Forging a strategic partnership between Government and the impact economy is essential to mobilising the resources, expertise, and innovation to drive transformative progress across Labour’s five missions, Says Stephen Timms
With the economy in poor shape and government funding in short supply, an incoming Labour Government will need to be imaginative in lining up other resources to help deliver our five missions. Amidst the daunting array of challenges facing Britain, there lies an opportunity to harness the growing power of the ‘impact economy’ – philanthropists, social and impact investors, and businesses able to contribute to Labour’s ambitions.
I was Chief Secretary to the Treasury at the end of Tony Blair’s term as Prime Minister, and since 2020, have chaired the Work and Pensions Select Committee. I believe forging a strategic partnership between Government and the impact economy is essential to mobilising the resources, expertise, and innovation to drive transformative progress across Labour’s five missions.
The Conservatives seem to have forgotten the vital role philanthropy, social and impact investment and purpose-driven businesses can play. A Labour Government should set up something like an Office for the Impact Economy – a joint Treasury-Business and Trade unit to partner with key stakeholders, working to align socially motivated capital and business with our missions.
Philanthropy holds immense potential to drive transformative change. Unlocking its full impact requires strategic Government collaboration. We could significantly amplify the resources to tackle our most pressing challenges through innovative use of public funding to crowd in philanthropic giving. For example, the £85m Community Match Challenge, launched during the Covid-19 pandemic, successfully matched Government grants with funds from philanthropists, charitable funders and foundations. This collaborative approach supported charities and community organisations tackling food poverty, mental health, and unemployment.
By expanding this approach, a Labour Government could harness philanthropic capital to accelerate progress on our missions. If we could grow philanthropy to just 2 per cent of GDP, nearly £50 billion per year could be unleashed for public good.
We need to blend public and private capital. The National Wealth Fund proposed by Shadow Chancellor Rachel Reeves will invest over £7bn to make Britain a clean energy superpower, and leverage three times as much in private capital. That can be a model for the other missions. By partnering with pension funds, philanthropists, and local stakeholders, a Labour government could unlock an additional £100bn in private investment to revitalise communities, create jobs, and improve lives across Britain.
For instance, in our ambition to build new homes as part of our mission to break down barriers to opportunity, social impact investment could boost large-scale refurbishment projects for housing associations or large PRS landlords where financing costs would otherwise be prohibitive. Funds managed by Resonance, a social impact property fund manager, have demonstrated the potential of this model, keeping 3,300 people facing homelessness out of temporary accommodation over ten years by attracting institutional investment to acquire and refurbish properties for lease to homelessness charities and housing associations.
Purpose-driven businesses can play a key role in advancing our missions. Nearly three-quarters of people in Great Britain believe the next Government must work closely with UK businesses to tackle climate change and poverty. Businesses have unique ability to innovate and scale solutions to the big challenges of our age, and their influence means that small decisions can have a big impact. CEOs of major businesses are working with The Royal Foundation Centre for Early Childhood to support childrens’ early development. Major businesses in the West Midlands have joined forces to fill their job vacancies with marginalised talent, including ex-offenders, care leavers and people with disabilities, recruiting 100,000 people per year. Businesses helping to tackle big challenges is not only good for society but also for the economy. Estimates suggest a potential £149bn boost to the UK GDP per year if businesses operated in a manner that purposely benefited society.
Tackling complex social challenges requires innovative, cross-sector collaboration. Too often, siloed approaches and short-term thinking have hampered progress on challenges like child poverty, educational inequity, long-term unemployment, and youth reoffending. Labour pioneered the first social outcomes contract in the world almost two decades ago. Social outcomes contracts are partnerships between Government, social enterprises or charities, and socially motivated investors. Investors provide upfront funding for social interventions, and the Government only pays if predetermined outcomes are achieved. This approach ensures public funds are spent on high-quality, effective services that deliver measurable results for communities in need. As former Prime Minister Gordon Brown recently noted in a report by Better Society Capital: “Social outcomes contracts deliver public services through third sector organisations, and the taxpayer only puts up cash for high-quality, well-targeted services.” The analysis concluded that such partnerships have generated nearly £9 of public value for every £1 spent, saving taxpayers £507m.
An incoming Labour government has the opportunity to mobilise unprecedented financial resources, talent and innovation to accelerate progress across our five missions, from kickstarting economic growth to saving our NHS to making Britain a clean energy superpower.
We need a new partnership between Government and the impact economy, putting shared values into practice to build a more prosperous, equitable and sustainable future for all.
Stephen Timms is Labour candidate for East Ham and a former Chief Secretary to the Treasury