Learning from Innovation
156. Throughout this inquiry the Committee has been
strongly attracted by the arguments for greater flexibility, discretion
and innovation. However it recognises that operating with fewer
rules and a relaxation of the New Deal's prescribed design framework,
would require a greater degree of knowledge about how to use any
newly acquired flexibility.
157. In particular, a more flexible framework of
delivery will only succeed if service providers are systematically
guided by the evidence base of evaluations, pilots and best practice
intelligence. Government and delivery organisations need clear
signposting to what works, why it works and how it can be replicated
- or not. We recommend a more systematic use and replication
of this evidence base.
158. During our visit to the USA we were informed
about the role of The Reinvestment Fund (TRF) in Philadelphia.
The Fund was a community development financial institution dedicated
to building wealth and opportunity for low-income communities
and low and moderate income individuals. Now 16 years old, it
managed around $130 million which it lent and invested in projects
with social goals and social returns.
159. It had three pools of funds: loan funds; money
from banks; and venture capital funds - where capital was invested
in companies with growth potential, which were profitable, and
which invested in entry level jobs. (In terms of the money from
banks, there was a community reinvestment obligation on banks
laid down by law. Banks used The Reinvestment Fund as an intermediary
to meet their responsibilities.) There were around 750 investors.
Five hundred were individuals, the remaining 250 were institutions
- religious groups, financial institutions, and corporate and
civic organisations including hospitals and universities. The
Reinvestment Fund benefitted from being able to build a network
of relationships across these sectors. Investors were able to
choose their rate of return. Less than one per cent of funds had
been written off. They had a 14 per cent internal rate of return.
160. TRF had a "credibility of portfolio"
with both the experience of being in the market, and knowledge
of what worked in policy areas. They had a credibility with private
sector investors, and brought innovation to areas traditionally
dominated by high cost, highly regulated, public investment. The
average loan was $2-300,000, and TRF was often involved in helping
to put an investment deal together.
161. Funds had gone into affordable housing, childcare
provision for low-income families, schools (including so-called
experimental "charter" schools), small businesses, community
centres, and workforce development. They operated under market
disciplines but with public, civic, values.
162. We understand that, following the Social
Investment Task Force report, the DTI is sponsoring a range of
initiatives that replicate some of The Reinvestment Fund's characteristics.
We have not found any evidence that these have been co-ordinated
with Jobcentre Plus programmes and strongly urge closer integration.