Examination of Witnesses (Questions 240
TUESDAY 5 JUNE 2007
Q240 Mr Mudie: And you have dismissed
Sir Ronald Cohen: We have not
dismissed it. What we have been anxious to do is to make sure
that this organisation is responsive to the needs of the third
sector, not that it reports formally to the third sector. In setting
up an organisation that is independently managed and perhaps answerable
directly to Parliament you have to try to find the right legal
structure, you have to have the right governance for it. We have
accepted that it may well have a set of trustees at the top, that
you would go through normal public procedures in order to appoint
them, that they would be the guardians of the mission of this
organisation, that they would pick a board and a CEO going again
through public appointments procedures, and then on a yearly basis
it may well be that the most appropriate thing to do is for this
organisation to report to Parliament. The guidelines which the
trustees would follow would be to look at the needs of the third
sector and to try to increase the capacity and the effectiveness
of the third sector in the relief of disadvantage and the appointment
of a board would follow similar guidelines. So it was in that
more general sense that we were saying that it should be responsive
to the needs, rather than responsible to the third sector.
Q241 Mr Mudie: You would still find
it acceptable to report directly to Parliament, would you?
Sir Ronald Cohen: Absolutely.
Q242 Mr Mudie: I am sorry we have
taken up a lot of time on technical matters rather than getting
to the real issue for yourselves as a commission which you have
accepted on your website is how you spend this money. I represent
a very poor constituency and your SIB does not fill me with joy.
I am counting the days until you come in. I will tell you how
I view you. I think the Government has put enormous amounts of
money in the direction of my constituency but it has been intercepted
by well meaning employed people who are making a good living out
of ensuring that my poor constituents lose their poverty. To date,
after 10 years, they have failed, but whilst they are in a job
they will continue trying whilst my constituents will still be
poor. What on earth is this bank going to deliver to east Leeds
or at least Newcastle?
Sir Ronald Cohen: If you want
to deal with the problems of poverty today, I think all of us
would agree that just giving Government grants is not going to
provide the solution. We have a society where wealth is increasing,
growth in the economy is up, employment is up, the economy does
better, but the gap between rich and poor is getting bigger and
bigger. We have a third sector that is powerful in terms of the
numbers of people working in it and is very poorly undercapitalised.
Q243 Mr Mudie: Why do you paint this
picture, accepting the poverty of my people, and then suddenly
decide that here is this 330 million you are going to take and
you are going to put it in to the third sector? That is again
a filter between the money and my people.
Sir Ronald Cohen: I was just going
to give an example of it. The sorts of organisations that we are
talking about funding, if I may take one example, would be organisations
such as the Charity Bank. The Charity Bank is lending money to
philanthropic organisations across Britain, many of them working
in your areas.
Q244 Mr Mudie: We have loan sharks
in my area.
Sir Ronald Cohen: This is the
answer to loan sharks.
Q245 Mr Mudie: The Credit Unions
are the answer to loan sharks, but we still have loan sharks.
Sir Ronald Cohen: Perfect. The
reason the Credit Unions are not an answer to loan sharks is one
thing and one thing only, ie they cannot get the capital.
Q246 Mr Mudie: I disagree with you.
In Leeds we have got one of the biggest Credit Unions and they
are well funded. They have over £1 million in the bank. They
have plenty of money but very little impact on the estate.
Sir Ronald Cohen: They should
not have £1 million, they should have £100 million.
When I started out in venture capital and we were raising a £10
million fund people thought it was a lot of money, there is no
more that can be done. Today, as we can read in the papers, you
have got billions
Q247 Mr Mudie: You are a friend of
the Chancellor and I get angry with the Chancellor. For example,
today is the final date for Enterprise Funds in Leeds. It has
been open a month. Nobody on the estate knows about it. It is
a lot of money. It is the Chancellor's view about how to end poverty
in my patch and it does not matter. What will end poverty in my
patch is people getting jobs and having money in their pockets.
Enterprise is something different. You say you are trying to create
a market. They will create a market if you put money in their
pockets and put them into jobs.
Sir Ronald Cohen: To create a
market you need to create businesses, you need to create jobs.
Q248 Mr Mudie: Businesses are created
when there are customers. When the customers have no money to
artificially create businesses it is just a farce.
