A particular issue that has received much attention recently is the difficulty of getting loans. One sector that has found this especially hard is those organisations that are part of the so-called ‘social sector’. Organisations that try to do some good in society while achieving a financial rate of return often find finance impossible to obtain and, as such, the economy is allegedly losing out on billions.
The Big Society is an integral part of the Conservative’s mission and the launch of the Big Society Fund is a key stepping stone in ‘supplying capital to help society expand’. Sir Ronald Cohen, who is Big Society Capital’s Chairman said:
“It will allow an organisation which today is trying to deal for instance with prisoners who are being released and ending up in unemployment then back in prison… to get the capital to increase the size of their organisation and to improve the lives of these prisoners.”
It is hoped that this innovation will help the economy grow through new investment, but will also bring wider benefits to society. One such example is Social Impact Bonds in Peterborough, which aim to help prisoners return to work once they are released from jail. The idea is that rather than being left to their own devices, the scheme helps them integrate back into the community, such that they don’t re-offend, which does tend to be a big problem and creates a big cost for the local community and society at large. In essence, this new bank will simply be providing loans to new social enterprises that demonstrate they can generate an income stream and also provide societal benefits. The financial return will encourage investors, as will the idea of doing some good for society. The following articles consider this new social innovation.
Unclaimed bank cash to fund ‘Big Society’ Sky News (4/4/12)
Big Society Fund launches with £600m to invest BBC News (4/4/12)
’Big Society Bank’ to start providing capital Financial Times, Sarah Neville and Jonathan Moules (4/4/12)
David Cameron unveils Big Society Bank to help savers invest in good causes Telegraph, Rowena Mason (4/4/12)
David Cameron launches £600m ‘big society fund’ Guardian, Nicholas Watt (4/4/12)
The Big Society Promise that has yet to deliver Independent (4/4/12)
Questions
- Where is the finance for the big society bank coming from?
- Do you think the financial return from investments through the big society bank will have to be equal to the financial return on business investments?
- Explain the relevance of externalities to this new social innovation.
- To what extent do you think funding through the big society bank is simply a way of replacing direct government funding of the welfare state?
- Do you think the amount of money this bank is enough to make any difference?
- Why do you think social projects find it difficult to obtain funding through traditional lending?
EDF, one of the big six energy retailers in the UK, has agreed to pay out a record £4.5m. £1m of this will go to funding an energy advice centre; the rest will go to providing £50 each to 70,000 ‘vulnerable customers’ who struggle to pay their bills and who receive the government’s warm home discount.
The agreement was made with Ofgem after an investigation into mis-selling, both on the doorstep and over the phone. Customers were persuaded to switch energy suppliers with the promise of savings on their bills. As the FT articles states:
Ofgem found that EDF’s sales force did not always provide complete information to customers on some contract terms, or on the way in which their monthly direct debits had been calculated. In some cases, telesales agents claimed savings without knowing whether they were accurate for the specific customer on the call, the regulator said.
Ofgem did not accuse the company of directly sanctioning such practices, but rather of weak monitoring and control of its sales force’s actions.
The £4.5m payment is in lieu of a fine. Consumer groups have welcomed this, preferring the company to pay compensation to a fine, which would have simply increased Treasury funding.
It is the first settlement in a broader investigation into mis-selling, involving four of the six major suppliers.
Articles
EDF to pay out £4.5m in mis-selling case Financial Times, Guy Chazan and Hannah Kuchler (9/3/12)
EDF agrees to pay £4.5m misleading sales ‘fine’ Guardian, Lisa Bachelor (9/3/12)
Is it a fine? Is it a penalty? No, it’s EDF’s mystery Ofgem payment Management Today, Rebecca Burn-Callander (9/3/12)
‘Misleading claims’ cost EDF a £4.5m payout from watchdog , Independent, Tom Bawden (10/3/12)
EDF Energy agrees to pay a £4.5m ‘fine’ BBC News (9/3/12)
EDF Energy agrees to pay a £4.5m ‘fine’ BBC News, John Moylan (9/3/12)
More energy payouts could follow EDF’s £4.5m The Telegraph, Kara Gammell (9/3/12)
Ofgem ruling
EDF energy agrees to invest £4.5 million to help vulnerable customers following Ofgem investigation Ofgem
Questions
- What types of market failure are present in the energy supply industry?
- What are the arguments for and against fines being paid directly to victims of crime rather than to the government?
- In what ways could the energy industry be made more competitive?
- Why do the utilities, such as gas, electricity and water, require their own regulator rather than simply being subject to competition law?
My son Andrew Sloman (see also) is currently in Goa. My wife Alison and I went to visit him over half term – our first trip to India. Goa is a beautiful state, with wonderful beaches, fantastic food and perfect weather in February. But inland from this tourist haven lies an environmental disaster caused by the open-cast extraction of iron ore.
This tiny state by Indian standards produces more than 60% of India’s iron ore exports. Whilst, along with tourism, the iron ore industry has been one of the largest contributors to the Goan economy, its environmental footprint is massive. Deforestation and water and air pollution are just three of the environmental externalities.
So should a cap be placed on the amount of iron ore that is mined? Should the industry be taxed more heavily? Should tough environmental standards be imposed on the industry? Or should it simply be allowed to continue, given its large contribution to the Goan economy? Or, at the other extreme, should the industry be closed? The linked article looks at some of the issues. Try to identify, as an economist, what information you would require in order to come to a conclusion to these questions.
Greens’ shout for cap on iron ore mining falls on deaf ears Times of India, Paul Fernandes (28/2/12)
Questions
- What negative externalities are involved with the Goan iron ore industry? Are there any positive externalities?
