UK Budget Cuts – It’s Time to Get Serious About Social Finance

It's worth looking at government financial decisions in Europe and the UK.  They provide a glimpse of scenarios we might face in Canada and may make us better prepared to surmount them.  Lets look at the dramatic budget cuts announced by the UK government last week.

  • About 490,000 public sector jobs are likely to be lost
  • Average 19% four-year cut in departmental budgets
  • Structural deficit to be eliminated by 2015
  • £7bn in additional welfare budget cuts

The charitable and ngo sector in the UK receives a third of its income from government.
With these cuts the sector's income, according to the UK's New Philanthropy Capital , will drop between 3  and 5 Billion Pounds – that's $ 4.3 billion to $8 billion annually.
Their conclusion: it's too big a gap for public donors, foundations, and philanthropists to fill.
Traditional sources of revenue can help but will not solve the challenge.

How would Canada respond to such cuts to the non profit sector?

First, even without major budget cutbacks, the social sector is already experiencing cuts.  Looming on the horizon is the impact of baby boomers retiring.  One scenario suggests, governments won't be able to replace that lost source of tax revenue, thereby reducing the size of future operating budgets. 

My conclusion: Traditional sources of revenue already aren't enough to bridge the gap in Canada between what needs doing and traditional sources of funding (government and otherwise).  We need to accelerate our exploration of alternate methods of financing our response to social and environmental challenges. 

Innovative approaches to funding the social sector is referred to as, ' social finance.'  Social Finance is an approach to managing money that delivers a social and environmental dividend AND an economic return

Social finance methods have been explored and implemented in Canada for years.  Vancity Credit Union has been in the forefront of this agenda the longest.  Five years ago they helped Carleton University's Ted Jackson, Tim Draimin, Tim Brodhead, and I establish a national round table on social finance.  This has now become Causeway.  Causeway and SiG now sponsor a National Task Force on Social Finance.  The Task Force intends to recommend the framework necessary to increase the pool of capital to achieve social good.  It intends to complete its recommendations by the end of this year.

Governments in British Columbia, Ontario and Ottawa are beginning to pay attention although to varying degrees.  The BC Minister of Finance  Colin Hansen just announced a consultation on whether to introduce hybrid financing structures, modelled on the UK's Community Interest Companies (CIC's),  into British Columbia.  Community Interest Companies would make it easier to attract other sources of funds, sorely needed to address social and environmental challenges.  They were lobbied into existence by the community and social enterprise sector in the UK some years ago.  In just 5 years over 4200 have been established.

Some in Canada saw the writing on the wall years ago.  The recent UK budget cutback announcements make that writing larger and bolder – enough to be seen all the way over here.
It's time for more of us to get serious about social finance.

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