Stephen Williams – 2014 Speech on Community Finance

Below is the text of the speech made by Stephen Williams, the Parliamentary Under-Secretary of State for Communities and Local Government, in Bristol on 13th February 2014.

The government recognises the challenges faced by small and medium enterprises in accessing finance to start up their operations and grow.

In my department we are seeing more and more communities coming together to deal with the issues they face, addressing the things they want to see change in their communities and creating innovative ways to bring economic growth to their communities.

My department has committed over £50 million in the support communities need to make use of the range of community rights powers and other initiatives that were brought into force through the Localism Act. The support package helps groups to become investment ready, develop business plans and carry out pre-feasibility studies. Already we are seeing an impact.

The community right to bid has seen over 800 assets of community value listed which means that if an asset comes up for sale the group that nominated it will work hard to bring it into community ownership. In Hastings, local people came together and created a viable business model for an abandoned pier that will bring economic growth and jobs to the local area.

This is the type of example I think of when thinking about investment for the wider good of communities.

I am pleased to announce that the department will be providing over £100,000 financial support towards the Bristol based community economic development project. I am very keen to support the partner organisations like Bristol City Council, Bristol Enterprise Development Fund, Co-op and Community Finance, Bristol Housing Partnership who are joining up with local communities to develop local community economy plans to boost investment into those areas.

This project will build on the lessons from international programmes in Canada and the United States that have successfully increased neighbourhood employment and attracted further investment into local economies that were otherwise economically marginalised. Officials in my department have started and will continue to work with the partners and communities here in Bristol to get the project up and running.

We want more and more communities to achieve their ambitions, whether to redevelop an abandoned site, to save their last shop or to bring a new lease of life to their town centre using innovative business models that private businesses would otherwise struggle to make viable.

We are already taking steps to create the conditions in which social investment can flourish, through the formation of initiatives such as Big Society Capital and supporting the development of other financial support routes – like community shares, crowd sourcing and social impact bonds.

We also hope that the soon to be introduced measures such as tax relief for social investors will boost social investments.

You would have heard from speakers here today that communities are adopting other finance models such as crowdfunding and community shares as a way of engaging their communities and de-risking their projects. My department is particularly interested in encouraging communities to invest in themselves. We have seen that those who do will often pull together to ensure that their business models are sustained for the long term.

We have funded the Co-operatives UK to develop the community shares unit that will enable growth of this sector. I am encouraged by the growth thus far which in 2012 alone saw communities investing over £15 million compared to £9 million the year before. We take very seriously the protection of investors which is why we are working closely with the Financial Conduct Authority (FCA) to encourage and ensure good practice is adopted within the regulatory landscape.

Today, I am also pleased to announce the availability of a handbook that will help advisers like yourselves better understand and provide advice on community shares. Our hope is that many of you and your partners will champion community shares and encourage organisations to consider this model – especially to help de-risk their enterprises. The handbook can be found on the community shares unit’s website.

We know that communities require a healthy mix of finance to successfully acquire larger community assets and deliver more ambitious projects such as renewable energy schemes.

They may be able to draw down equity capital from grants and other crowdfunding sources, however this is not enough.

Debt capital is often a necessity for social enterprises in reaching their financing goals. We know that secured lending (debt finance) accounts for 90% of financial products used by social enterprises.

There is a significant need among social sector and social enterprise organisations for long term risk-taking capital.

More and more investors are interested in where their money is being invested. A study carried out by YouGov for National Ethical Investment Week found that the proportion of British adults interested in knowing more about ‘impact investments’ (of our financial services) rose significantly from 36% in 2011 to 55% in 2012 – pointing to the public’s interest and concern in where banks invest their money (The City UK).

These are all good reasons for financial institutions to consider and to capitalise on when pulling together and designing products and offers for enterprises.

My department is exploring what more we can do to promote the public benefits of investing in community enterprises and I hope those of you attending here today will consider how you can do the same.

I am pleased to open this debate and will be interested in hearing from you about how you think these trends and findings can become tangible additions to how financial products and services are designed.