Charitable bonds can help Scotland provide affordable housing for all

On 26 November the new first minister of Scotland, Nicola Sturgeon, announced a new programme for government that puts social justice firmly at the heart of the Scottish Government’s ambitions for Scotland, along with dealing with inequality and building a sustainable economy.

These are not just words. We measure the impact of our activities against a national performance framework for Scotland that is rigorous, transparent, and ambitious.  We have 16 high level objectives that the entire Scottish public sector works towards, and we track progress against a set of targets and indicators.  Anyone can follow these at our website, www.scotlandperforms.com.

In 2010 we commissioned Dr Campbell Christie to identify the best ways of delivering our public services, and in response to his report, we identified 4 pillars (the 4 Ps) that are now embedded in our approach to reform.  These are:

• A decisive approach to prevention;
• Continually improving performance;
• Working in partnership, both nationally and locally;
• Engaging and developing our people.

We call this the Scottish model of government.

Of course, the Scottish Government must work towards its goals within the confines of the funding regime set by Westminster.  Our budgets have been under severe pressure for several years now, and the UK government began partially funding us by a new mechanism that they call ‘financial transactions’ in 2012.

Facing the challenge of doing more with less money we have responded

by becoming more creative with the powers available to us. 

There are rules we must follow in using these funds – they can only be used for loans or equity investment and, crucially, they must be paid back in full to the Treasury.  Facing the twin challenges of doing more with less money and finding ways of investing these financial transactions, we have responded by becoming more creative with the powers available to us.  We are using design-led innovation to become more creative and bold.

One good example of the Scottish approach (leaning on 2 of the pillars – improving performance and partnership working) is our recent decision to invest £25m of financial transactions in charitable bonds in 2015/16, which I announced this week.

Earlier this year, we became the first (and so far only) government in the UK to invest in these bonds.  Developed by Allia, a community benefit society based in Cambridge, this mechanism allows investors to use their cash to make secure, fixed return social investments that generates an upfront gift (in foregone interest payments) for the charity of their choice.

We worked with Allia to invest an initial £10m and from this £8.6m was on-lent to Places for People Homes and used by their Scottish group member, Castle Rock Edinvar Housing Association to help support the development of 150 affordable homes in Scotland.

Helping to fund the construction of affordable homes, of course, is already a major part of what we do, but the really clever thing about the charitable bond model is that it immediately frees up the interest earned on the bond over its lifetime for charitable causes.  In the initial £10m investment, the Scottish Government chose to plough the £1.4m raised into our People and Communities Fund, which aims to help registered social landlords and other organisations tackle issues such as employability.  Ultimately, the money was spent on 14 regeneration projects in some of Scotland’s most disadvantaged communities.

This was the largest investment in a charitable bond to date, and it proved the concept for larger investments in the future.

On 3 December I announced that the Scottish Government would be doing just that – investing £25m in more charitable bonds, this time with a lifetime of 10 years, freeing up an even greater proportion of our investment to go towards the construction of social housing.

This investment will provide £17.7m of loan funding for housing associations to build affordable homes in Scotland, and generate £7.3m of grant funding that we will use to deliver more than 125 homes for social rent.  We also hope that the size of our investment will raise the profile of the charitable bond model, and enable it to carve out a share of the social investment market.

In a fair and socially just society we want to make sure that everyone in Scotland has access to good quality housing that meets their needs.  Charitable bonds represent the type of fresh thinking that is helping to increase the supply of affordable homes and support our construction industry.