Written evidence submitted by Social Investment Business

WRITTEN EVIDENCE SUBMISSION TO THE DCMS SELECT COMMITTEE INQUIRY ON THE IMPACT OF COVID-19 ON THE CHARITY SECTOR

Introduction to Social Investment Business

Social Investment Business (SIB) provides loans, grants and strategic support to charities and social enterprises to help them improve people’s lives. We specialise in helping organisations become more resilient and sustainable so that they are in the best place to grow and increase their impact.

SIB has one of the largest and most mature social investment portfolios in the UK and one of the most significant track records in providing finance and support. Between 2002 and 2018-19:

• SIB has disbursed £180m in loan finance to 490 charities and social enterprises, alongside £133m of grants (of which £45m was used in blended deals).
• SIB has disbursed a further £115m in grant funding to 1,900 organisations
• In 2018-19, SIB currently manage an investment portfolio of £55m
• Almost 40% of SIB’s portfolio work in the top 20% most deprived areas in the country.

Having worked with more than 2,000 organisations over the past 15+ years, we have built an in depth understanding of the financial needs of social sector organisations – whether that be through grants, loans or blended finance.

Executive Summary:

The coronavirus outbreak is a challenging time for the organisations we support – charities, social enterprises and community organisations – many of whom work with the most vulnerable in society. We are concerned that, without appropriate Government support and intervention, an alarming number of charities and social enterprises could close forever as a result of COVID-19. This not only has immediate implications for charities and their service users during the crisis, but long-term ramifications for vulnerable communities and their local economies in the recovery period.

Since the onset of the crisis we have been looking at our own funds and programmes to see what we can do, while also working closely with other social investors on joint and collective action. This includes providing repayment freezes and flexibility directly to existing customers. We have co-signed a statement by London Funders,[1] as well as a statement with other social investors,[2] to publicly outline our approach. We have also been changing the way we collect data internally to better understand the impact COVID-19 is having on our investees and grantees (customers).

The key points of this submission are as follows:

• SIB has implemented systematic data collection processes with our customers to create a live and robust data set on the impact of this crisis on the organisations we support. We have found that the majority of organisations in our portfolio are experiencing medium-high risk to their income and cash reserves; while a fifth are experiencing imminent difficulties meeting their staff or operational costs.

• We are concerned about gaps in the support packages currently available from the Government – especially in terms of the amount of funding available; the eligibility criteria for grants; and delays with receiving/accessing funds. Ongoing uncertainty and delays are likely to result in charities and social enterprises being unable to cover bridging costs and either closing doors forever or having to make staff redundancies.

• SIB has recently launched the Recovery & Resilience Loan Fund in partnership with Big Society Capital and other social investment partners. This is an emergency loan fund designed to make the Coronavirus Business Interruption Loan Scheme more accessible to charities and social enterprises. While this will help to meet the urgent and immediate working capital needs of some organisations, it will not be appropriate for many others – where the current demand is for significant grant funding rather than repayable finance or additional debt.

• We are undertaking research to evaluate the short- to long-term effects of COVID-19 on the most vulnerable communities in the UK. This work will inform the direction and design of emergency interventions to the places that will need it most, and how the social economy can be most effectively harnessed during the recovery period.

1. SIB’s internal COVID-19 Data Collection

1.1.        Over the past few weeks, SIB has been focusing efforts on internal data collection in order to be able to respond and rapidly adapt to the changing needs of our customers, ensuring that the support we offer is both flexible and effective.

1.2.        Since mid-March, we have designed and implemented a new systematic data collection process with our customers to create a live and robust crisis data set. Across our portfolio, we are collecting data on the following areas:

• Impact on staff/volunteers
• Impact on finances
• Impact on service delivery
• Contingency plans for COVID-19
• Support needed

1.3.        To date we have collected information from 98 organisations, across 10 SIB funds. Between 27 March – 9 April, we received 54 updates from different organisations – these daily updates are critical to ensuring that our data reflects the changing circumstances and trends for organisations as the situation develops. This data has helped us to understand how differences between organisations (e.g. geography, size, primary focus, income stream, cash reserves) shape the impact of COVID-19.

1.4.        There are six key takeaways from our internal data collection to date:

1.4.1         COVID-19 poses a Medium-to-High risk to the income and cash reserves of most organisations – 73% are experiencing a Medium/High risk to income and 75% are experiencing a Medium/High risk to their cash reserves.

1.4.2         Risk to income and cash reserves are non-exclusive with 66% of organisations experiencing a Medium/High risk to income and cash reserves.

1.4.3         Change in need has varied in different sectors – 25% have seen an increase in the need for their services, whereas 26% have seen a decrease. Most of the Education and Arts/Culture focused organisations have seen a drop in need, compared with Community Centres which have seen both increases and decreases.

