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ANALYSIS OF EVIDENCE FOR LOCAL IMPACT FUNDS Regional Analysis - Liverpool City Region
LIVERPOOL CITY REGION Key findings Summary SIB has reviewed its own portfolio of historic grant and loan investments in the Liverpool City Region and assessed demand for new social investment and investment readiness support services to paint a picture of the social investment needs of the sector in the future. Here are some key findings, explored in further detail below: •
49 charities and social enterprises have taken on over £13m social investment and / or grant support.
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43 charities and social enterprises received grants totalling approximately £4.7m. Of these, 62% were development grants and 38% capital grants (mainly to buy or refurbish an asset).
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21% of all grants were for investment readiness support.
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And of the 49 organisations, 22 took on loans totalling over £8.3m.
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67% of loans were of less than £250,000.
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73% of charities and social enterprises that received a loan had received a grant.
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Based on our survey, the estimated demand for finance from social enterprises is £4.1m.
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The Liverpool City Region demographic statistics reflect national demographics, in that:
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Social enterprises typically work in boroughs with the highest levels of deprivation.
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Social enterprises work primarily in physical, mental health and healthy living (35%), education and learning skills (18%) and employment and training (13%).
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Young families and children are the main beneficiary group supported (25%) followed by people with disabilities (18%).
Overview of the area
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Introduction The Liverpool City Region includes 6 Local Authorities (Liverpool, Sefton, St. Helens, Wirral, Halton and Knowsley) as shown in Figure 1.It is considered a strong and important driving force in Northern England’s economy, however, even though its economy has strengthened over recent years, the Liverpool City Region still suffers from an output gap of £8.2m compared to the national picture and requires co-ordinated intervention to ensure latent potential is exploited.
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Deprivation: The Liverpool City Region contains 34 of the top 100 most severely income deprived LSOAs, with Liverpool being the most deprived local authority in the country. It also has an above average level of people in receipt of Job Seekers Allowance.
Market failure
Figure 1.1 Liverpool City Region
Based on the major market failures of the Liverpool City Region, a key problem for charities and social enterprises seeking to grow their operations and impact is access to appropriate finance. The section below provides information on charities and social enterprises based in the Liverpool City Region.
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Area: 279 sq mi
Summary of our findings
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Population: 1,512,600 (2011 est.)44
a. Existing finance gap
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Density: 5,421 sq mi
SIB has been conducting a ‘future financing needs’ survey of the sector since 201Latest data collected includes a total of 411 respondents, out of which 5% were relevant to the Liverpool City Region. The information contains some key findings:
LEP allocation: The Liverpool City Region LEP has been allocated approximately £190m from the ERDF and ESF (£112.3m and £77.7m respectively).
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94% of the survey respondents stated an interest in social investment, mainly to start or grow an existing project;
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72% of respondents were already established social enterprises with an annual turnover greater than £100,000, 17% had an annual turnover of £20,000 or less, 11% had an annual turnover between £20,000 £100,000;
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67% of respondents indicated having difficulty accessing finance.
Based on the survey results, the total estimated demand for social investment in the Liverpool City Region is of £4.1m.
1 “Resident population”, http://www.nomisweb.co.uk.
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b. State of the sector A breakdown of social enterprises by local authority indicates that Liverpool has the highest concentration of charities and social enterprises (61% of all social enterprises in our study). Liverpool is considered the most deprived local authority in England, with certain neighbourhoods falling in the 1% most deprivedAnfield, Speke, Everton and Toxteth. This reinforces the idea that social enterprises do work in the most socially deprived areas. According to our research, the main sectors social enterprises are involved with in the Liverpool City Region are: physical, mental health and healthy living (35%); education and learning skills (18%); and employment and training (13%). c. Sample study Our analysis and sample is based on SIB’s own portfolio of historic grant and loan investments in the Liverpool City Region. The data collection provided a total dataset of 100 investments:2 17 from ACF, 10 from Communitybuilders Fund, 36 from Futurebuilders Fund, 5 from ICRF and 32 from SEIF). We note this data has been gathered from different funds, each of which had different investment priorities and requirements which could potentially affect our sample study.
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Average size of grants was £65,621 although the overall sizes of grants varied from small grants for social impact reporting measures of £5,000 up to capital grants of £430,000;
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36% of all development grants were for capacity building, 33% investment readiness support, 29% for feasibility and 2% for social impact reporting;
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37% of social enterprises that received a grant took on a loan at the same time or subsequently after receiving it.
