Friday 26 November 2010

Big Society Bank

An exciting report by Sky News business editor is worth reporting in full.

"Britain’s high street banks are in talks to commit more than £1bn to a community projects-focused ‘Big Society Bank’ as part of an unprecedented pact being thrashed out between the industry and Government, I have learned.

Barclays, HSBC, Lloyds Banking Group, Royal Bank of Scotland and Santander UK are close to agreeing to fork out hundreds of millions of pounds each to the project, which has been given the secret codename Project Merlin.

David Cameron has pledged to establish a Big Society Bank to fund major community projects. Money from dormant bank accounts will be provided to help set it up.

I can also reveal that the ongoing talks between the banks could result in an extraordinary series of pledges being made (almost certainly privately) by the Government.

These could include a commitment to maintain a regulatory level playing field; an agreement “not to impose any further UK-specific payroll, activities or transactions taxation” on the industry, according to somebody involved in the talks; and a deal with the City regulator to offer favourable treatment to the capital provided by the banks for the new Big Society initiative.

According to a document circulating in Whitehall, a copy of which I’ve obtained, the banking sector will play a pivotal role in David Cameron’s Big Society agenda by helping to establish a new institution that will “act as a sustainable provider of wholesale finance to Community Development Finance Institutions across the UK”.

“In addition to surrendering funds from dormant accounts, the Merlin banks agree to advance the Big Society in two ways. First, they will continue to support communities through institution-specific initiatives, through which they currently contribute £[x]m per annum (in cash or in-kind) and expect and intend to maintain that rate of investment,” the document says.

“Second, they will support the successful construction of the Big Society Bank…including, subject to objectives, business plan and structure, the injection of £[x]m of capital over two years, commencing in the first half of 2011.”

My understanding is that the total amount committed by the five participating banks could be between £1bn and £1.5bn over two years although the numbers have not yet been finalised. On top of last year’s Bank Payroll Tax on bonuses, and the new bank levy, that’s not an insignificant sum.

If a final agreement can be struck, the pledge would be an extraordinary one from the banking industry, and would form part of a wider pact aimed at delivering a ceasefire in hostilities between the banks and Government."

If this is true it is superb news for the sector and a major breakthrough. One of my concerns about basing a Bank on just dormant accounts would not give enough capital access. It is estimated that only some £60m would be available at the start.

Against demand this is triffling. When Futurebuilders closed loan applications were running at £60-90m a month.

But we also know that the commercial banking sector is poor to pathetic at lending to the third sector.

To get the scale we need I always thought at least 1-2 billion was needed. Against the background of the service delivery reforms, we need proper access to capital funds. Unless there is effective access we cannot compete for tenders where payments are based on outcomes.

Francis Maude's plans for mutuals require capitalisation. That will not come from local councils or health authorities.

So I'm hoping this story proves accurate. It is what it is needed. If true the government have pulled off a blinder. Congratulations.

1 comment:

Claire Cater said...

This would be a fantastic development. It makes complete sense for the banks to invest. I do think we could be about to see a significant growth in the social market sector - it has the potential to be the next .com boomb of our time. Banks investing in The Big Society Bank will be able to stay close to the latest in innovation, and spot the strongest emerging potential while minimising risk and not disenfranchising their main stream corproate clients - some of whom are increasingly going to be competing on a level playing field with the likes of social enterprise. Their investment is an indication of the potential for change!