One could be forgiven for thinking that, whatever your politics, social enterprise is the answer to every challenge of delivering the services of the future. On the right, the enterprise is the key, harnessing the entrepreneurial spirit of ordinary people, whilst on the left the social purpose of the initiative is what defines it. Social enterprise clearly ticks both boxes and as such deserves broad support in terms of the awarding of contracts, political encouragement and a fair share of investment funds.
There is the rub. While several excellent examples of social enterprises making the grade exist, the market is frighteningly small; Britain saw just £165 million of institutional social investment in 2010 according to the Young Foundation, most of that being provided by just four bodies. This is a drop in the ocean compared to, for example, charitable giving. It is thought that the combined turnover of all social enterprises in Britain is already over £20 billion.
At the same time, two thirds of all investments in UK social enterprise are under £5,000 which is not institutional investor territory. Most social enterprises utilise an asset lock of some kind to prevent ownership of the enterprise passing into the hands of someone who will strip the assets or change the purpose of the organisation, further discouraging conventional investors. Just five per cent of investment in social enterprise involves equity transfer.
The Circle Partnership, incidentally, which recently took over the NHS hospital at Hinchingbrooke, does manage to have the best of both worlds. It is 49 per cent owned by a 'John Lewis'-style partnership of medics who run it from day to day and 51 per cent by financial institutions operating on a traditional for-profit basis.
In the golden years of the Big Society, 2010-11, it was naturally assumed that social enterprise would step in and take over as thousands of opportunities arose through the outsourcing of public, and especially council, services. But the bodies that represent social enterprise were rightly wary - it would take three to five years to build the necessary capacity, they argued, and even that would rely on three things: a degree of positive discrimination, access to copious funds and a more benign legislative framework.
One barrier to this capacity building is cost: compliance with financial services regulation can generate costs of tens of thousands of pounds which puts accessing investment on the modest scale required beyond the reach of most social enterprises.
Amendments to the current Financial Services Bill would have addressed one of these three requirements but were rejected by the Conservative / Lib Dem coalition on March 1.
Amendment 72 would have placed a 'social investment duty' on the financial investment regulator to carry out its work in a way which promotes the development of social finance and social investment; and amendment 73 would have required it to establish a 'social investment panel' of persons with knowledge and expertise in social finance and social investment which it would be obliged to consult and have regard to in the conduct of its activities.
Despite being entirely consistent with the words of other ministers at other times, and the spirit of the Social Value Bill which entered the statute book in the same week, the cost-free measures were rejected. Although supported by the widest possible consensus within the third sector and the social investment community ministers chose to oppose them.
Whatever your politics, if social enterprise is indeed to be part of the answer to the challenge of delivering the services of the future then the loss of these measures is a real setback.
Tom Levitt is a writer and consultant on third sector issues.
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