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Big Society fund launches with £600m to invest Big Society fund launches with £600m to invest
(about 3 hours later)
 
A new financial institution set up by the UK government to finance charities and community groups has been launched.A new financial institution set up by the UK government to finance charities and community groups has been launched.
Big Society Capital has £600m, of which the majority comes from cash in unused dormant bank accounts. Big Society Capital has £600m, of which the majority comes from unused cash in bank accounts that had been dormant for more than 15 years.
The new lender will back social enterprises that prove they can repay an investment through the income they generate. The fund will back social enterprises that prove they can repay an investment through the income they generate.
"This is about supplying capital to help society expand," said Prime Minister David Cameron."This is about supplying capital to help society expand," said Prime Minister David Cameron.
"Just as finance from the City has been essential to help businesses grow and take on the world, so finance from the City is going to be essential to helping tackle our deepest social problems," the prime minister added."Just as finance from the City has been essential to help businesses grow and take on the world, so finance from the City is going to be essential to helping tackle our deepest social problems," the prime minister added.
Mr Cameron is closely associated with the idea of the Big Society and has previously said it is his "mission" in politics to make it succeed.Mr Cameron is closely associated with the idea of the Big Society and has previously said it is his "mission" in politics to make it succeed.
The concept has been ill-defined, but is usually taken to mean charities and volunteers taking on roles in the community now filled by government.
Prisoners
Venture capitalist Sir Ronald Cohen, who is Big Society Capital's chairman, told the BBC that the fund's aim was to create a "thriving market for social investment".
"It will allow an organisation which today is trying to deal for instance with prisoners who are being released and ending up in unemployment then back in prison... to get the capital to increase the size of their organisation and to improve the lives of these prisoners," he added.
Mr Cohen explained that the government would pay the fund some of the return on its investments by giving it a cut of any savings the Treasury made thanks to the charitable work being financed.
For example, in the case of prisoners, if the scheme was shown to have reduced the reoffending rate of participants, then the government would pay the fund some of the money it had saved on locking them up.
The fund has already agreed investments worth £3.6m in five separate schemes, including:
'Mask'
However, the importance of the new scheme should not be "over-hyped", according to Dan Corry, chief executive of New Philanthropy Capital and a former adviser to Gordon Brown.
The concept has been ill-defined but is usually taken to mean charities and volunteers taking on roles in the community now filled by government. "I think Big Society Capital is a good thing, but it is a limited amount of money and it is a bit of a drop in the ocean, given what is happening to the sector, with the deficit-reduction programme really hitting the sector," he told BBC Radio 4's Today programme.
"It will mask the real problem: voluntary organisations who really do need grants and won't be able to cope with risk capital."
Mr Corry said that although there were many social enterprises that would benefit from the scheme, many charities would not, because they had no revenue stream that could be used to repay the funding.
"A lot of charities who are helping homeless people, for example, they don't get any revenue from that," he said. "For most of them, this is really quite irrelevant."
Labour's shadow minister for the cabinet office, Jon Trickett, welcomed the scheme, but said it needed to be viewed within the context of the pain caused by government spending cuts.
"The government should not over-claim at a time when over 70,000 jobs in the sector have been lost in the last year alone," he said.
"The voluntary and community sector stands to lose an estimated £1.2bn per year for the rest of this Parliament."
The new investment fund is independent of the government and 60% of its shares are owned by the Big Society Trust, a private limited company comprised of executives from social, business and government roles.The new investment fund is independent of the government and 60% of its shares are owned by the Big Society Trust, a private limited company comprised of executives from social, business and government roles.
The rest of its shares are held by Barclays, HSBC, Lloyds Banking Group and the Royal Bank of Scotland.The rest of its shares are held by Barclays, HSBC, Lloyds Banking Group and the Royal Bank of Scotland.
Those banks are the so-called Merlin banks that agreed to meet government conditions on lending, pay and bonuses.Those banks are the so-called Merlin banks that agreed to meet government conditions on lending, pay and bonuses.
Big Society Capital is chaired by venture capitalist Sir Ronald Cohen and headed by Nick O'Donohoe, former head of research at JPMorgan Chase.Big Society Capital is chaired by venture capitalist Sir Ronald Cohen and headed by Nick O'Donohoe, former head of research at JPMorgan Chase.
"What we've done for business entrepreneurs we must now do for social entrepreneurs," Sir Ronald said."What we've done for business entrepreneurs we must now do for social entrepreneurs," Sir Ronald said.
"We must give them the resources to innovate in the way we resolve social issues.""We must give them the resources to innovate in the way we resolve social issues."
'Encourage charities' 'Encourage charities'
Of the investment fund's capital, £400m comes from dormant bank accounts. The other £200m is put up by the four banks.Of the investment fund's capital, £400m comes from dormant bank accounts. The other £200m is put up by the four banks.
"Big Society Capital is going to encourage charities and social enterprises to prove their business models - and then replicate them," Mr Cameron said."Big Society Capital is going to encourage charities and social enterprises to prove their business models - and then replicate them," Mr Cameron said.
The project has its roots in the Independent Commission on Unclaimed Assets, with Sir Ronald as its chairman, which was set up in 2005 to consider how money sitting untouched for 15 years in dormant bank and building society accounts could be best used to benefit society.The project has its roots in the Independent Commission on Unclaimed Assets, with Sir Ronald as its chairman, which was set up in 2005 to consider how money sitting untouched for 15 years in dormant bank and building society accounts could be best used to benefit society.
A social investment bank was one of the policy recommendations, and the Dormant Bank and Building Society Accounts Act was passed in 2008.A social investment bank was one of the policy recommendations, and the Dormant Bank and Building Society Accounts Act was passed in 2008.
The Act specifies that the Big Lottery Fund is the holder and distributor of these dormant funds.The Act specifies that the Big Lottery Fund is the holder and distributor of these dormant funds.
Big Society Capital began to take shape last February when Mr Cameron announced plans to use dormant accounts money for social spending.Big Society Capital began to take shape last February when Mr Cameron announced plans to use dormant accounts money for social spending.
In December, the European Commission gave its approval to the bank, saying that it did not violate state aid rules.In December, the European Commission gave its approval to the bank, saying that it did not violate state aid rules.
"The Commission considers that safeguards are required given that the UK has chosen a novel approach with regard to financing the social sector," it said at the time."The Commission considers that safeguards are required given that the UK has chosen a novel approach with regard to financing the social sector," it said at the time.