Social Enterprise

Baroness Andrews Excerpts

Thursday 6th October 2011 Lords Chamber

Tabled By

[Baroness Andrews]

To ask Her Majesty’s Government what proposals they have for promoting social enterprise.

[Baroness Andrews]

My Lords, it gives me great pleasure to open this debate on social enterprise. I am particularly gratified that at this hour on a Thursday so many noble Lords have decided to join it. That clearly indicates that we consider this issue to be very important. Since I tabled the debate some months ago, there has been a cast change. I am very pleased to see that the noble Lord, Lord Wallace, will reply to the debate, and I look forward very much to hearing the Government’s response.

I had hoped to have the debate earlier in the year, but today’s debate has turned out to be more timely. We urgently need to discuss the future of social enterprise, particularly in the light of the comments made by the Chancellor at the Conservative Party conference this week about how to revive the economy. My argument is very simple: if the Government were really smart, the Chancellor and his colleagues would engage, as a matter of priority, with the social enterprise sector to provide it with the tools it needs to prompt growth through innovation, enterprise, skills and jobs, particularly in hard-pressed communities. There is not a moment to waste.

It is fair to say that this country is a world leader in recognising the unique possibilities of social enterprise, whether we are talking about social business or the habit of enterprise, which is clearly now spreading across the whole of the third sector. Over the past few decades we have seen a range of very effective and successful models emerging.

Some years ago I had the enormous privilege to work with Lord Young of Dartington, probably the greatest social entrepreneur of the previous century, when he was creating the School for Social Entrepreneurs. That was a hugely prophetic idea and one which has not only had great success in this country but has been replicated in other countries. The school and the growth of social businesses in general across the country show how innovation, skills, jobs, enterprise and social solutions can grow modestly but effectively in local circumstances, and sometimes in very unpromising circumstances.

The evidence suggests that social enterprises can succeed where private enterprise might fail or not entertain the idea of going. That is why, no doubt, in 2010 the Government promised to support the creation and expansion of mutuals, co-ops, social enterprises and charities so that they could have a greater say in the running of public services. It was a brave step forward, but it was not a new idea. My colleague on the Front Bench and I were in a department which committed itself entirely to the promotion of social enterprise. With the New Deal for Communities we saw in very disadvantaged communities across the country extraordinary innovations developing by way of social enterprise. I think, for example, of the Shoreditch Trust, led ably by Michael Pyner, and many different examples across the country. However, more significant than the scale or the diversity of the sector— £20 billion at one estimate—is the rate of growth, the evidence of sustainability and the public support that it commands.

We hear a lot about how the private sector is the solution to our economic malaise and how it must lead the economic recovery. In fact, the research undertaken by Social Enterprise UK, tellingly called Fightback UK, contains evidence of how, compared with the private sector SMEs, social enterprise shows three times the level of start-ups. It is outstripping private sector SMEs in growth, confidence and sustainability. I give a couple of examples of that. Some 800 social entrepreneurs who have graduated from the School for Social Entrepreneurs generate jobs to the value of £13 million each year—70 per cent of them are in the 20 per cent most deprived communities. Unlimited, another extremely interesting social innovation set up with millennium funding years ago, has enabled the most vulnerable in our society—refugees, no less—to start successful small businesses which address the aspirations as well as the needs of communities which might otherwise be excluded. The problem is that this window of opportunity may now be closing, just at the point when we need new ideas, new energy and new commitment. To quote from the SEC’s research:

“Social enterprises working in public services are drastically low on confidence. A large proportion of these are planning redundancies or turning away from public service markets”.

Across the third sector as a whole, there has been a 5 per cent reduction in jobs just in the past year.

Social enterprises seem to be facing a perfect storm. On the one hand, they have cuts in public spending and services which have a disproportionate effect on them because they are nearly always outward-facing into the public sector. On the other hand, they have not been equipped with the tools to enable them to compete with a highly capitalised private sector. Specifically, we see cuts in grants but, more critically, cuts in contracts from local authorities and national bodies. There is an absence of strategies or support for local and national commissioning to enable the sector to contribute. There is an increase in demand for local services, which is bound to increase in the next three years.

So far we have not seen much understanding from this Government of the impact of this and we have not seen a great deal of response to these threats. The Mutual Support Programme announced by Francis Maude in November 2010 has yet to materialise, as has a national programme for third sector commissioning. Therefore, my first question to the Minister is: when will these policies be published and what will they contain, and what impact does he think they will have? On the other hand, all the signs are that, far from public service markets opening up to social enterprise, they are being captured by a small number of highly capitalised large private sector providers. The barriers to entry at the moment are simply too high for even the most efficient social business. The Wise Group, which has an outstanding record of performance, to everyone’s dismay lost out to massive private sector providers to deliver the welfare to work programme.

The Government’s health flagship, Central Surrey Health, which is an exemplary social enterprise, lost out to Assura, which is 75 per cent owned by Virgin. If these bodies fail, what hope is there for smaller social enterprises, no matter how good and no matter how efficient? At the same time, they are of course, like other small businesses, being turned down for loans by banks. This week, I understand that a leading social enterprise with £5 million-worth of contracts was refused a £50,000 overdraft to ease its cash flow.

The Minister may well say that Big Society Capital and social impact bonds give us a way out of all these problems. They will help but they will not solve the structural problems that we are facing. For example, I understand that the pilot which is under way in Peterborough on reducing reoffending has generated partnership but not from the private sector; it is from the charitable sector and charitable investment. Social impact bonds, which are a very important new idea, are very cumbersome and slightly oblique. They will be very slow to deliver, or to understand how to deliver, the long-term complex, subtle problems that they are supposed to be assisting with. I should be interested to know from the Minister what lessons are being learnt from the way that these two initiatives are working so far.

The diagnosis is fairly simple. If the country is to take advantage of what social enterprise can offer, it means putting the resources, advice and skills into commissioning bodies, whether it is health or social care or crime reduction, so that they can identify, design in and invest in social enterprise. It means recognising the ecology of social enterprise in the system and why outcomes need to be defined appropriately and not by imposing crude regimes such as payment by results on the sector. There has to be a serious and intelligent attempt at dealing with lending and capitalisation. For example, why do the Government not ensure that further investment in the banking system from UK taxpayers will be bound to quotas on SME lending and job creation in the UK’s most deprived areas?

In a very timely fashion, George Osborne came forward this week with seven plans for credit easing to support small businesses. Can the Minister tell me whether this will extend to social enterprise and, if not, why not, and will he be an advocate for extending the principle to social enterprise? It also means supporting the sector itself, enabling umbrella bodies such as Social Enterprise London or the Social Enterprise Coalition to spread and support good business practice in order to jack up competitiveness.

It means, in short, promoting national infrastructure to extend and exploit the value of social enterprise for social and economic benefit, drawing on local, national and international expertise and knowledge. Those are not my words but those of the prospectus of partnership offered by the University of Plymouth, which is leading the higher education sector in developing social enterprises to ensure that they become more competitive and more sustainable. That is a very progressive move.

If there were time, we might be able to wait for this to evolve, but there is not time for the economy or for the sector. Capacity and resources are draining away. The exam question for the Minister is: given the expectations raised and the urgency of the situation that we face, when will the Government engage with the sector on these very practical terms so that it can realise its economic and social potential? The Chancellor also said in his speech last week, very loudly and clearly, that he was willing to work with anyone. There are thousands of social businesses and thousands of social entrepreneurs who are willing to work with him. They are waiting for the chance to do so and I hope that he acts now on that opportunity before it is too late.