Transfer of Functions (Dormant Accounts) Order 2010

Lord Taylor of Holbeach Excerpts

Tuesday 15th March 2011 Lords Chamber

[Lord Beecham]

My Lords, I must apologise for not being in the House when my noble friend Lord Hunt opened this debate, especially as he was kind enough to make reference to me subsequently—although I did hear that.

I want to take up one point, on which my noble friend Lady Pitkeathley touched almost in passing, while welcoming the principle of the order and of the bank and recognising that there is certainly some potential for helping the voluntary and community sector. She mentioned in general the terms under which investments and loans will be made. Can the Minister give us any assurances about that? Sir Ronald Cohen, who is a very enthusiastic supporter of the principle, has suggested that interest will be at commercial rates. If that is the case, is there not a danger that voluntary organisations, which after all will be seeking investment anyway because they are having some financial difficulties, will find it difficult to proceed when they are being expected to pay commercial rates of interest on loans? It would be different if grants were being made, but my understanding is that this is to be a rolling investment fund and that it will be a question not of grants but of loans. It would be helpful if the Minister were able to give an indication on that issue.

[Lord Taylor of Holbeach]

My Lords, I am sorry if my slowness in rising rather gave the impression that the debate would be longer than I had imagined. I am not reluctant to spring to my feet for I believe that this is a very welcome debate and thank all noble Lords who have participated in it, in particular those two noble Lords whose Motions are before us this evening, because it gives me an opportunity to expand further on the Government’s plans and actions deriving from the order which is the debate’s subject.

The noble Lord, Lord Hunt, has expressed concern over the current challenges facing voluntary, community and social enterprise organisations. I share the view that the VCSE sector plays a crucial role in our society and economy, but as I will make clear in these closing remarks, the big society agenda, with its emphasis on social action, community empowerment and public sector reform, will open up many new opportunities for these organisations to thrive in the future. This Government are taking a number of measures which will directly support the sector through this difficult time in the short term, but which will help to ensure a more secure and stable future in the long run. Those measures include the setting-up of the big society bank.

I join the noble and learned Baroness, Lady Butler-Sloss, in welcoming the coming-into-force of the transfer of functions order. As the noble Lord, Lord Hunt of Kings Heath, will know, and as he said, this derives from legislation enacted under the previous Government which we supported. It marks an important step on the way to meeting the Government's ambitious plans for a big society bank. With this order, the Minister for the Cabinet Office can now direct the Big Lottery Fund on how to use England’s portion of released dormant accounts to achieve social benefits in line with the provisions of the Dormant Bank and Building Society Accounts Act 2008.

As the Prime Minister announced in July 2010, the Government intend to use all the dormant accounts money available for spending in England to capitalise an independent big society bank, or—I apologise to the noble and learned Baroness for the phrase—social investment wholesaler. The role of the big society bank will be to help build a sustainable social investment market, making it easier for voluntary, community and social enterprise organisations to access the finance and advice that they need. Although a nascent social investment market has emerged over the past decade, it remains small and fragile. Many of these organisations tackle our most intractable social problems and deliver vital public services. They empower local communities and work with the most marginalised members of society, yet still struggle to access the finance they need to grow and develop.

The big society bank will work with a range of social investment intermediaries to increase the overall pool and variety of capital available to front-line organisations. In the long term, our vision is of a fully functioning and more sustainable social investment market which will enable voluntary, community and social enterprise organisations to grow and develop, and to become more resilient.

There are many ways in which the bank will work to achieve this. For example, I believe that there are people and organisations, including the public sector, willing to invest in social impact. There are also organisations trying to create that social impact but few mechanisms to bring the two together. Some new ideas include social impact bonds, community bonds and community share schemes. One of the things the big society bank might do is support innovation, particularly proposals that find new ways of matching the needs of front-line organisations with potential providers of capital.

There are also organisations—community groups, social enterprises, charities—which are viable businesses but are unable to access working capital or capital to buy new assets from commercial banks. The big society bank could increase the flow of capital via intermediaries which specialise in affordable loans to these institutions. And for organisations which are looking to expand and grow, the big society bank will look to increase the availability of risk capital, where the investor takes a stake in the future success of the organisation.

In refocusing the priorities of dormant accounts allocation, we are not downgrading the importance of youth and financial inclusion. We would like the bank to include both themes within its investment mandate and believe that far better outcomes can be achieved through the social enterprise and community-led solutions that the bank will support. I am grateful for the support of my noble friend Lord Newby and the noble learned Baroness, Lady Butler-Sloss, in recognising that the Government’s proposals build on the original Act in a positive way.

