Financing for Society: Assessing the Suitability of Crowdfunding for the Public Sector

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Download the Local Authority Guide

Against a background of overall borrowing prudence and austerity, UK local authorities are being asked to lead on some of the biggest issues facing the country, including decarbonisation, the building of social housing, and providing effective social care to an ageing population.

Delivering on this agenda within such constraints requires service and operational innovation whilst maintaining the support and trust of local residents, which Local Government Association research has shown to have fallen significantly over the past five years.

If Local Authorities are to meet these grand challenges over the coming decade, sourcing competitive capital and working with residents to find solutions will be essential.

At a time when public sector finances are under increasing pressure, crowdfunding – still mistakenly seen as being just another form of charitable giving – has the potential to offer a new model of finance via an investment-based business model that generates social, environmental and economic returns.

The report will be of interest to finance, legal, treasury and procurement teams across the UK public sector as innovative and collective solutions are sought to the above challenges.

Key Findings

In our report, we provide a landmark assessment of the suitability of crowdfunding for the public sector. Through our research with six case studies – three UK local authorities and three NHS bodies – the report:

  • helps to overcome existing knowledge barriers with respect to crowdfunding;
  • provides a decision-making tool to demystify the process of utilising crowdfunding as a public body;
  • shows how crowdfunding can be utilised to create new forms of civic engagement with local residents and service users;
  • presents a new Community Municipal Bond structure co-created as an output of the project;
  • assesses if the internal capacity required to develop crowdfunding for the public sector could be minimised so that it mirrors that for the PWLB, or via PPP project finance, as common sources of public sector funding; and
  • offers a series of recommendations for what should happen next for public sector crowdfunding.

The report concludes that the public sector is yet to make the most of crowdfunding and to realise the financial and non-financial benefits it has been shown to generate.

Recommendations

R.01 IMPLEMENT A COHERENT POLICY FRAMEWORK FOR PUBLIC SECTOR CROWDFUNDING

To ensure that the cycle of project management and procurement includes crowdfunding as part of the respected mix of financing options.

R.02 CHANGES TO STATUTORY LEGISLATION FOR COMMUNITY MUNICIPAL BONDS

To open up the Community Municipal Bond product developed through our research for Innovative Finance ISA investors so that the product can become more accessible to community investors.

R.03 DEVELOP AND DELIVER A STRATEGIC COMMUNICATIONS CAMPAIGN

To signal investment-based crowdfunding as a normal and legitimate model of finance for the public sector.

R.04 CREATE AND SUSTAIN A CENTRAL REPOSITORY OF PUBLIC SECTOR CASE STUDIES

To produce and deliver tool kits, guides, professional development training, and knowledge exchange events to ensure expertise is shared across the public sector (see Eventbrite link below).

R.05 INVEST IN WIDENING THE EVIDENCE BASE

To assess the extent to which measurable social and/or environmental benefits are realised through public sector crowdfunding.

R.06 CREATE AN UNDERWRITING OR BRIDGING FUND FACILITY FOR PPP PROJECTS

To draw upon existing precedents to create an underwriting or bridging fund facility for PPP projects, since this model was developed to focus upon the needs of the institutional investment market, not the needs of investment-based crowdfunding as a new model of public sector finance.

What Next?

If you would like to learn more about the research findings and consider exploring or piloting the use of crowdfunding within your authority, there are a number of opportunities to engage further with this agenda:

  1. Download the full report Financing for Society: Assessing the Suitability of Crowdfunding for the Public Sector. Davis, M. and Cartwright, L. (2019) University of Leeds. DOI: http://doi.org/10.5518/100/7
  2. Contact the research partners at the University of Leeds, Abundance Investment or Local Partnerships for more information:
    Mark Davis – M.E.Davis@leeds.ac.uk
    Karl Harder – karl@abundanceinvestment.com
    Rosie Pearson – rosie.pearson@local.gov.uk

About the Authors

Mark Davis leads a programme of research at Leeds that starts from the principle that what we do with our money matters. He is currently evaluating financial innovations that promise to enhance opportunities for citizens to deliver socially-beneficial outcomes by doing different things with their money.
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Dr Laura Cartwright's research interests are in intergenerational inequality and downward social mobility, social divisions between young and old (particularly post-Brexit). young people's attitudes towards, and engagement with politics, and 'youth' poverty and disparities of wealth (assets and income) between the generations.
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