Social Enterprise: Wider UK Economy

Philip Hollobone Excerpts

Tuesday 3rd September 2013 Westminster Hall

[Chris White (Warwick and Leamington) (Con)]

I am delighted to be able to speak about a topic that I believe is one of the most important facing our country today: how do we create a fairer and more sustainable economy that can provide jobs and growth for the future? Given the topic and my role as the chairman of the all-party group—[Interruption.]

[Mr Philip Hollobone (in the Chair)]

Order. Out of courtesy to Mr White, who is making his important speech, would all those who are not staying for this debate please leave Westminster Hall quickly and quietly?

[Chris White]

I am grateful to you for that, Mr Hollobone.

I titled this debate, “Social Enterprise and the Wider UK Economy”, because I wanted to focus on the economic dimension of social enterprise. Social enterprise is often considered by politicians solely in the context of charitable and voluntary organisations, under the umbrella title of voluntary community and social enterprises. That is understandable, of course. Social enterprises are community-focused organisations designed to fulfil a certain social purpose, and, because of that social purpose, they are often confused with charities or voluntary organisations.

Personally, I see social enterprises as being much wider and much more than that. I see the social enterprise model as a way of reforming our economy so that we combine competitiveness and profitability with social justice and fairness; a way of spreading growth across the country, so that all communities can benefit; and a way of engaging with parts of our society that have found it difficult to get involved in our economy, and allowing their talents to shine. In short, I see social enterprise in the mainstream of the British economy, powering a socially and economically sustainable future.

That potential for economic and social renewal was highlighted by the recent state of the sector survey compiled by Social Enterprise UK. The survey, which was excellently titled, “The People’s Business”, showed that social enterprises are not only growing faster than traditional small and medium-sized enterprises, but are more resilient, focused on our most deprived communities and create a more diversified business leadership.

According to the survey, 38% of social enterprises saw an increase in turnover compared with 29% of SMEs, and only 22% of social enterprises experienced a decrease in turnover compared with 31% of SMEs. Also, the number of social enterprises that expect to take on more employees in the next 12 months is double the number that traditional SMEs have indicated in similar surveys. In addition, 38% of social enterprises worked in the most deprived 20% of our communities in the UK, compared with just 12% of SMEs; 38% of social enterprises had a female leader, compared with 19% of SMEs; 91% of social enterprises had at least one woman on their leadership team, compared with less than half of SMEs; and, finally, 15% of social enterprise leaders are from the black, Asian and minority ethnic communities.

Those are not merely isolated statistics. There is evidence from other sources that social enterprises are growing rapidly. The Royal Bank of Scotland Social Enterprise 100 Index, which follows the growth of the social enterprise sector, shows the top 100 social enterprises growing by 60% in the past year. Although down from 90% growth in the previous year, a growth rate of 60% is still very commendable. Also, the Cabinet Office’s research into the sector indicates that social enterprises are likely to be larger than traditional SMEs. Therefore, increasing the number of social enterprises is likely to lead to greater job growth. Given the focus that is being placed on growth and job creation across Government, the evidence suggests that, if we want to achieve those objectives, we have to place social enterprise at the very heart of our economic agenda.

However, this issue is not just about micro-economics. I know that the Treasury and other Departments are often in the grip of the macro-economic debate. Since the mid-1970s, wages as a percentage of GDP have fallen considerably, from more than 64% of GDP to around 55%, creating a gap of £7,000 between the potential for earnings if they had stayed at the same percentage of GDP as in the mid-1970s and the current percentage. That has been mirrored by a fall in investment during the same period, but there has been a rise in profits, particularly in financial services. The increasing financialisation of our economy has reduced growth, with profits being creamed from the real economy, which in turn has led to reduced investment in new products and lower wages.

We need a new model of business that is unlikely to succumb to that process, and to ensure that growth does not merely lead to higher profits but is reinvested in our communities and comes back into the pockets of our people. I believe that social enterprise is that model. The principles of social enterprise see profits reinvested in communities, and the focus placed on engaging with staff and improving their lives, not only because of the productivity benefits but—most importantly—because it is the right thing to do. So, whether it is micro or macro, the case for social enterprise is very strong.

We should not be afraid of new business models. In the 19th century, many of our major businesses and employers were family-run firms or partnerships. Then we saw the emergence of large publicly traded companies, where the discipline of the market would lead to growth. As that model appears to be flagging, we should look to the next structure that can achieve our aspirations, both for social progress and economic growth. Social enterprise is that next step.

