Across the UK, public sector organisations are facing a stark and growing paradox.
They are increasingly wanting to do more – to strengthen local economies, support community organisations and drive inclusive growth – but at the same time they are experiencing budget pressures and limited funding. The ambition is there, but the capacity and funding to act on it is constrained.
Meanwhile, amazing organisations that could be helping to deliver real change in our most deprived communities are struggling to get access to the support and funding that they need to get started, grow, or simply stay afloat. Traditional lenders turn them down, grant funding is oversubscribed, and the result is unmet need, increasing challenges and widening inequity.
While this is not a new story, it is becoming an increasingly urgent one.
A Cultural and Creative Issue
The challenge described above is particularly acute for creative and cultural organisations. Creative UK’s research found that creative organisations are four times more likely to struggle accessing funding than other businesses, with over half saying funders consider them ‘too risky’.
For community organisations more broadly, the picture is similar. Potentially deemed as commercially unviable by conventional metrics, yet delivering outcomes that the public sector itself is trying to achieve.
It is in situations like this that social investment can play a real role.
Social Investment Works
For more than 26 years, Key Fund has invested in mission-driven organisations across the North of England and the Midlands. Turned away by commercial lenders, these are not businesses chasing profit – they are enterprises driven by purpose.
We have backed food banks, mental health services, veterans’ services, and youth organisations, to name but a few, to create jobs, deliver essential services and reinvest back into their communities. And, during over a decade as CEO, I have seen first-hand the transformational difference that the right money, at the right time and in the right hands, can make.
Social investment, however, is not just a resource for organisations, it can be a strategic asset for the public sector helping to deliver their policy targets.
Across the sector, social investment consistently demonstrates returns across economic, social and environmental lines that other types of funding cannot.
Repayable finance means that capital recycles – money invested in one enterprise or organisation returns to fund another. This multiplier effect is something that the public sector can take advantage of by working through trusted social investment intermediaries, like Key Fund and our peers, using the established infrastructures already in place.
Extending Capacity, Not Overheads
As combined and local authorities across the country work to strengthen their region’s social economies, they face practical constraints, such as limited staff capacity, complex due diligence processes, procurement rules and the challenge of reaching deliberately hyperlocal organisations that often fly under the radar.
Social investors already have the infrastructure, staff and processes to mitigate these constraints – they can be genuine capacity extenders. This is because social investors, like Key Fund, bring ready-made funding mechanisms.
In Key Funds case, we have established compliance and due diligence processes built over more than a quarter of a century. We have deep regional knowledge across the North and the Midlands and trusted relationships with vital community organisations. This is also true of many of our peers working in other parts of the UK. Social investment is not simply a funding stream; it is a mechanism for local economic development.
A community energy project backed by social investment doesn’t just reduce carbon emissions, it cuts fuel bills and generates surplus that funds other community activity and increases the sustainability of vital community assets.
The Architecture Already Exists
As devolved institutions throughout the UK take on greater responsibilities for place-based economic development, the question of how they build genuine capacity to support the voluntary and community sector becomes critical. And the answer doesn’t require starting from scratch.
All of the resources are already there, the relationships are already in place, and the track record is there to be seen. The compliance frameworks are built and tested. What’s needed is a willingness, at a combined and local authority level, to work with us to unlock social investment as a genuine instrument of local economic development, and to commission and collaborate accordingly.
For authorities serious about inclusive growth, the message is clear: the architecture exists, and the challenge is to embrace it at scale.