The British government is turning to the impact economy to help tackle its most pressing social challenges, including sharply rising costs and a housing crisis.
A month after winning last year’s general election, and faced with soaring national debt, the new Labour government led by Prime Minister Keir Starmer set up a new social impact advisory group to advise on effective ways to mobilize impact capital.
The Social Impact Investment Advisory Group, led by Elizabeth Corley, a former CEO of Allianz Investors and current chair of Schroders, brought together social investment experts and investors from some of the world’s biggest banks and funds.
The group helped to shape the £500 million ($654 million) Better Futures Fund for vulnerable children and families launched this summer. The fund is said to be the largest social outcomes partnership fund in the world.
Earlier this month, the impact advisory group published its final report and recommendations. The message: the UK government should partner with the country’s £100 billion ($131 billion) impact economy to unlock billions of pounds to address issues like child poverty, clean energy and affordable housing.
More than one in three children and a quarter of adult Britons are living in poverty, the highest this century, according to the Social Metrics Commission.
“The opportunity for the government to partner with the impact economy is too big to ignore, with the potential to unlock billions and help address some of the biggest challenges facing the country,” says Corley.
The report, “Mobilising the impact economy as partners in national renewal,” offers Downing Street three key recommendations. It calls for the establishment of a so-called “Office for the Impact Economy” to coordinate delivery and sustain momentum. The UK created such an office on Nov. 10, saying it would act as “a single front door for impact investors, philanthropy and purpose-driven businesses to partner with the government and grow their social impact across the UK.”
It advises the government to bring together public, private and philanthropic capital, including through match funding, blended finance and social outcomes partnerships, to deliver innovative solutions.
And it suggests extra money can be unlocked by modernizing pensions, incentivizing corporate giving and integrating philanthropy and impact investment into wealth advice.
Impact economy
The UK has been struggling to regain its footing since Brexit, and the Keir Starmer administration is eyeing tax hikes and budget cuts to shore up its finances in a budget expected later this month. The UK last week declined to contribute to COP30 host Brazil’s tropical forest fund due to its own strained finances.
Impact capital already plays a significant role in the UK economy, with at least £42 billion ($55 billion) currently aligned with key government priorities, according to the report.
Examples include a £1.42 billion local investment portfolio set up by the Greater Manchester Pension Fund, which is funding the construction of more than 3,500 new homes, childcare facilities and a special needs school. The Everyone In social investment pilot used a £25 million government grant to leverage private capital for over 1,000 homes for homeless people in cities including London and Leeds.
These latest efforts build on other pioneering initiatives over the past two decades to build a robust impact ecosystem. The UK floated the world’s first Social Impact Bonds in 2010, when it raised £5 million ($6.6 million) to help stop prisoners in the Peterborough from reoffending when they leave jail.
Under Conservative prime minister David Cameron in 2012, it created Better Society Capital, the first social investment “wholesaler,” which was seeded with £400 million ($521 million) in dormant bank funds.
There is “huge potential” for impact investment to improve lives and places in the UK, said Pete Gladwell with UK financial services provider Legal & General and a member of the advisory group. But, he added, it “will only be unlocked when civil servants at local and national level move on from the traditional ‘borrow and spend’ model to harnessing pension funds and philanthropy as a force for good.”