Sir Ronald Cohen: Perhaps I could
give you just one example. In 2002and this is what the
Social Investment Bank wants to do in partthe Government
provided £20 million to Bridges Community Ventures and we
raised £20 million from the private sector. The money can
only be invested in the poorest 25% of the country according to
the Government's index of deprivation. People thought there were
no entrepreneurs in that area. Lo and behold we have now invested
the best part of £40 million. We have just raisedand
perhaps this could stay in this room, an announcement will be
made shortlymore than our estimated £50 million and
it is all from the private sector. This money will go to people
in the poorest areas of the country to create jobs. The role models
that have been created in the first fund
Q249 Mr Mudie: With the greatest
respect, I could create jobs overnight. I did when I was Leader
of the Council. I put a fair bit of money in for home helps which
are desperately needed in the community by the elderly. A lot
of ordinary people, often with no great educational skills, got
jobs for the first time in their life. We could create jobs and
they in turn create the market by spending money. You are asking
for money to create a market and those people have no money.
Mr Mayo: I do not think our point,
with respect, is that you cannot take the approach that you have
said. You could put money through public expenditure in the way
that you have said. You could put it into people's pockets directly
in terms of benefits.
Q250 Mr Mudie: I have never suggested
that. I have said employment. My people want jobs. My youngsters
are coming out of schools or higher education thinking they have
no future and the Government has put loads of money into the third
sector where nice middleclass people are getting jobs and they
are looking after my working class people who cannot get jobs.
Mr Mayo: In terms of employing
home helps or using money in order to give people jobs that are
funded by the public sector, it is not our argument that that
will or will not work. Will the public see that as an effective
use of money in terms of tackling poverty?
Q251 Mr Mudie: I was not confining
myself to that. We run a job training scheme that needs funding.
We said to working class people who were on the estate and long-term
unemployed that if they lasted the course we would guarantee them
a job and a lot of those jobs were in the private sector. They
were not creative jobs, they were mainstream jobs. With the amount
of money Sir Ronald is talking about we could skill people and
put them into mainstream jobs, increase the capacity of the economy
and everybody would be happy. There is nothing artificial about
it. Why are you not suggesting we put the £330 million in
to doing something like that?
Sir Ronald Cohen: Because it is
attracting another £700 million and you are investing a billion
in building organisations that can fund a multiple of the number
of people that you would give jobs to directly.
Q252 Mr Love: I want to follow up
on what George has been saying. As someone who is very supportive
of the third sector, whilst I have some sympathy for what George
says, it is not only the middle classes that work in the third
sector. There are many very dedicated people working in the third
sector. I wanted to put to you the criticism that has been made
of organisations already in this field, including the Triodos
Bank, who you will be very well aware of. There has been, if we
are being very honest, limited success with community development
finance institutions, they are still very dependent on the Phoenix
Fund. The tax relief in deprived communities has not really worked
terribly well, as I am sure you are very well aware. Their criticism
is that there is not the market out there for the level of funding
that you are seeking. I know you have already said that sometimes
the money will create the market. Just reassure this Committee
that if this money was to be delivered to you, you are confident
that you will be able to put it to good use and get a social return
for the investment that is made?
Sir Ronald Cohen: We have had
consultation with 1,000 people in the course of our work. There
is a huge need for capital. To the extent that you can create
an organisation like this, our expectation is that we can attract
three or four times the amount of money from the private sector
than if you are investing in this institution. It will become
self-sustaining, it will play the role that ICFC played after
the war in trying to rebuild British industry and it will do this
in the most disadvantaged areas. This money is a fraction of what
is needed in total. I think if we do this then 10 years from now
when we look back upon it we will see that it is a crucial part
of funding voluntary organisations in this country to do a job
which neither Government nor the private sector can do effectively.
Q253 Chairman: Sir Ronald, Triodos
Bank have argued the case in their submission to us that "the
case still needs to be proved for further investment in capacity-building
and that the market demand for social equity investment is currently
small and met by existing supply. The reason for the small size
of the market is that there are "still relatively few organisations
with the right business model and the management capacity to work
with an equity investor"." Is the market ready for a
Social Investment Bank?
