Delivered! Economic policies that worked: the rise of Social Investment
By Tim Thorlby
7 min read
This is the third blog in a short series highlighting some of the UK’s most effective economic policy interventions of the last 25 years. It is a blog about how big changes can be achieved.
As noted in the first blog, and an important starting point, is the old and wise saying in policy circles which goes like this:
We tend to overestimate what we can achieve in one year and underestimate what we can achieve in ten years
This blog tells the story of the rise of social investment in the UK in the last 25 years. It has moved from being a fringe activity to a ten-billion-pounds-a-year market …and growing. The UK is now a world leader in a sector which uses social-purpose investment to tackle some of our toughest challenges. How did we make this change?
As the sector matures, there are also important questions about how its ‘growing pains’ are to be addressed – not least a North-South divide and an ongoing diversity challenge. Where does it go next?
We will explore these questions and identify the lessons to learn from this brave new world. Strap yourself in, it’s quite a ride.
So, what is social investment?
We’re all familiar with the idea of investment – someone investing money into a business to get it started or to support its growth. The investor might be buying shares or making a loan. Either way, it’s a business deal; the investor isn’t being kind, they are expecting to get their money back one day, with some kind of financial return (profit). The business also benefits because they get the money they need to grow their enterprise. Everyone’s happy.
Except, the challenge, of course, is that not all businesses work out, so some investors may lose some or all of their money (or ‘taking a haircut’ in that lovely City phrase). Hence, assessing risks and working out how to manage them is a big part of the investment world. There are winners and losers. Maybe everyone is not so happy – but the potential rewards keep investors coming.
Social investment is similar, except the money is being invested for a rather different reason – for social purpose. So, instead of investing into a profit-seeking business to make a profit, the money is supporting a charity, social enterprise or social-purpose business to fulfil a mission which is primarily about delivering social or environmental impacts. It might be a community-owned windfarm seeking to generate renewable electricity for the local village, or a multi-purpose community centre in the inner city.
The principle is still the same though - it’s a business deal; the social investor is also hoping to get their money back one day and with some kind of financial return, but, crucially, they are prepared to take a lower financial return in exchange for some kind of social impact. By making funds available, and at a lower cost, they are helping the social enterprise to develop and grow. This can be particularly helpful for enterprises which struggle to get financial support from mainstream banks. Social investors are helping in two ways – not just in providing finance that is more affordable, but by being prepared to invest at all.
Social investment complements state/public intervention and charitable giving; it is a third ‘tool in the box’. Given that social investors also want their money back, it only works in situations where there is some sort of trading going on, generating some kind of revenue, which can allow the enterprise to pay back its loan or provide a return on investment.
A key part of the wider value of social investment is that it frees up charitable grants and public subsidies to be used for other things – it adds new money into the mix. It also enables different kinds of activities. More on this later.
There is much complexity to the world of social investment and a confusing array of labels and approaches. Without getting lost in the woods I would just say here that I am using a fairly conventional definition of ‘social investment’, but I am not talking about the much broader practices of ‘ethical’ investing in the mainstream marketplace – for example, investing with ESG goals (‘environment, social governance’) or ‘socially responsible investment’ (SRI). I am also not really talking about ‘impact investing’ which also includes a much wider range of investments and, some might say, a greater mix of purposes. That’s a discussion for another day.
For now, that is probably enough; let’s get out of the woods and on with the story.
Twenty-five years ago, social investment was a marginal activity and considered somewhat eccentric by many. Today, in the UK, it is now worth billions of pounds. The story of this journey is a lesson in itself. Social investment may also be coming of age at just the right time.
Was Friar Tuck a social entrepreneur?
Social investment is not new.
It may have first occurred in the Middle Ages; the nation’s monasteries were (arguably) social enterprises, fulfilling their civic purpose with support from donations and also earning revenue from agricultural and craft enterprises, until King Henry VIII dismantled them all in 1540.
The Victorians also used social investment with gusto in the 19th Century to address the appalling social consequences of industrialisation. It was a spontaneous response to the grim circumstances - ‘something must be done!’ - before Parliament had got to grips with regulating industries and long before the invention of the welfare state.