1.4.4         Staff have been furloughed and volunteer capacity has decreased – 24% of organisations have furloughed staff, this equates to 699 people out of a total 1451 employees.[3] At the same time 30% of organisations have seen a 25% decrease in volunteer capacity, while 23% of organisations have seen a 50% decrease in volunteer capacity.

1.4.5         Organisations currently cite ‘users moved elsewhere/ceased use’ as the biggest barrier to recovery in the future – 24% have identified this as at least one of their barriers to recovery. Others include loss of tenants, loss of contracts and loss of staff and volunteers.

1.4.6         Without urgent government support, some organisations are experiencing imminent difficulties in managing their expenditure – without support, 22% will have imminent difficulties paying staff and 19% will have imminent difficulties paying operational costs.

1.5      Collection of this data has put us in a better position to assess which of our customers need the most help (now and in the future). We have created a risk tracker that we are updating weekly to capture specific areas where our customers may be struggling as the COVID-19 crisis continues.

1.6      We are actively collaborating with our sector peers (through the Social Economy Data Lab)[4] on how we can align data collection processes to create comparable data across the social investment sector.

1.7      We expect findings to change and evolve with the circumstances and new data we collect. As the project develops, we are looking to carry out more extensive analysis and explore trends in our time-stamped data.

2. Gaps in support and urgent needs

2.1      We welcome the £750m government support package for charities announced by the Chancellor on 8th April 2020. Along with the cash grants for small businesses, the Employee Retention Scheme and the Coronavirus Business Interruption Loan Scheme (CBILS), it is positive to see the Government taking unprecedented steps to support the economy through this crisis. Nevertheless, we are concerned that there may be gaps in support for some parts of the social economy, as well as areas that require clarification from Government.

2.2      £750m Charity Support Package: The £750m support package will go some way to help charities through the current crisis. With half of this funding going towards charities providing key services and supporting vulnerable people during the outbreak, there will be £360m available to small-medium charities. However, this is significantly lower than the NCVO estimate of a £4bn shortfall in 12 weeks as a result of the crisis, and is not likely to prevent many smaller charities from closing their doors.[5] According to the 2019 Civil Society Almanac, there were 160,934 micro-small-medium charities in the UK,[6] meaning the £360m provided by Government works out to roughly £2,236 per charity – far short of the minimum £10,000 cash grants provided to small businesses. Moreover, until we see further detail, it seems that there is a concerning omission of social enterprises under this support package – many of which may be ineligible for other Government grants (see below).

2.3      Cash Grants for Small Businesses: The eligibility for the Retail, Hospitality and Leisure Grant Fund (RHLGF) and Small Business Grant Fund (SBGF) is determined by the rateable value of the property for businesses in particular sectors (RHLGF) or by the receipt of business rate relief (SBGF). The guidance has been updated to note that charities receiving charitable or discretionary rate relief, that would otherwise meet these criteria, will be still be considered eligible for grants. However, this still leaves gaps. For example, 27 organisations we work with have their primary focus as Education & Training Provision and, based on our data and understanding of the eligibility criteria, will qualify for neither the RHLGF (as they are not in the appropriate sectors) nor the SBGF (as they do not qualify for Small Business Rate Relief or Rural Rate Relief). There also appear to be issues for social enterprises who rent their office space from a charity and are therefore ineligible for a Government grant because they are not registered for business rates.[7]

2.4      Coronavirus Business Interruption Loan Scheme (CBILS): there are significant concerns around how quickly the CBILS scheme is able to turn around applications. The Times has reported that only 4,200 of 300,000 emergency loan applications have been granted in the three weeks that the scheme has been open.[8] Anecdotally, across the social sector we have heard of organisations that have applied to CBILS but been either rejected outright, or been informed that they are in a long queue – which is not helpful for organisations with immediate cash flow needs.

2.5      Timeframe for support: An overarching concern is the turnaround time for disbursement of funding. Many of the charities and social enterprises have seen their services reduced by up to 100% and income streams wiped out overnight since the lockdown measures were implemented – putting significant pressure on already limited cash reserves. This has created an urgent time-sensitivity to support measures: a fifth of the organisations we work with are facing imminent difficulties either paying staff and/or covering operational costs. They need urgent clarification on how long it will take for funding support to come through – including furlough payments and other cash grants. Ongoing uncertainty and delays are likely to result in charities and social enterprises being unable to cover bridging costs and either closing doors forever or having to make staff redundancies.

3. Recovery & Resilience Loan Fund

3.1      On 9th April 2020, SIB announced the launch of the Recovery & Resilience Loan Fund (RRLF) – a new £25m emergency fund which will provide repayable finance to charities and social enterprises directly affected by the COVID-19 crisis. The initial £25m has been provided by Big Society Capital and SIB will be issuing the loans with delivery partners Big Issue Invest, Charity Bank and Social and Sustainable Capital.[9]

3.2      RRLF has been established to make the existing CBILS more easily accessible to charities and social enterprises – in part due to the difficulties these organisations have experienced in accessing CBILS through major banks. RRLF is intended for those charities and social enterprises who face a problem because expected income activity has been delayed or disrupted. These loans provide working capital until normal business can recommence and can be used to provide a bridge until receiving government payments, or cover delays in trade payments, or even to meet increased demand / scale an existing model more rapidly in response to the crisis.

