Andreas Whittam Smith: Cameron's charity bank is all part of rebranding the Tories

David Cameron's crusade for the Big Society is genuine. He means it. It is not a cover for cuts. To think so would be to miss its true political purpose. For Big Society talk cannot disguise the sheer scale of the reductions in public spending and the consequences for employment that are now being implemented. No, it is not that. The Big Society is an attempt to rebrand the Conservative Party. And as is the way with branding, history must be rewritten and shiny new organisations created. Hence the announcement of a Big Society Bank.

To listen to the Prime Minister, you would think that before he came along, the voluntary sector was destined to remain a stunted, poor thing. In his speech earlier this week he said it would be good "if we had more philanthropic giving, more charitable giving and more volunteering in our country". Then, as if Mr Cameron had just recollected that we do in fact already possess a substantial social economy of 180,000 registered charities that together have an annual income of £52bn, he added: "Yes, this is not entirely new".

What is not revealed by the statistics is the presence of very talented people working for charities, voluntary organisations and social enterprises. Many of those whom I have met in this field could easily hold down investment-banking jobs with Barclays, for instance, and be taking home annual salaries of £250,000 or more. But they don't pine for the riches they could have obtained. They are challenged, absorbed and satisfied by what they do.

The Prime Minister could have said in his speech that the country is fortunate to possess a vibrant "third sector" and that the Coalition would do everything it could to provide additional support, particularly as charitable activities are especially valuable during hard times. That would have been the Big Society by another name, but it wouldn't have served to change the image of the Conservative Party.

Some of the brainy, committed people I described above could accurately be described as social entrepreneurs. They are as much entrepreneurs as those one finds in commercial areas. They have similar skills to, say, the founder of a new internet-based service, or the creator of a new range of clothes, or the executive who devises products that provide clean energy. Social entrepreneurs have the same ability to combine resources and expertise in innovative, sustainable ways.

The Government also acknowledges the merits of these social entrepreneurs and has concluded that what would greatly aid their work would be a specialised bank to which they could turn for additional financial resources. That is why the Prime Minister is excited by the idea of a Big Society Bank. It is, in itself, a perfectly respectable notion. Specialised banks with long histories exist all over the world. In this country, for instance, the Trustee Savings Bank, whose origins go back to 1810, specialised in accepting savings deposits from the poor. It was eventually taken over by Lloyds Bank, and only its initials, TSB, now survive.

What Mr Cameron failed to mention, however, is that a specialised bank for the third sector already exists; it is called the Charity Bank. The Charities Aid Foundation conceived the idea in 1992. Three years later, a pilot scheme was established; its first loans were made to an almshouses scheme, and it was incorporated as a bank in 2001. Since its launch, it has lent more than £130m, of which £85m has been repaid to date. As it has a loan-default rate of just 0.5 per cent, it is clearly writing sound business. Its vision is to have a thriving third sector that "brings about real social change and where social return is considered as important as financial return". Its mission is to "finance charities and other 'social profit' organisations that address society's needs, with the support of depositors and investors who want to encourage a more responsible and transparent use of their money." It sounds exactly what one would imagine a Big Society Bank should be. Moreover, Conservative thinking would normally be to strengthen existing institutions rather than create new ones.

However, the Prime Minister's Big Society Bank is not designed to have a front-line role at all. It would be what is called a tertiary organisation. It would stand three steps away from the action. The Cabinet Office paper states categorically "it will not invest directly in individual, social ventures". Instead, it will invest in "products developed by intermediaries" – whose business is providing financial packages for actually existing social enterprises. In this respect it would be different from the Charity Bank, whose staff look social entrepreneurs directly in the eye and decide whether to back them or not. Field Marshall Cameron has decided to attack the enemy by creating a new back-up unit miles behind the front line. It's hardly heroic. It is fiddling about.

Then Downing Street had another branding idea. Suppose the naughty, unremorseful bankers could be persuaded to participate. That would make the Government look good. Ministers would be seen to have brought the shameless bankers into a charitable enterprise. Thus last week the Treasury was able to announce that the commercial banks would make an "injection, on a commercial basis, of £200m of capital (and, thereby, funding) over two years, commencing in 2011". Read this phrase carefully. What does "injection" mean here? Will the banks lend money to the project or will they invest in it? It makes a difference; an investment is more valuable than a loan. But the banks couldn't or wouldn't say. Note also that the finance, however structured, is to be supplied on a "commercial basis". There is to be no charity by the banks.

Nonetheless, the Prime Minister pushes on with the Big Society. The bankers have unfortunately lived up to their reputation. Tant pis. Mr Cameron sincerely believes that the success of the Big Society would redound to the credit of his party. And as the third sector will continue to expand cautiously and carefully anyway, with or without government help, he will be able to claim success. But there is one thing about which we can be sure: the Big Society Bank won't have made an iota of difference.

a.whittamsmith@independent.co.uk