From 1830 onwards, the ‘five per cent movement’ developed amongst wealthier Victorians as they sought to replace urban slums with better housing, particularly in London. New housing was built and rented out by a range of private companies and charitable trusts. This was not charity, but social investment. Private investors loaned money and sought 5% financial returns from these ‘new model dwelling’ companies, accepting less than a full commercial return in exchange for the social benefit of better housing. More charitable investors accepted lower financial returns of 2% or 3%, enabling lower rents to be charged to tenants. Some of this housing is still in use in London today (some of Peabody’s mansion blocks for example).
The amount of money invested into these housing companies through the 19th Century was substantial and equivalent to billions of pounds in today’s values.
There were then waves of social investment during the 20th Century, often into social housing of one kind or another, usually in the form of bonds or other kinds of loan.
A new millennium, a new vision
The social investment sector began a whole new journey at the turn of the millennium, when the then Chancellor, Gordon Brown, established the Social Investment Task Force in 2000. It was asked to find ways to ramp up social investment and to innovate in how it might be done.
There was a clear focus on bringing new investment to deprived areas and to shift the approach to regeneration away from one resting largely on a mix of state intervention and charity. As the Taskforce stated in its first report in 2000:
The long-term aim of the Social Investment Task Force is to achieve a move away from this culture of philanthropy, paternalism and dependence towards one of empowerment, entrepreneurship and initiative[1].
(Enterprising Communities: Wealth beyond Welfare, SITF, 2000)
The Task Force worked for ten years to 2010. It was a busy decade. Achievements included:
New organisations - A host of social investment organisations were founded at this time, including Unltd, CAF Venturesome, Big Issue Invest, Charity Bank and Bridges Ventures.
New tools - New financial innovations were created and piloted, establishing new types of tax relief (like the Community Investment Tax Relief) and new styles of finance.
Stronger eco-systems - Community Development Financial Institutions (CDFIs) were strengthened.
New money – In 2008, the Dormant Bank and Building Society Accounts Act was passed, allowing the government to claim money from long-dormant accounts and use it for social purposes. This has generated billions of pounds for social and civic purposes in the years since.
The end result of all of this change was the development of the social investment marketplace. By 2011, this was estimated to have grown to £830m for the UK from a pretty low starting point.
In its final report in 2010, the Task Force recommended establishing a new national ‘Social Investment Bank’ to lead the charge in building the marketplace for social investment.
Then in 2010 David Cameron become Prime Minister. New Labour was out and the Coalition Government was in - talking about austerity and the rather vague ‘big society’. Was this the end of the road for social investment?
Meet a socially useful bank
The 2010 Coalition Government brought a very different approach to almost everything.
Except on social investment.
Cross-party agreement enabled the development of the social investment marketplace to continue. This has been crucial. The new government even implemented the recommendations of reports published under New Labour.
In 2012, Big Society Capital (BSC) was launched, described as the ‘world’s first social investment bank’. It was given £600m to turbocharge the UK’s social investment marketplace; shaping the market and providing ‘wholesale capital’ to the emerging institutions within it.
This £600m start-up capital came from £200m invested by four High Street banks and a huge £400m from ‘dormant assets’, a significant new source of money from unclaimed money in bank accounts; all found down the back of the nation’s metaphorical sofa.
Over the years, more of these dormant assets have been invested into BSC (now rebranded as ‘Better Society Capital’). Its aim is to develop and expand the social investment marketplace in the UK by investing and persuading others to join in too.
It has evolved its approach and created new institutions along the way, including Access – The Foundation for Social Investment, which supports social enterprises to grow.
In just over a decade, the social investment marketplace in the UK has mushroomed to over £10 billion (at the end of 2023) – twelve times its size in 2011. This is despite recessions, pandemics, Brexit and several changes of government. The UK is now one of the world’s leaders for social investment.
Social investors include pension funds, charitable foundations (investing parts of their endowments), ‘high net worth individuals’, public bodies, trades unions – any organisation with capital to invest.
The speed and scale of growth has been a remarkable achievement. But why does it matter?
What is the impact of social investment?
Social investment has been applied to many different challenges in recent years, from homelessness to business support to youth provision. The kinds of activities which it has supported include:
Care homes, community health facilities and mental health services
Community owned renewable energy, like windfarms
Education, training and employability programmes
Children’s services
Youth provision
Affordable housing and homelessness support
Lending to SMEs in deprived areas
Organisations which have benefited include charities, social enterprises, community organisations, small businesses in deprived areas and public services.
Social investment has delivered real impacts in addressing social, economic and environmental problems in every region of the UK.