We recognise that the current economic situation and the need to tackle the deficit create a challenging and sometimes painful environment for many organisations, including those in the voluntary, community, charitable and social enterprise sectors. We also understand that organisations might have difficulties managing the transition to a tighter funding environment and getting to a position where they can take advantages of the future opportunities presented by the big society agenda. This transition is more difficult in an environment than either the Government or the previous Government would have wished.

This is why we have set up a £100 million transition fund to give a lifeline to those VCS organisations that are delivering front-line services and are affected by reductions in public spending. The fund provides grants of between £12,500 and £500,000 to help organisations make the necessary changes in order to thrive in the long term and take advantage of the opportunities presented by the big society and public service reform. Already, following a large number of applications, 18 early transition awards have been made and many hundreds more will be announced in the coming weeks and months.

We will also shortly be announcing a programme of work to give front-line organisations access to support and expert advice beyond funding matters that will enable them better to meet their changing needs. We also want to help the sector access a wider range of funding to increase its strength and resilience for the long term. That is why we are aiming to capitalise a big society bank to increase levels of capital investment in the sector and we are also reviewing ways to incentivise further philanthropy and charitable giving. We are committed to opening up public sector delivery so that voluntary, community and social enterprise organisations can compete for national and local government contracts and access a greater proportion of government spending.

We have established a red-tape taskforce, chaired by my noble friend Lord Hodgson of Astley Abbotts, to remove the barriers that get in the way of sector involvement. It is looking at a range of issues that we know cause difficulties for voluntary organisations, including charity law, licensing, insurance and funding, and will be reporting in May. We have also introduced new powers to help communities save local facilities and services threatened with closure and give the communities the right to bid to take over local state-run services.

We are working hard to set up a big society bank. Not surprisingly, this is a complex process. None the less, by April of this year, we aim to have arrangements in place so that we are able to start making early investments as soon as the first round of dormant accounts money becomes available in the summer. It will take longer for an independent big society bank to be set up and fully operational but we are already in the process of seeking the state-aid approvals necessary to capitalise it with dormant accounts. We have been delighted that Sir Ronald Cohen, previously head of the Social Investment Taskforce, and Nick O'Donohoe, formerly head of global research at JP Morgan and head of its social finance unit, have volunteered to develop a proposal for an independent big society bank. We look forward to working with them and other social investment experts. In addition to the investment from dormant accounts, as the Prime Minister announced on 9 February as a part of a broader package, four of the UK's largest banks have agreed to invest a further £200 million in a fully fledged big society bank. We expect that the final bank will be a lean organisation, and I assure this House that we are conscious of the need to keep any administrative costs to an appropriate level.

In this way, with the combination of dormant accounts money and the support of the banks, we expect that the big society bank will be capitalised with at least £300 million over the next two years, with further injections of capital as more money is released from dormant accounts. This is a significant sum, especially when we consider that in 2010 the entire amount of social investment in the UK was less than £200 million.

In addition, we expect that the bank will attract increasing levels of private sector investment over time, generating hundreds of millions of pounds for charities, social enterprises and voluntary groups, and creating a strong, vibrant and sustainable social investment market in the future.

I will try to answer some of the questions that noble Lords have asked. The noble Lord, Lord Hunt of Kings Heath, asked whether the bank would be able to raise capital, what rates it would set and the salary levels. The big society bank will be able to raise capital although it is unlikely to be able to do so in its first few years. The details of the BSB investment will be decided by its management. They will have to be demonstrably in keeping with its social mission. Salaries will be set in line with the sector, but I know that Sir Ronald Cohen and Mr O'Donohoe are giving their services free to the project to set up the bank.

The noble Lord also asked what form capital from the bank will take. That is being negotiated with the banks and we want to ensure that the terms enable the BSB to deliver its social mission. How will the social mission be guaranteed? The BSB is being set up as an independent, non-public organisation, but we have made it clear that we will direct dormant accounts only to organisations that have a clear, protected social mission in their founding articles, and governance accountability arrangements to protect that mission.

Rather predictably, the noble Lord also asked about the citizens advice bureau in Birmingham, because we have debated that in another context and I suspect that we might debate it further. Perhaps I can put that decision in context. As the noble Lord will know, the Government have a strategy for basing these decisions at a local level. Many councils have made substantial savings through increasing efficiency in back-office functions rather than passing on cuts to the VCSE groups which, as the noble Lord admits, do excellent work. The Government have set out reasonable expectations of councils, challenging them to work with the sector and organisations and not to pass on disproportionate cuts. We expect that from local government throughout the country.