I hope that I have justified why social enterprise needs to be at the heart of our strategy in the years ahead. Now I believe that we need to focus on the practical steps we can take to achieve that. We should focus on a number of areas. First, the Government need to take several steps to improve the way that they engage with social enterprise. As I mentioned at the start, social enterprises are often just lumped together with charities and voluntary organisations. Although the social enterprise sector has strong links to civil society as a whole, ultimately we need to consider social enterprise in the same way as we consider other forms of business.

In the same way that policies targeted at SMEs are developed in the Department for Business, Innovation and Skills, we need to do more to have social enterprise considered in BIS policy making and to ensure that this type of business is considered alongside SMEs and other key areas. That would be useful for a number of reasons. Primarily, it would ensure that, when policies directed at supporting businesses are created, social enterprise is considered as part of that.

The enterprise investment scheme and the venture capital trusts scheme were both welcome policies to attract additional investment to growing parts of our economy. However, the structure of those policies was such that social enterprises were often unable to take part in them. I cannot help but think that, if social enterprise was being equally considered in BIS as well as in the Cabinet Office, social enterprises would have been fully integrated into those important policies at a time when those enterprises needed them most. It would also send out a strong message to social enterprises and to the wider economy about the role that the Government see social enterprise as possibly playing.

As I said, I believe that social enterprise could be in the mainstream of our economic strategy. However, placing social enterprises just under the “civil society” banner suggests that social enterprise is not being considered in the same light as traditional business. That is not the right message, and if we want to support the sector more widely, having BIS lead equally on social enterprise would be helpful.

Moreover, when budgetary and spending decisions are made, social enterprise should be considered for not merely its social but its wider economic impact. I believe that having social enterprise at the heart of BIS would help ensure that that was the case. I understand that the Minister covers part of the Government’s social enterprise brief, but correspondence with the Department suggests that that relates only to community interest companies rather than to the sector as a whole. One might argue that, given the Cabinet Office’s role in social investment, social enterprise should remain in its portfolio, but I do not believe that to be necessary.

Although social enterprise is at the centre of discussions about social investment, many of the problems that face social enterprise relate to traditional forms of finance, tax and regulation. Social investment is a special kind of investment, which also covers charities and voluntary organisations, and although it is appropriate for social investment to remain in the Cabinet Office and remain closely linked with social enterprise, social enterprise is much broader than social investment.

The Government can assist the sector by better data collection. Social Enterprise UK currently undertakes the largest dedicated survey of the social enterprise sector, which is useful for policy makers, but to assist the social enterprise sector further we need more detailed data over a long period to track its progress effectively. Good policy making can take place only when decision makers have adequate data on which to base decisions.

Although a variety of good research exists, there are still many things that we do not know about the social enterprise sector. The Government should use their strong statistical organisation to fill those gaps and create a comprehensive picture of the sector, working with organisations such as Social Enterprise UK and regional bodies like Social Enterprise West Midlands to capture as much knowledge as possible. Doing so would enable the UK to remain a world leader in social enterprise and encourage countries to partner with UK social enterprises to learn more about such business and its rich potential.

The Government can also assist by creating strong social investment tax relief. I appreciate that a consultation is under way to examine how such tax relief might be created, and I look forward to contributing to that in due course. I urge the Minister to ensure that the Treasury considers a tax regime that is as broad and extensive as possible. Across the country and across the world, members of the public, banks, pension funds and businesses want to generate returns on their investments. At a time of low interest rates when good returns are hard to find, we have a chance to encourage investors to consider social as well as financial returns.

A bold social investment tax relief regime that made it easy for investors to invest and took into account the particular challenges facing social enterprises—around equity finance, profits and governance—could help boost the sector and institutionally ingrain an understanding of social investment. I hope, therefore, that the Government will listen to organisations that have contributed to the discussion, including Social Enterprise UK, the social investment forum and the National Council for Voluntary Organisations, and establish a tax regime that lasts for the next decade and helps meet the real need for finance that holds back many fantastic social enterprises.

Alongside tax relief, the Government would be wise to consider a new form of ISA for social investment. There is growing public appetite for ethical and responsible investment. According to a YouGov poll for national ethical investment week last year, 55% of adults in Britain who have investments want their bank or financial adviser to tell them more about how they can generate both social and financial returns. Other polling indicates that the vast majority of the public want their banks and pension funds to think about environmental, social and governance issues when deciding in whom to invest. The creation of a social investment or social impact ISA would open up billions of pounds for social enterprises and feed the appetite of the public for socially responsible investment. The structure of the ISA would have to compensate investors for the likelihood that the risks would be higher and the returns lower, but we must tap into the much wider pool of personal savings and make people feel part of the social enterprise movement.