It has facilitated the growth of community ownership of local property, from libraries and community centres to playing fields and village shops.
Innovations like Social Impact Bonds, which rely on social investment to make them work, have enabled innovative pilots in joined-up public service delivery that would have been difficult to fund from the public purse.
All of these various impacts are largely achieved with modest public subsidy and with limited charitable grant support. Social investment has provided ‘new money’; it is not displacing other priorities for public spending.
Let’s look at one example to illustrate.
The answer is blowin’ in the wind…
Social investment has greatly helped the development of new renewable energy generation capacity in community ownership – new windfarms and solar farms in local hands.
Our transition to Net Zero requires a huge investment in new renewable energy generation – probably trillions of pounds up to 2050. It is a generational shift in approach.
By working with partners across the country and investing into numerous programmes, Better Society Capital has contributed to this transition by scaling up energy provision in the hands of local communities. Its investments also attract and bring other investors in too.
In the last ten years, BSC has invested £90m of social investment into community renewable schemes, levering in another £115m from other investors. This £205m of investment has created 157MW of new power generation (equivalent to about 30 big wind turbines), all in community ownership, and doubling the size of this sector in the UK.
And after the loans are paid back and assuming the kit lasts for 25 years, there will then be an estimated £50m of revenue generated by all of these facilities for their community organisations to use.
Not bad.
Have we arrived then? Can we relax now?
No. The sector is still at a relatively youthful stage and is still growing and developing. There is much work still to do.
The rise of social investment in the UK has not proceeded in a nice straight line. It has lurched in stages, made mistakes, occasionally got lost down rabbit holes and still has a long way to go. It is far from perfect.
To its credit, Better Society Capital, as the big new arrival on the scene, has publicly accepted the rather naïve approach it took in its first few years and has shown that it can learn from its mistakes and adapt and change. (Their ten-year review was commendably reflective and worth a read[2])
A national review of the social investment market was undertaken in 2021 by the independent Commission on Social Investment, chaired by Lord Victor Adebowale[3]. The report came to the conclusion that the social investment market had made huge progress but still had a long way to go in being effective in its support for starting and growing social enterprises. In particular, the Commission recommended three things:
Serving social enterprises better - The social investment market needed to be reformed to enable better support of social enterprises, especially early-stage enterprises, with BSC accepting lower financial returns when it funded organisations, enabling more higher risk investments to be made. The Commission felt that too much money was being invested in ‘safer’ property funds rather than ‘riskier’ social enterprises.
Serving disadvantaged communities better – The Commission found evidence that disadvantaged communities, areas beyond London and the South East and minority ethnic communities were not being as well served as they should be. Investors, institutions and investees all lacked diversity.
Social enterprise infrastructure – Much more support needed to be provided to ensure local ecosystems of support are available across the country, to support social enterprises, funded by dormant assets money.
The report set out an important agenda for where the sector might go next – building up ‘ecosystems’ of support across the country, ensuring that social investment institutions don’t seek too much financial return and being much more proactive in diversifying the sector and serving disadvantaged communities across the country.
Three years later, in late 2024, the Commission published its ‘report card’ on progress in implementing its recommendations. Lord Adebowale himself described progress as ‘slow and disappointing’. Clearly, there is much still to do.
The North-South divide in social investment
My own new analysis of the geographical distribution of social investment also supports this view. In particular, I have found a striking North-South divide in social investment in England.
The most recent regional analysis of Better Society Capital’s social investments (in 2022), showed that 22% of its investments in England went to the north of England (the three regions of the North West, North East and Yorkshire and the Humber)[4]. This does not match the geography of ‘need’ across the country.
For example, looking at the number of ‘households earning below average income’[5], a common definition of low-income, some 32% of these households live in the north of England.
The Independent Commission on Neighbourhoods also recently reported on social and economic needs in England. Its new Hyper Local Needs Index identified that 54% of ‘mission priority’ neighbourhoods in England (i.e. the 15% of neighbourhoods most in need) were in the north of England (in the same three regions)[6]. Of the most needy neighbourhoods, the top 2% ‘mission critical’ neighbourhoods, some 76% are in the north of England.
Whichever data you use, there appears to be a significant shortfall in social investment in the north of England. So, funding bigger and better local and regional ecosystems of support outside of London is a key part of the answer to closing this gap.