The big society is not a cover for cuts. The challenge that we face in terms of public finance cannot be ignored, but the big society was an approach developed before the recession which is at the heart of the Government's programme of reform. The big society will give individuals and communities a role in shaping the provision of services and give more power to communities rather than central government.

The noble and learned Baroness, Lady Butler-Sloss, asked particularly about parliamentary scrutiny. The aim is for the big society bank to be independent in order to have flexibility to respond to the market, but our key criteria for directing BSB money include robust governance and accountability arrangements, which will include the principle of transparency. Parliament will, in the normal way, be able to scrutinise government spending directions of dormant accounts and in that way scrutinise the whole function of the big society bank as the recipient of those funds.

The noble Lord, Lord Newby, said that in many ways the Government had gone back to the original Bill, and showed how the social enterprise sector can be an effective deliverer of community services and how these proposals will provide much-needed funding.

The noble Baroness, Lady Pitkeathley, asked a number of questions, but I can reassure her that the whole purpose is to use this money—people's money, as she said—to support the voluntary, community and social enterprise sectors. She is right that the big society bank is not the whole solution, but it is part of the development of this sector, which I know she believes in greatly.

The noble Lord, Lord Hunt of Kings Heath, seeks in his Motion to place the Government’s proposals in the context of the spending review and ignores the state of the public finances under the previous Government, which made budgetary reduction a vital part of the coalition’s strategy for rebuilding the economy. He has also chosen to ignore not just the degree to which the Government have sought to protect the VCSE sector but the measures, of which this is part, to provide it with the opportunity and ability to play its part in reshaping the economy for the future.

This has been a useful debate and I hope that I have been able to reassure the House that this instrument is being used to positive effect. I would like to thank the noble and learned Baroness, Lady Butler-Sloss, for tabling her Take Note Motion and her support of the order. In the light of this, and my comments, I hope that the noble Lord, Lord Hunt of Kings Heath, will feel able to withdraw his Motion of Regret.

[Lord Beecham]

Before the noble Lord sits down, will he comment on the rate of interest that the bank might be deploying and whether it is likely to be a commercial rate?

[Lord Taylor of Holbeach]

The bank will be operating in the market, and it is unlikely that the bank is going to be able to provide finance at a subsidised rate. None the less, the most important thing to secure is the availability of the funding. That is the direction of travel of the bank at this time.

[Lord Hunt of Kings Heath]

My Lords, I am very grateful to the noble Lord, Lord Taylor, for his response and for some of the details he gave to noble Lords. However, from what he said, it seems that it will be some months before money starts to flow and the amounts seem likely to be modest. His contribution was, as ever, meant to be as constructive as possible—until at the end when we heard from him about the deficit and the financial position of the public sector. He made no mention of the global financial context in which the last Government had to move to protect the economy. Also, the Government do have a choice—they can slavishly carry on as now, or, as I hope, they can take steps to deal with faltering growth in our economy; establish a plan to create jobs in the private sector to deal with the crisis of youth unemployment; and take steps to support the voluntary and charitable sector.

I appreciated the comments of the noble Lord, Lord Newby, and his tour de horizon on the passage of the 2008 Act. I agree that social enterprises are invaluable and that we want to support the sector. I also agree with his point about access to finance. However, as my noble friend Lady Pitkeathley says, the voluntary and charitable sector is running short of cash now. At the very least, it needs an injection of resources and time to adapt. As my noble friend Lord Beecham suggested in his question about commercial rates, that is highly pertinent. I know that access to capital is an issue, but when very little revenue is available from traditional sources of funding, the cost of capital becomes a major inhibition on the very organisations the noble Lord is relying on.

The noble Lord is ambitious for the future, for the proposals contained in the order and for the role of the voluntary and charitable sector. I applaud that ambition. However, many of the organisations on which he wants to rely are not going to survive. That is why I continually come back to the situation of the CABs in Birmingham. Of all the organisations on which one would have thought the Government would have depended to provide that kind of infrastructure support, I cannot think of a more important organisation than the CAB. Indeed, that is why in the Public Bodies Bill we are seeing the CAB being asked to take on the responsibilities of a number of consumer organisations. How can the Government say they are supporting and relying on the sector when a key part of that structure in this country’s second city is under threat of complete closure?

I respect the noble Lord, Lord Taylor, enormously. We support the use of dormant accounts but the context in which we find ourselves is that the very organisations on which the Government depend so much are being obliterated by the impact of the cuts taking place. I commend the Motion.