The Department for Digital, Culture, Media and Sport’s announcement that a further £330m from dormant bank accounts will be available in coming years to support housing for vulnerable people, helping disadvantaged young people into work and dealing with problem debt. Worthy causes for sure, but it leaves key questions unanswered about how charities will access the cash and how the sector can be sustainably funded in the future.
The concept of using dormant assets to support social causes has been around for more than a decade. The original idea involved identifying bank accounts that had no apparent owner – because they had died or were untraceable. The banks would then transfer these funds to a single “reclaim fund”, pooling hundreds of millions of pounds. If the owner turned up, they would be reimbursed.
The Dormant Bank and Building Society Accounts Act 2008 established the legal framework for the scheme. The Conservatives made it a major part of their 2010 general election manifesto, and set up Big Society Capital early on in the coalition government to act as the wholesale distributor for much of the reclaimed funds, and to provide capital to other providers of social finance for organisations on the ground. Since 2008, £1bn of dormant accounts money has been identified; £360m has been directed towards good causes in the UK.
Under this Tory vision, the whole social sector was to be re-engineered along the lines of market capitalism, making us independent, innovative and self-financing. But it hasn’t worked out like that. That model, as it has been largely deployed to date, is a particularly bad fit for the small, charitable and non-profit organisations that make up most of the sector. Their trustees are rightly wary about taking on liabilities that might require repayment. And most mainstream investors aren’t willing to take a punt on the high risks and low returns offered by those kinds of organisations. Most social investment has therefore been financed by government departments, Big Society Capital, its offshoot Access (to fund smaller groups), a handful of charitable foundations or the Big Lottery Fund.
The release of £330m is merely the next tranche of cash from dormant bank accounts being delivered from the reclaim fund over the coming four years.
Of course, more money to support housing for vulnerable people, helping disadvantaged young people into work and dealing with problem debt is surely needed, but the announcement raises more questions than it answers. Will the funds be accessible to most organisations? How will they support charitable bodies with the right expertise? How will the money finance effective programmes?
It says little about the next policy stage either, which is extending the reclaim fund idea to other dormant financial assets like equities and insurance. This was the subject of a major review last year, which concluded that up to £2bn could be released. This will require more detailed policy work and further legislation to realise.
Nor does the department’s latest announcement answer the question of what type of financial structures and products could best help local communities to be more resilient in these challenging times. We have argued for years that what most of the sector needs is not high finance but grant support.
There’s a relatively simple, sustainable way to deliver this, which NCVO and many others are firmly behind: endow the network of Community Foundations and, potentially, other local funders with the capital from these other dormant assets. This would enable them to provide local grant funding in perpetuity, leveraging private donations and other sources of capital alongside. This also has the potential to support bottom-up solutions devised by communities themselves.
- Jay Kennedy is director of policy and research at the Directory of Social Change
Talk to us on Twitter via @Gdnvoluntary and join our community for your free monthly Guardian Voluntary Sector newsletter, with analysis and opinion sent direct to you on the first Thursday of the month
Looking for a role in the not-for-profit sector, or need to recruit staff? Take a look at Guardian Jobs