Sir Ronald Cohen: Whenever there
is a chicken and egg problem you have to realise that they were
both designed at the same time. The chicken and the egg did not
come one before the other, they came together. A chicken and egg
problem means that you have to work on both dimensions at the
same time, you have to work on the supply of capital and you have
to work on the capacity of organisations to put it out. When we
had no Bridges Community Ventures no money was being invested
in venture capital in the poorest parts of the country. Today
we have invested £30 million. We will now have more than
£100 million to invest in these areas. There is no shortage
of entrepreneurs. We are looking at 300-500 business plans from
these areas a year now. The supply of money does create its own
demand. People go out to get the money if they think it is easy
to get it. If they think it is impossible to get it they do not
try. Believe me, this is a similar situation. When I started out
my first venture capital fund in Britain was a £10 million
fund. It was the largest fund in 1981 in the UK and people said
we could not invest it. Now hundreds of million of pounds are
being invested in early stage businesses every year. The same
is true over here. If you can see your way to supporting the creation
of a Social Investment Bank you will see that it will transform
the flow of capital into these areas. I was giving the example
of the Charity Bank. The Charity Bank today needs £10 million
of equity to increase its ability to lend to not-for-profit organisations.
Do you know how much it could give in loans if it got that £10
million? It could give £130 million. That £10 million
will release £130 million of lending to not-for-profit organisations.
That is what this is about. This is about taking this money and
instead of spraying it over the desert sand and seeing it seep
in, creating an organisation that can act as a pump for a voluntary
sector which is akin to an engine with all its pieces lying around
which you have to bolt together. If you bolt it together and put
this pump in it you will get real results. The scale of the problem
is huge as we all know. £250 million of unclaimed assets
is a Godsend. It would be very difficult to get an allocation
from Government for a purpose such as this if the unclaimed assets
were not available.
Q254 Chairman: Ed, you have worked
with the voluntary organisations in the third sector for a lot
of your working life. Would you not like to leave us with your
impressions on this?
Mr Mayo: With pleasure. I start
from my day job as Chief Executive for the National Consumer Council.
We are very conscious of the many ways in which the poor and disadvantaged
lose out. The poor pay more and get less for a whole range of
services and often that is geographically based and so you have
high streets that are run down and you do not have businesses
and enterprises operating in those areas. You have the State and
you have local government but altogether it does not add up to
local renewal. What I have seen in my working life over the last
10 to 15 years on issues about poverty is that there is huge potential
there. I do not mean to say that it is alone in terms of the third
sector and I do not mean to say that everything that happens in
the third sector is right or always professional or always better
managed. I think the idea that there is creativity, potential
talent and social entrepreneurship that can be unlocked in communities
that would otherwise be seen as in deficit, in need and disadvantage
is undeniable. The third sector organisations are organisations
that the public do know and can trust. It may be that the public
have greater trust in third sector organisations as names and
brands than they may do in Government, certainly more than they
may have in banks or indeed perhaps building societies as well.
It is about unleashing their potential to make a difference. I
have seen third sector organisations that are killed by sudden
death contracts, by the insecurity chronic and endemic insecurity
of grant funding, not knowing at the start of year whether they
are going to have the money there to pay the bills and that is
about capital structure in a funny way, it is about the business
model, which I think was the point that Michael Fallon was making
earlier. What we are exploring in a Social Investment Bank, which
I think is different and innovative but needs to be done at the
right scale, is changing the way that that effort and that initiative
is capitalised and looking to more effective ways to do it. If
you talk to managers and people that work in the front line, in
communities and community development trusts or social enterprises
providing these services, the idea that there could be a stronger
capital base to give them security to employ local people to provide
services to innovate I think is a key thing. I think this is an
opportunity to do something which is terribly difficult to do
in Britain. Michael Young, the founder of the National Consumer
Council, said to me, "Edward, if you want to do anything
new in England you have got to pretend that it's not". It
is terribly difficult to do something innovative here often in
England and I think what we are doing with this proposal is changing
that. I am very confident that the proposal is far more innovative
and will be far more of an effective proposal than simply responding
to the inexhaustible needs of a myriad of different good causes.
Q255 Chairman: The same applies in
Scotland as well. I chair a regeneration company of public and
private interests and it is the grant mentality aspect that we
want to eliminate and we want to get the access to finances so
that we can generate more in being independent in that. The model
itself seems good to me, Sir Ronald, but the practicalities is
the issue here. We are very grateful to you and your colleagues
for coming along and explaining that to us this morning. Thank
you very much.
Sir Ronald Cohen: Thank you for