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18 December 2014

When the state has to step in where the Big Society has failed

The closure of the Northern Rock Foundation and creation of the Virgin Money Foundation is an example of where the state has had to step in where the Big Society has failed.

By Lisa Nandy

Last week, the Chancellor announced he was committing £4m of LIBOR fines to the newly-created Virgin Money Foundation, taking from “those who’ve demonstrated the worst values, to support the charitable causes in the northeast that demonstrate the best of British values.”

Following the collapse of its predecessor the Northern Rock Foundation over the summer the Chancellor made this warm, feel-good, Christmas announcement in Stockton, incidentally, home to the most marginal constituency in the northeast, where the Tory incumbent is defending a majority of just 332 votes.

The money will certainly help. But Osborne’s announcement tells only half a story about the devastating loss of foundation that, since its beginnings following demutualisation in 1997, had provided £215m of funding helping charities to deal with intractable social problems. Often funding unpopular and unfashionable causes, from youth justice to long term work with asylum seekers and the homeless, its reach into the community ran deep. As the Chief Executive of VONNE, the body that represents local charities said, if you weren’t funded by it, you knew someone who was.

But its fate was sealed in 2012 when Northern Rock was sold off to Virgin Money in a textbook example of the Big Society. The deal slashed the share of pre-tax profits given back to the wider community from 5 per cent to just 1 per cent. Instead Virgin announced a “partnership” with the community, but it was a partnership on their terms, to invest £1m for every £3m the Northern Rock Foundation could raise. Put simply, it was never going to happen, because it ignored the economic reality of a region that has high levels of deprivation and fewer economic opportunities and resources. Though they were warned, Ministers refused to intervene.

The news of the Northern Rock Foundation’s closure has been devastating to communities across the northeast. But it tells us the real story of the Big Society. Rolling back the state to “allow” civil society to flourish has been a resounding failure because in so many communities around the country, where economic resources and opportunities are scarce, the state and society have always worked hand in hand. When the state walks away the result isn’t flourishing but utter abandonment.

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The great losers have been the hundreds of charities that worked with the Northern Rock Foundation over the years, and the people they represent. As the state’s safety net has collapsed, charities are facing unprecedented levels of demand in an ever-shrinking pool of resources. One in six charities believe they could face closure within a year and eight in ten say charities are in crisis. This is the reality of the Big Society.

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But there’s more to learn from Northern Rock’s history, founded by the people of the northeast for the people of the northeast. It lasted 180 years, weathered four major recessions and provided hope to striking miners and their families until it finally collapsed in 1998. It was a direct consequence of demutualisation, and a series of choices that put short term gain for a few before the long term, collective benefits of an historic shared institution. It’s a lesson all of us need to learn. These civil society institutions matter. They define us as we define them, and their role in civil society should be celebrated and protected.

There’s one last footnote to this sad story. Before it was sold, the Foundation held a real stake in Northern Rock, bound through a covenant to provide 5 per cent of annual profits and 15 per cent of the issued share capital. That stake was worth at least an estimated £450m. The Treasury has refused to return the money to the people of the northeast at the request of local charities. This is hardly taking money from those with the worst of values, to give to the best. In this brave new world of the Big Society it seems the only people who aren’t valued are people themselves.

Lisa Nandy is shadow Cabinet Office minister and Labour MP for Wigan