It’s the ‘Impact Economy’, stupid

Former US President Bill Clinton’s advisor James Carville famously said ‘it’s the economy, stupid’ when tasking campaigners with their talking points for the 1992 US Presidential election. He’s not everyone’s cup of tea, but is known for telling off politicians and policy wonks in colourful terms when they don’t communicate in language that normal people would use.  

What’s an impact economy? 

I could hazard a guess at Carville’s view of this new term gaining traction in policy discussions in the UK, but it might not be printable. Anyway, we need to get our heads around it because last year the UK government announced that there would be a new ‘Office for the Impact Economy’ established in the Cabinet Office, with the Chief Secretary to the Prime Minister, Darren Jones MP, as the minister responsible.

But what does it mean? If you’re confused don’t worry, you’re not stupid. Because it seems to be about many things at once: social enterprise, socially responsible business, philanthropy and even charity. It’s essentially about economic activity that has a social purpose, rather than just for profit. 

A new definition and calculation 

The ‘Impact UK’ report from NPC defines the impact economy as “an ecosystem of individuals, organisations, and capital prioritising public benefit over private gain.” That’s probably as good a definition as any that I’ve heard so far.  

They base their definition on ‘intention’ rather than on sectors or forms or regulation, which is interesting. But we have to remember that not all intentions are equally robust. For example, ‘Public benefit’ has a legal meaning in a charity context, backed up by legislation and regulation. However, companies which claim good social intentions are subject to far less scrutiny and regulation about whether their ‘social impact’ is real or mostly PR. 

NPC have also had a go at counting it and conclude that the impact economy provides £438 billion of ‘Gross Value Added’ to the UK economy, equivalent to around 15% of GDP, which sounds quite substantial. They classify the impact economy into two types: 

• £105bn: The ‘regulated impact economy’, including things like charities, Community Interest Companies, universities, housing associations and even trade unions.  
• £323bn: The ‘self-regulated impact economy’, including ‘impact-led businesses’ (like B Corps), credit unions, and mutuals.  

NPC acknowledge that attempting to define and categorise such diverse and changing activities isn’t going to be exact – it’s a starting point. They also note that this is likely to be an under-counting due to the limitations of available data. This analysis should hopefully help move the discussion forward, and prove useful in conversations with the eponymous office as well as people in HM Treasury.  

However, while I’m not massively interested in methodological hair splitting, there appear to be some important omissions in the analysis which I think are important to consider, because they could have consequences for how this debate plays out in the future.  

What about co-ops? The original impact economy 

NPC have used various data and regulatory models which they acknowledge are challenging to compare and classify. For example, they include some types of mutual and cooperative organisations but seem to exclude others. But co-ops would seem to me to be ancestrally important members of anything that we might call an ‘impact economy’ today.  

The analysis says that “Cooperative societies run for the economic, social, and cultural benefit of their members and regulated by the FCA” aren’t included if they aren’t “material to the overall results”. Why? 

Even if available data shows that the economic footprint of co-ops is relatively small within the impact economy, isn’t that important to inform how to move forward? If the point is to develop policies that drive more socially responsible economic activity, surely we need to push for policies to support more co-ops or show their potential for growth? 

What about faith, public giving and volunteering? 

The economic footprint of the majority of smaller charities and community organisations also doesn’t feature much here. Partly because of lack of data, but also because the methodology seems to prioritise charities with more assets or trading in the calculations.  

For example, religious organisations which aren’t registered charities and some sports clubs and trusts are excluded. Yet a supporter-owned football club might be a cornerstone of the impact economy in some communities. As might be a church that provides a homeless shelter, respite for carers, or a soup kitchen. Religious organisations also hold huge amounts of financial capital, and they could arguably make a bigger social impact with it than they already do – for example by ethical investment.  

I also couldn’t find in NPC’s report any analysis of the economic impact of public giving or volunteering. Public giving would show up by proxy in the balance sheets of many registered charities, but not exclusively. Philanthropy – mostly in terms of wealthy people or companies giving – seems to play a more central role in the report’s narrative and series of case studies. 

Finally, what about volunteers? In fact, other research which NPC has been involved with has valued UK volunteering it in the tens of billions of pounds, so it’s curious that this doesn’t seem to figure in. How can we fully describe an impact economy without it? That’s like trying to describe the normal economy without labour statistics or wages. 

If we’re going to develop policy solutions that boost the impact economy in an informed and wholistic way, we can’t risk leaving out such vital chunks. 

Look out for more from the Office for the Impact Economy 

The new office is still being set up, and these debates will continue. It’s likely that the office will play an important role in coordinating government policy which affects charities and social enterprises in the future, so we need to not just be aware of the latest developments as they unfold, but to influence the debate and future decision-making.