- What difficulties are there in measuring the negative externalities?
- How would you set about doing a cost–benefit analysis of (a) expanding the Goan iron ore industry; (b) shutting it?
- Explain the following: “The net present value of the opportunity cost for 25 years at 12% social discount rate of giving it up is greater than its environmental cost by Rs 14,449 crore, the report states.” (A crore is 10 million and Rs is the symbol for an Indian Rupee, where £1 = approximately 78 rupees.)
- What difficulties are there in attempting to take distribution into account when doing a cost–benefit analysis?
As a resident of Bristol it is with considerable interest that I’m following the development of the Bristol pound, due for launch in September 2012. One Bristol pound will be worth one pound sterling.
The new currency will be issued in demoninations of £1, £5, £10 and £20 and there is a local competition to design the notes. Participating local traders will open accounts with Bristol Credit Union, which will administer the scheme. It has FSA backing and so all deposits will be guaranteed up to £85,000.
The idea of a local currency is not new. There are already local currencies in Stroud in Gloucestershire, Totnes in Devon, Lewes in East Sussex and Brixton in south London. The Bristol scheme, however, is the first to be introduced on a city-wide scale. The administrators are keen that use of the currency should be as easy as possible; people will be able to open accounts with Bristol Credit Union, pay bills online or by mobile phone.
As the money has to be spent locally, the aim is to help local business, of which more han 100 have already signed up to the scheme. Bristol has a large number of independent traders – in fact, the road where I live is off the Gloucester Road, which has the largest number of independent traders on one street in the UK. The organisers of the Bristol pound are determined to preserve the diversity of shops and prevent Bristol from becoming a ‘clone town’, with high streets full of chain stores.
But how likely is the scheme to encourage people to shop in independent shops and deal with local traders? Will the scheme take off, or will it fizzle out? What are its downsides? The following articles consider these issues.
Articles
The Bristol Pound set to become a flagship for local enterprise The Random Fact, Thomas Foss (7/2/12)
What is the point of local currency? The Telegraph, Rosie Murray-West (7/2/12)
The Bristol pound: will it save the (local) economy? Management Today, Emma Haslett (6/2/12)
‘Bristol Pound’ currency to boost independent traders BBC News Bristol, Dave Harvey (6/2/12)
We don’t want to be part of ‘clone town Britain’: City launches its own currency to keep money local Mail Online, Tom Kelly (6/2/12)
British Town Prepares To Launch Its Own Currency — Here’s How That’s Going To End Business Insider, Macro Man (7/2/12)
They don’t just shop local in Totnes – they have their very own currency Independent, Rob Sharp (1/5/08)
Videos and webcasts
The town printing its own currency [Stroud] BBC News, Tim Muffett (22/3/10)
Brixton launches its own currency BBC News (17/9/09)
Local currency BBC Politics Show (30/3/09)
Local currency for Lewes BBC News, Rob Pittam (13/5/08)
The Totnes Pound transitionculture.org on YouTube, Clive Ardagh (21/1/09)
Local Currencies – Replacing Scarcity with Trust Peak Moment on YouTube, Francis Ayley (8/2/07)
Questions
- What are the advantages of having a local currency?
- What are the dangers in operating a local currency?
- What steps can be taken to avoid the dangers?
- Can Bristol pounds be ‘created’ by Bristol Credit Union? Could the process be inflationary?
- What market failures are there in the pattern of shops in towns and cities? To what extent is the growth of supermarkets in towns and the growth of out-of-town shopping malls a result of market failures or simply of consumer preferences?
- Are local currencies only for idealists?
From April 2012, the average household water bill will rise by 5.7% to approximately £367. With households already feeling the squeeze this news is more than unwelcome. The increase in prices will not be standardized across England and Wales. Instead some households will suffer more than others, as their water providers increase prices significantly more than those in other areas.
There has been significant investment in the water industry over the past few years and if this is to continue, funding is required: hence the price hikes. More investment is taking place in some areas than in others and so this goes some way to explaining why some households will see their bills rise by a relatively larger amount. Ofwat, the water regulator, has said that if the investment that these price rises are paying for doesn’t materialize action will be taken. In the context of the current financial situation, consumer groups are understandably concerned about the impact this may have on the lowest income households. Tony Smith, the Chief Executive of the Consumer Council for Water has said:
‘We’ll be making sure that customers get some benefits from this and also that companies step up their help for customers with affordability problems’.
The following articles consider this issue.
How to cut your water bill The Telegraph, Kara Gammell (31/1/12)
Water bills rise by average of 5.7% Guardian, Jill Insley (31/1/12)
Water meter case study: ‘They have set the charges too high’ Guardian, Jill Insley (31/1/12)
Water bills to rise by 5.7 per cent Financial Times, Elaine Moore (31/1/12)
Welsh water imposes lowest increase The Press Association (31/1/12)
Questions
- Why are household incomes already being squeezed?
- Why would you suggest that the RPI and not the CPI has been used to make up the price rises?
- Why are there such wide variations in the amount that consumers are currently charged in different parts of the country? Do you think this is fair? You may find it useful to look at a previous blog on the site
- What is the role of the regulator, Ofwat?
- Can Ofwat’s decision to allow prices to rise by more than the RPI be justified?
A particular issue that has received much attention recently is the difficulty of getting loans. One sector that has found this especially hard is those organisations that are part of the so-called ‘social sector’. Organisations that try to do some good in society while achieving a financial rate of return often find finance impossible to obtain and, as such, the economy is allegedly losing out on billions.