3.3      Loans from RRLF are only for social sector organisations – charities and social enterprises – including registered charities, community interest companies and community benefit societies. The additional CBILS eligibility criteria also apply (turnover less than £45m, minimum 50% income from trading etc).

3.4      We are aware that RRLF is not a panacea and is only likely to be appropriate for some charities and social enterprises – in many cases, grants will be more appropriate. Indeed, across the sector we are finding the demand is for significant grant funding – not repayable finance. Under the current circumstances, taking on additional debt is not an option for many organisations, who instead need to focus on their immediate cash flow issues.

3.5      We are working with our partners to get RRLF live as quickly as possible, with the current expectation being to open in mid-April and with the first loans to be completed at the start of May.

4. The impact on COVID-19 on communities

4.1      Looking ahead, we are interested in understanding the short- and long-term effects of the COVID-19 crisis on the UK’s most vulnerable communities and their local economies. Data during a time of crisis needs to be fast, responsive and easily accessible; and through the COVID-19 and Communities project, led by SIB through the Social Economy Data Lab (SEDL), we are bringing together social economy data partners to help us effectively prioritise limited resources during and after the COVID-19 crisis. This project will have two outputs: (i) a COVID-19 Vulnerability Barometer; (ii) a data-led, longer research piece on communities after COVID-19.[10]

4.2      Output 1 – COVID-19 Vulnerability Barometer: We are developing an economic health barometer which uses key indicators on changing consumption (proxied through card transaction data) to rank communities most vulnerable to the economic effects of COVID-19. This will be updated weekly with close to real-time data to reflect ongoing economic vulnerability at a time of crisis; and will be housed on a news and media platform to scale data accessibility. We will be able to use this barometer to see where individual communities are facing the greatest strain – and as we are focusing specifically on leading economic indicators, we will be able to use this data to predict where that pressure will grow next.

Project objectives:

1. To provide real-time data to indicate changing economic vulnerability while the COVID-19 crisis continues to unfold
2. To identify those communities most vulnerable to the impacts of COVID-19

Datasets:

• Imfoco, with the help of Esmée Fairbairn Foundation, is providing data on merchant sales and customer wallet share at local level, so our indicators can reflect changing customer spending, merchant sales, and changing access to grocery stores in communities.
• Turn2us has opened their benefits calculator datasets so that we are able to track changing economic need among individuals in a community.

4.3      Output 2 – Communities After COVID-19: The aim of this project is understanding the longer-term impact of COVID-19 on communities, so we know where to focus economic efforts after the initial shock of this crisis. Identifying that some places won’t be equipped to recover quickly and which communities in the UK will struggle to recover in the long run. Through collaboration with social data partners, we will be leveraging a number of different datasets to answer our main research question: which local economies, local merchants and local charities and social enterprises, are likely to survive the COVID-19 crisis, and which need support from social lenders, governments and others in order to do so (both in the short and long-term).

Project objectives:

• To understand the discrepancy in the ability of local economic and civil society infrastructure to respond to the COVID-19 crisis.
• To inform how COVID-19 emergency resources are designed and directed so as to reach communities most in need.
• To prepare and inform social economy players of the types and levels of long-term support needs for those communities unable to bring themselves out of crisis.

4.4      As social lenders, we will be using the data we produce on the daily and longer-term effects of COVID-19 on local economies to (i) better identify those charities and social enterprises operating within the most vulnerable economies; and, (ii) inform the design of targeted support interventions for these communities. Our data will articulate a more nuanced understanding of community vulnerability (through social, economic and health dimensions); and as it identifies those communities currently failing to access the level of support they need, we hope to inform the prioritisation of emergency responses from other partners, across the public, social and private sector, working to alleviate the COVID-19 crisis and after-effects.

5. Conclusion

5.1      We believe that the social economy must play a vital role in the recovery period from COVID-19. If the predictions from the OBR are correct, the UK will see a 13% drop in GDP for 2020 and up to 2 million job losses.[11] The economic impacts of this will not be equally felt, and those places that already had fragile local economies – the ‘left behind’ areas[12] – will be hit hardest as a result.

5.2      We are concerned that, without adequate assistance, charities and social enterprises in these areas could end up closing their doors forever. These are organisations providing vital services to vulnerable communities and individuals – without these services there will be significant ramifications for the ability of these places to recover from the crisis.

5.3      We will continue to gather crisis data on our own portfolio and share findings with our sector partners, as well as DCMS, to help build a better understanding of how COVID-19 is impacting the social economy and vulnerable communities across the UK.