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Our analysis suggests that charities and social enterprises in the Liverpool City Region received smaller grants when compared to other LEPs such as London or West of England. At the same time, 32% of these received more than one grant, suggesting a strong demand for business support.
e. Loans analysis Based on our data, a total of 22 charities and social enterprises received 28 loans, totalling approximately £8.3m.
Figure 2.1 Loans by total amount Greater than £500,000 £250,000-£500,000
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d. Grants analysis £100,000-£250,000
Based on the data, a total of 43 social enterprises received 72 grants, totalling over £4.7m. •
Over 95% of all grants received were less than £250,000;
2 Corresponding to 49 social enterprises.
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£50,000-£100,000 Less than £50,000
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Figure 2.1 shows a breakdown of the loans by range of size. Some of the key findings are: •
Over 67% of all loans were less than £250,000;
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73% of all social enterprises that received a loan had received business support in the form of grants, mainly for capacity building and investment readiness;
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The median average size of loans was around £118,250;
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Interest rates ranged between 0% - 6%, with larger loans taking on higher interest rates and longer repayment periods (up to 25 years for loans greater than £500,000).
Whilst most loans were in the range of £100,000 - £250,000, we note an existing demand (32%) for loans greater than £250,000. Whilst a LIF would not address this demand, other social investors such as Social and Sustainable Capital would be able to provide unsecured lending of £250,000 and upwards.
Liverpool and Knowsley. It is estimated that in order to reach the equivalent national rate, 46,200 would need to enter employment. •
Health inequalities: The gap in average life expectancy for Liverpool City Region and England is around 7 years; the gap between different areas of the city is 10. Moreover, 33% of children are classified as living in poverty (compared to 20% in England).
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Business base deficit: The Liverpool City Region has some 37,600 businesses, however, when compared to the national average there exists a deficit of 18,500. Business start-up rates are low and there is a requirement to stimulate new enterprises.
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Productivity: Productivity in the Liverpool City Region is 83% of the national average, with particular deficits in the service industries.
Strategic approach
Despite the increase in the number of disabled people in employment, we believe this represents an important failure that needs to be addressed and therefore has been included in our analysis:
Statement of position
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a. Major market failures and weaknesses According to Liverpool City Region’s European Structural and Investment Fund Strategy,3 major market failures and challenges that need to be addressed include: •
Low skilled workforce: 13% of the workforce hold no qualifications and only 25% of people hold a level 4 and above.
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Unemployment: Employment rates are below the national average, particularly in
Disabled: The gap between disabled and non-disabled employment rates is larger than nationally – 39.9% of disabled people are in employment compared to 48.8% nationally.
b. LEP investment priorities and objectives The Liverpool City Region has been allocated £190m for the period 2014-2020. The investment priorities for this LEP area include: •
Skills and entrepreneurship: promoting basic, employability and generic work related skills, along with career guidance, wage subsidies and apprenticeships (estimated £64.7m)
3 Liverpool City Region LEP Strategic Economic Plan, 2014-2020, Liverpool City Region LEP, January 2014.
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Key transport and economic infrastructure: to support businesses to be globally competitive and connect to export markets; (estimated £65.8m)
Recommendations for a Local Impact Fund
Increase trade and export: developing further areas of relative strength (including life sciences, bio-medical, high-value manufacturing and advanced materials) by stimulating indigenous sector growth, inward investment and diversification; (estimated £31.5m)
Based on our research and our findings from 49 charities and social enterprises, we would recommend a Local Impact Fund for the Liverpool City Region LEP area with the following characteristics:
Shifting towards a blue/green economy: investing in the transition to a low carbon economy, including renewable energy, low carbon environmental goods and services, logistics, marine energy and maritime sectors (estimated £28m).
Our approach
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A medium sized investment fund of £5m £10m.
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A wrap around business support programme, providing organisational development support, especially investment readiness support.
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Investment funding of under £500,000, with a primary focus of sub £250,000.
c. LEP 2014-2020m LIF allocation (…) “In the coming EU SIF Strategy, we will support a LCR Local Impact Fund. The LCR LIF is designed to support and finance the development of innovative new public services delivery (such as spin outs and mutuals), of early stage preventative support, of community owned and managed assets, of rapid scaling of social businesses through incubation, etc. thus delivering against several objectives, including social innovation, SME/Competitiveness and Social Inclusion. The LIF would work with other wider business support projects to ensure that social businesses also have access to mainstream support.” (…)
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A focus on providing unsecured loans.
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At an appropriate interest rate.
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Over the appropriate length of time (1 – 7 years).
Supporting organisations in the most deprived areas that achieve the greatest social impact; especially: --
Providing a comprehensive investment readiness offer.
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Supporting jobs and growth in the most deprived areas.
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Author: The SIB Group Published: February 2015