I could touch on other areas that affect social enterprise, such as public sector contracts and access to finance, but I have raised such issues previously and the ground has been well trodden. I hope that, during this short speech, I have been able to outline the potential that social enterprise has for our economy and the need for it to be considered as part of the mainstream of the economic debate. If we are going to grow in the years ahead, the UK needs to develop a resilient economic model that uses all our communities’ talents. To do so, we require a different type of business and a more socially responsible model, and BIS must work with the Cabinet Office to achieve that.

Social enterprise is challenging, because it stands as a bridge between civil society and the traditional private sector. The fact that it crosses those boundaries is its greatest strength, but it can be a weakness in public policy making. We need a joined-up approach that recognises that social enterprises are not only catalysts of social action, but businesses that can help create jobs, spread growth more fairly across our communities and bring about a sustainable economic recovery.

I am confident that the Minister appreciates that and works with her colleagues in the Cabinet Office, such as the Parliamentary Secretary, Cabinet Office, my hon. Friend the Member for Ruislip, Northwood and Pinner (Nick Hurd), who has responsibility for civil society. However, I urge her to do more to ensure that social enterprise is at the heart of consideration in BIS about how to support economic growth.

The present economic and political situation represents a unique window of opportunity. The social enterprise sector is keen to take the lead in driving growth in our economy and improving our society. New movements such as the social economy alliance indicate the interest and support that exists across the country for a new way of doing business and structuring our economy. The Government have an interest in seeing that happen, and I hope that we can focus on removing barriers to social enterprise and establishing practical policies to support its growth. I look forward to the Minister’s comments on the matter, and I hope that she and her colleagues in BIS and across Government will continue actively to engage with the social enterprise sector to ensure that we achieve our shared social and economic objectives.

[The Parliamentary Under-Secretary of State for Business, Innovation and Skills (Jo Swinson)]

I am grateful to my hon. Friend the Member for Warwick and Leamington (Chris White) for securing this debate on the important issue of social enterprise. I start by paying tribute to the work that my hon. Friend has done and will continue to do on the matter, in his role as social value ambassador and as chair of the all-party group on social enterprise. He raised several important issues in his speech, which I look forward to debating. As a Minister with a keen interest in social enterprise, I look forward to working with him in future, because we must drive progress and help social enterprises not only to become successful in themselves but to develop into an attractive model for other organisations to adopt.

My hon. Friend described the numerous advantages that flow from social enterprise as a business model, including resilience in tough times, increased turnover and improved diversity in comparison with more traditional business models. He focused, importantly, on the fact that social enterprise is a new model of business, which offers an exciting opportunity. The financial crisis of 2008 was a huge shock to our economy. We all want our economy to grow, to recover and to get back on to a sure footing, but simply to return to business as usual in exactly the same way as we did before the downturn would be a mistake and a wasted opportunity. We have an obvious opportunity to consider new ways of doing business that might better serve not only our economy but our communities and our society. Business is inextricably linked with the communities and societies in which it operates, because its customers and staff are based in that society. Many more enlightened businesses recognise the need to hold on to that.

It was also right to highlight that growth should help to lead to higher profits, which can increase wealth and improve living standards. However, it is also important to ensure that, as businesses grow, they can, as my hon. Friend said, reinvest in the community in which they operate. Many MPs on both sides of the House are interested in supporting local businesses in their areas so that more of the money spent in the local economy can stay there and help local people to thrive. There is also the issue of the investment organisations make in their people.

Social enterprise is a good model from a business and a productivity point of view. As my hon. Friend said, however, it is also often one way of doing the right thing. He highlighted the fact that customers and investors are more and more interested in the way in which businesses operate. The issue is not just the return businesses provide or the price people pay at the till, but the way in which businesses operate in wider society. Through the Trading for Good website, my Department has been supporting initiatives to enable small businesses to showcase the great things they are doing, such as employing apprentices and dealing with youth employment in their area, as well as their environmental credentials and their support for fair trade and developing countries—there is a whole range of ways in which small businesses take their responsibilities seriously. There is, therefore, an increasing appetite for a different approach.

That very much dovetails with an issue I have championed in the House for many years. Before I was a Minister, I was a co-founder of the all-party group on wellbeing economics, which recognises my hon. Friend’s point about how we see the importance of growth. Is GDP the be-all and end-all? If we ask most people what they want from life, they will talk about the health and happiness of themselves and those close to them, but we have a system that has until now deified the pursuit of GDP growth above all else. That is why I was pleased to see the Government working with the Office for National Statistics on measuring national well-being so that we can assess policies and the impact of Government decisions against a much wider range of metrics than purely GDP. Although GDP remains an important tool, we should also be able to analyse social and environmental impacts, which might even lead to some more innovative policy proposals. That is an important approach in business, as well as in Government policy making.

