The government hopes its new Office for the Impact Economy will provide a hub to drive large-scale funding into social impact. We asked senior figures in the sector for their views on the move.
The creation of a new Office for the Impact Economy by the UK government has the potential to kickstart the scale up of social impact investing in the country, if it enables an often-fragmented investment landscape to coalesce.
The establishment of the new office was recommended in a report published earlier in November by the Social Impact Investment Advisory Group (SIIAG), a group of experts from the impact world and financial institutions brought together by the Labour government to seek ways to build the impact economy.
The new office, which is based in the Cabinet Office, is intended to provide a central point of contact for organisations and individuals, removing a layer of bureaucracy and making it easier to get impact investment into communities.
The Impact Investing Institute was a contributor to the SIIAG report. Bella Landymore, its co-CEO, said the creation of the new office should help tie together fragmented government knowledge and practice, as well as financial and other resources.
She said it was a step towards institutionalising what she called a “mobilisation mindset” towards government partnerships, which was needed to build on existing momentum behind impact investing.
That momentum was reflected in an estimated 10% year-on-year expansion of the UK’s social impact investment sector to £11.2bn in 2024, in the latest market-sizing report from social investor Better Society Capital (BSC).
“The idea for the office is to centralise strategy and provide a hub of expertise to drive practise across government,” Landymore said.
The precise scope of the new office’s activities has yet to be determined, but the government said the Cabinet Office team would work alongside several government departments and the UK’s devolved governments to coordinate engagement with the impact economy across the country. The government also said the new office would partner with its Office for Investment’s dedicated impact capital function, which already works with large capital pools.
Interviewees said that, while the role of the office had yet to be finalised, the plans were encouraging. They saw the positioning of the new hub in the Cabinet Office close to the heart of government, and the involvement of prime minister Keir Starmer and other senior ministers in its launch as positive indicators of government commitment.
“It is a signal that government has a strong intent to do things differently. Things upon which success is contingent appear to have been taken on board and action is being taken,” Landymore said.
Force multiplier
Stephen Muers, CEO of Better Society Capital and a SIIAG member, told Impact Investor that, by bringing government and investors together, the new office had the potential to be catalytic for the sector.
“What was clear from the SIIAG report was that historically it has sometimes been quite hard to engage with government in collaborating around opportunities, because of the breadth of different actors in the impact economy – impact investors, philanthropists and so on. So having a more joined up, coordinated approach from the government side has the potential to be real force multiplier,” he said.
The hope is that the creation of the new office and other measures will unlock more of the £100bn plus of resources SIIAG estimates to be available for impact investing in areas such as affordable housing, community energy, education and healthcare, but which remains largely untapped. The report envisaged wider use of public, private and philanthropic capital, using mechanisms, such as match funding, blended finance, guarantees and social outcomes partnerships, to make it happen.
Structural change
Sector figures said the government needed to ensure the office had the resources to implement a lasting framework to help scale up social investing, if it was to avoid being seen as a tokenistic gesture towards impact creation, or one that may not survive any potential future change of government.
“This needs to demonstrate it is about something more deeply structural in nature, aligning incentives, and creating better capacity for local government and the social sector,” said Charlotte O’Leary, CEO of industry group Pensions for Purpose.
The impact community has welcomed the government’s launch of its £500m Better Futures Fund in July as a positive sign that it is prepared to put its money where its mouth is in terms of bolstering the impact economy. This fund, also a product of SIIAG recommendations, will pay for social outcomes that improve conditions and create opportunities for vulnerable children and young people over the next decade.
Several financial institutions have become increasingly active in place-based investing and other social impact allocations. South Yorkshire Pension Authority is one example highlighted by O’Leary.
But she said pension funds, local authority pension schemes and other institutions could do more to move from niche impact-related allocations to integrate impact across their portfolios – a move that the Office for the Impact Economy could help facilitate.
She said the government needed to work with industry organisations to make sure there was a good understanding of the practical issues of implementation if more institutional money was to flow into social impact.
“Local government organisations and social enterprises often lack the experience and infrastructure to engage at scale with institutional investors. So, that supply side capacity is needed, as well as support to bring commercial capital into social projects,” O’Leary said.
This means considering how to develop and coordinate elements such as risk-reward profiles, longer-time horizons for investments, and tax and fiduciary regulation frameworks, if the gap to institutional investors is to be bridged, she added.
BSC’s Muers, a former high-ranking civil servant, said he was hopeful that the design of the UK government’s strategy for the impact economy would be collaborative and that he gauged significant interest in doing so from ministers and civil servants.
“The proof of pudding is always in the eating with these things but at the moment, I’m cautiously optimistic that the impact investing sector will be listened to, and it won’t just be government doing what it thinks without talking to anyone,” he said.
Scaling up
Taking successful locally-focused social impact projects and building them out to a national level is seen as key to making the impact the government wants to see and to provide the large-scale investment opportunities required by large institutions.
“Scaling up is exactly how I see the challenge for the next five years. We’ve got lots of examples of projects that are delivering impact for actual returns, but we need to do them five, ten, 20 times bigger to address the scale of the task. That’s where I think this office has got a real role to play by making government more ambitious and focus on the big prize,” BSC’s Muers said.
Doing that will require the government to drive measures to help offset regional disparities when it comes to investment opportunities.
“We’ve often seen, when it comes to impact, that capital is still chasing the highest return opportunities, which means that there is still quite a lot of regional inequality. We need to make sure that the impact is real, and it is equitable across the UK,” O’Leary said.