Lessons for the future
Let’s be clear, the remarkable growth of social investment in the UK over the last 25 years is an achievement, making the UK a world leader, and it would not have happened without a lot of ground-breaking work. It is now delivering billions of pounds of investment to complement philanthropy and state interventions in tackling many challenging issues. There is much to celebrate and every reason to think that the market will continue to increase in scale in the future.
However, as the sector matures – which it is now doing – it needs to grapple with some important reforms if it is to fulfil its potential.
I would take away five lessons from this brief review:
Government can be a force for good – The ideas and drive for more social investment came from the bottom up - a mix of social investors, social enterprises and civil society pushing for support. Government listened, responded and created the infrastructure to make it happen, working in partnership with the sector. It’s a good example of a government being creative and using its powers well.
Cross-party support is the best route to long-term change – Social investment has been backed by all major parties at Westminster and has flourished as a result. As noted in my recent blog on the Minimum Wage, cross-party support enables a sustained policy momentum to develop over time.
Institutions eat strategies for breakfast – Institutions are essential to social and economic change. There is no long-term legacy in a field of work without an enduring institution to make it happen. The Social Investment Task Force was the first crucial (time-limited and informal) institution to develop new thinking, build impetus and get the ball rolling. Better Society Capital was the second (permanent) institution which has led the creation of a growing social investment market. No bank, no growing market. The model of change here is worth pondering by all those interested in legacy-making.
We need a New Deal for Social Investment in the North of England – The north of England has not had the level of attention and investment it merits from Better Society Capital and its partners. This is a missed opportunity, as not only does it have a significant array of social and economic challenges, it also has much economic potential to unlock. Now would be a great time to ramp up investment. This means fulsome support for local and regional place-based eco-systems of support for social enterprises, to accelerate a pipeline of new and growing enterprises to invest in. We need new institutions, locally accountable, complemented with higher levels of social investment. It also means more decisions should be made outside of London. As always, conversations about power and money are closely linked. In the same way, more work is also needed to ensure that investors, investees and enterprises are more diverse, in line with Lord Adebowale’s recommendations discussed earlier.
Local government and social investors need new institutions to help them connect – Social investment continues to be overlooked by many local authorities as a serious part of the mix, either for delivering social outcomes or supporting economic growth. In an age of tight budgets, this is a bewildering omission. Many local authority ‘Growth strategies’ (for economic growth) don’t even mention social investment. The recent report from the Independent Commission on Neighbourhoods for the renewal of deprived neighbourhoods also barely mentioned it. This needs to change. The lack of obvious local players to talk with may not be helping – hence the urgent need to put in place a serious network of place-based social investment eco-systems which can lead change, provide a voice and boost delivery capacity. These new institutions would help connect local government and social investment.
Conclusions
Social investment is a valuable tool for advancing community ownership of local buildings, building social enterprises and innovating in public services. Successive governments over the last 25 years have shown the imagination to nurture its growth to make it a reality. Institution-building has been key to its success.
As it matures, though, there is an urgent need to shape the sector so that it can better meet the needs of our most deprived communities and so that it can properly engage in helping to build more purpose-driven economies across the UK.
If we are to fulfil the original vision of the Social Investment Task Force, framed 25 years ago, to build a culture of “empowerment, entrepreneurship and initiative” across the UK then we must keep pushing for change. We have yet to arrive.
The best things in life are difficult and take time. Is something bothering you today? Organise.
This blog was written by Tim Thorlby. Please sign up for the email alert if you’d like to know about future blogs, usually published once a month.
Foot Notes
[1] For all of the Social Investment Task Force reports 2000 – 2010, see: https://sirronaldcohen.org/commissions-task-forces
[2] Big Society Capital (2024) Ten Lessons from Growing the Market 10 Times in 10 Years | Access: https://bsc.cdn.ngo/media/documents/BSC-10-LESSONS.pdf
[3] Commission on Social Investment (2021) Reclaiming the Future: Reforming social investment for the next decade | Access: https://www.socialenterprise.org.uk/app/uploads/2022/07/Reclaiming-the-Future-Commission-on-Social-Investment-Report.pdf
[4] See Enterprise Data 2022 | Access: https://bettersocietycapital.com/our-approach/2022-market-data/enterprise-data-2022-mapping-uk-social-investment/
[5] Data from ONS: households below average income 2022-23, by region
[6] See ICON (2025) Think Neighbourhoods: Interim Report | Access: https://www.neighbourhoodscommission.org.uk/report/interim-report-think-neighbourhoods/