While it is important to extol the benefits and virtues of social enterprise, it is worth noting in passing that businesses can use different models in taking their responsibilities seriously. Many businesses out there may not meet the definition of a social enterprise in terms of where their profits go and what their prime purpose is, but they none the less take great pride in conducting their affairs with a degree of responsibility we would want others to copy.

We want not only to promote social enterprise, but to encourage other business models to embrace corporate responsibility. Indeed, as part of a consultation, a call for views is currently ongoing on how to develop a corporate responsibility framework so that businesses representing a range of different models can showcase what they are doing on corporate responsibility. I encourage interested hon. Members to contribute to that call for views before it closes later this month. Indeed, for the benefit of those watching on BBC Parliament or reading the record of our proceedings in Hansard, I should say that that offer is open not only to MPs.

It is vital to recognise the clear benefit of social enterprise to our economy. While it puts social and environmental concerns before profit, it also plays a significant role in our economy. In 2012, the BIS small business survey found that there were 70,000 SME social enterprise employers. The figure is as high as 283,000 if we include sole traders, and it is even higher if we include larger companies. Many of the 1,700 registered housing associations are social enterprises, and they spend £13 billion a year in the UK. Social enterprise creates employment for about 1 million people in the UK economy, and it makes an overall contribution of £18 billion, so it already plays an important role across the wider economy.

Through public sector contracts, we need to improve the way in which smaller social enterprises can win business, and there is an opportunity to enhance further the role social enterprise plays. However, we would not be doing social enterprise justice if we viewed it purely through the lens of the role it can play in public sector contracts, because it also plays a vibrant role in the private sector, and its main source of income is trade with the general public.

My hon. Friend was absolutely right when he made the key point that BIS has a key interest in this area. Like him, I do not want social enterprise just to be lumped in with charities and civil society, important though they are. This is a business issue, so BIS is rightly involved. Back in June, we reaffirmed our commitment to helping SMEs succeed, and we will launch a strategy on that in the autumn. One of the key stakeholders we will be working with in developing it is Social Enterprise UK, because social enterprises are an important part of the SME sector.

I would like to outline a few of the ways in which the Government are supporting social enterprise. Community interest companies were mentioned, and they are a new and exciting way of forming a company. As my hon. Friend said, they are covered by my Department. Such companies are the world’s first legal form for social enterprises, so we are pioneering on this matter, which is the right place for Britain to be. That model is very helpful.

We also have the regional growth fund, which will provide £60 million of funding over six years for lending to small and micro-businesses that create or safeguard jobs, with a significant impact in communities in parts of the country that most need that funding, some of which goes to social enterprises.

There is also the European regional development fund. We secured £3 million, which increases to £6 million with match funding, to support the work of social enterprises in Yorkshire and the Humber. We hope to continue the programmes under that fund.

It is important to talk about the social investment market, which has now passed the £200 million mark, so it is rapidly growing. That figure is up from £150 million just three years ago, and we want to grow the market further so that it is measured in billions, not millions. The proposal for tax relief on social investment, which my hon. Friend mentioned, is a key part of that. The Prime Minister launched it at the G8 social impact investment conference on 6 June. Again, I encourage people to send their views into the consultation on this issue.

My hon. Friend encouraged me to ensure the Treasury did the right thing, and I am flattered by his view that I have the power to require it to do anything. However, I know my Treasury colleagues are also committed to this issue, and the intention is that we will introduce tax relief in 2014. The consultation is open until Friday, and I hope my hon. Friend will contribute; the more voices there are encouraging the Treasury, the better. The proposal will be an important part of the Government’s support for social enterprises, and it will complement initiatives that are already in place, such as Big Society Capital—the world’s first social investment bank—and social impact bonds.

I could not finish without touching on the Public Services (Social Value) Act 2012, which I am sure my hon. Friend is proud to have introduced in the House. Not every MP gets to take legislation through the House, and it is not easy to do, so I congratulate him on his success. The Act means public sector organisations must take account of economic, social and environmental well-being in connection with public services and contracts, which should be good news for social enterprise.

I hope I have outlined the Government’s support for social enterprise, as well as how significant social enterprise is to the UK economy more widely. Social enterprise adds vitality and challenge to the vibrant mix of business models in the UK economy. The goal is to look beyond simple measures of GDP, which do not capture everything that determines society’s well-being. As we still come to terms with the financial crisis of 2008, the contribution of social enterprises will no doubt be more important than ever. I hope today’s debate has encouraged us all to think more carefully about what more the Government can usefully do to support this important sector.

[Mr Philip Hollobone (in the Chair)]

Perfect to the second.