, then CDFIs are natural and purpose-aligned delivery and distribution partners. CDFIs’ impact is already recognised as transformational and locally-anchored through multiple independent analyses. This impact is only hampered by a lack of available capital, and distributing some of the LUC Fund will enable them to scale up their investment in Britain’s communities, without leaving anyone behind.
The new social model we build post-COVID must be more entrepreneurial, trusting, and level-up opportunity across the country. The four articles of the social covenant contained in Danny Kruger’s report are at the heart of what CDFIs do:
- Public purpose
Kruger’s review states that social and environmental purpose should be put firmly at the heart of public policy and business activity, and the private sector could be incentivised to do the same. CDFIs have a track-record of leveraging private sector capital and using it for social good.
For example, the RF Fund, a place-based investment fund to address inequalities in access to finance, was tasked with lending £70.4m to small businesses by The Department for Business, Energy and Industrial Strategy (BEIS), and creating or safeguarding 8,746 jobs.
It has lent £89m, created and saved 11,771 jobs, and become a critical part of the finance ecosystem in its eight years of operation. Responsible Finance was awarded a £30m government grant through the Regional Growth Fund to establish the RF Fund, with co-investment from Unity Trust Bank and the Co-operative Bank. The RF fund has leveraged £45m of further capital from private banks.
We recommend that the Government supports breakthrough partnerships between the mainstream banks and CDFIs to leverage private investment for businesses and social enterprises in the most deprived areas of the UK.
- Subsidiarity and inclusion
‘Decisions on what is done in local places should be taken by people as close to the ground as possible, ideally the people who actually live there.’
CDFIs are deeply rooted in their communities and have strong local knowledge. This enables them to support the hardest to reach communities and target investment to where it is most needed. They also support community-led projects such as Ynni Anafon, a hydro-electricity scheme which will generate nearly 1,000MWh of clean energy and provide more than £30,000 each year for local community initiatives. This £1m-scheme was kickstarted with support from CDFI Robert Owen Community Banking’s Community Energy Fund, which catalysed a successful community share issue.
Levelling Up Our Communities calls for inclusive, long term and place-specific social investment, which helps businesses, social enterprises and communities access affordable finance that works for them. Providing this sort of investment is CDFIs’ reason for existence.
Danny Kruger’s review also states the importance of local government as a convenor and enabler of civil society. Many councils recognise CDFIs as purpose-aligned partners for public benefit, social value and creating positive social outcomes for their communities. We encourage the creation of these mutually beneficial partnerships across more of the UK.
- Strengths-based approaches
‘We should have a far more positive approach to the people and places ‘left behind’. They are not problems to be solved but opportunities to be realised. The principle of self-efficacy – that people have the capacity, with the right help, to effect positive changes in their own lives and the lives of others – should be at the heart of our social system.’
This stands at the core of what CDFIs do. CDFIs believe in giving people access to opportunity to support pathways out of unemployment. Their investments in SMEs and social enterprises support job creation in excluded and ‘left-behind’ communities and for individuals who do not have the same access to opportunities as others, such as for the ex-homeless.
For example, Connection Crew, a social enterprise set up in 2005 to provide employment opportunities for individuals who have been homeless in the past giving them work and helping them to develop confidence and independence. They provide manpower to the events industry, building stages and sets, installing lighting and sound facilities and moving heavy equipment. They have grown revenues from £300,000 a year in 2011 to £2,400,000 in 2019, and along the way have provided 248 ex-homeless people with 136,017 hours of work, and have now launched an academy to support people to move back into employment. Social enterprise lender Big Issue Invest provided two loans for working capital that Connection Crew uses to either manage seasonal gaps in income or to fuel growth by funding weekly wage bills until the monthly invoicing from clients. The social enterprise was also able to found a work space facility in South London, which provides additional income to subsidise training and mentoring schemes for formerly homeless workers.
- Social infrastructure
‘Recent years have weakened the connecting tissues of our country: the institutions and gathering places, and the people (from youth workers to librarians, and all those working on informal and ‘below the radar’ social projects) who bring people together and enable the common life of a community.’
CDFIs support social enterprises and community projects that are the lifeblood of their local areas, and work to positively impact people’s lives. Doncaster Refurnish is part of a community’s continuing efforts to pull itself together in the aftermath of pit closures. It collects, restores and sells furniture to low income families, and works to alleviate poverty, as well as benefit the environment. It offers employment and training to those on the margins of their local community, and rehabilitation and integration opportunities for prisoners due for release from Hatfield Prison, as well as placements for young offenders. It also offers handyman and support services to those in need, and a number of charities in the area.
The organisation also has projects working with schools where people with special educational needs or disabilities come in on work experience placements or to increase social interaction. Constantly evolving to meet local needs, it recently set up a women’s group with a focus on anxiety issues.
Refurnish’s journey has been supported by CDFI the Key Fund who has made a number of investments in them over the years. In 2019 it employed 58 staff, 98% of whom were unemployed before they joined, and its turnover was £1.3 million.
Responsible Finance’s vision is for the UK to rise from the COVID-19 crisis with a vibrant, local and interconnected finance ecosystem that works in harmony to benefit all corners of the UK. Each player will commit to the social covenant and to work together for the common good of all.
We fully support the recommendations included in the report. The CDFI sector stands ready to help make them happen.
In particular the £2 billion Levelling Up Communities Fund endowed from dormant accounts is a game-changing opportunity to fund long-term transformation within left-behind areas and across the whole of the UK. CDFIs are natural partners for the delivery of some of this fund, and to deliver the potential £500 million Community Recovery Fund, in a transparent, outcomes driven and targeted way.