My Lords, I will take a very different tone from the noble Lord, Lord Prescott, because I want to talk about the advantages of volunteering and social enterprise, rather than complaining about them. I have spent most of my working life with young people, many from very poor homes, and I can tell you that the impact of volunteering on their lives has been empowering. It has enabled them to develop their CVs, get jobs and gain confidence, which is so much needed.
I thank my noble friend for initiating this debate. It is a hugely important topic, as she has outlined. Charities, voluntary organisations, third sector organisations, social enterprises, mutuals, co-operatives—there is a virtual continuum of organisations that undertake some trading but operate for social benefit rather than private profit. I want to concentrate on the social enterprise element of this debate.
The lack of precision in definition is only one of the hurdles that this sector has to overcome. It is true that in many cases social entrepreneurs are able to operate successfully in situations where the private sector would not be viable. That is their huge advantage. They operate overwhelmingly in poorer areas—another advantage. They attract back into work—often by volunteering, sometimes by paid work—those who have for a variety of reasons been out of work. They are job-rich in an age where technology dominates, and by that I mean that social enterprises create more jobs relative to turnover than standard SMEs. At
a time of high unemployment, that is a big advantage. They tend to reinvest their profits locally—another advantage.
The major problem social enterprises face is funding finance. Because of the advantages I have listed, plus the lack of a clear definition, they are regarded by most lenders as little more than charities. Banks seem to believe that lending to social enterprises is akin to bailing out a lame-duck business at best. The attitude is that because it is a social enterprise, it therefore cannot be profitable. The financial sector has not yet developed a robust model for investment in the social enterprise sector. Despite the very welcome recent legislation in the Public Services (Social Value) Act, the Government have not yet provided adequate tax relief for those who invest in social enterprise, in the view of Social Enterprise UK.
The enterprise investment scheme and venture capital trusts are aimed at standard SMEs that issue equity, which most social enterprises do not do. Community investment tax relief is the only form of tax incentive that social enterprises can access and it has a lower rate of tax relief than mainstream schemes. It does not allow direct investment; you have to invest via an accredited community development finance institution. This is more than technical jargon; it is an issue of life or death for social enterprises to be able to get the funding they need. Both the problems that I refer to could easily be removed. The eligibility criteria for the funds concerned also need to be widened.
Another way in which the Government can do a great deal to encourage social enterprises is through their procurement policy. As my noble friend said, the procurement process favours large companies, because the contracts let are often much too large for a social enterprise to tackle and the process is so complex. Public sector procurement needs to take account of social value. The Act that I referred to earlier should enable this to happen because the legal structure is now in place, but the key thing is that attitudes on the part of those letting the contracts in the first place have to change.
It is still a common view that social enterprises are likely to be soft on efficiency and that public sector contracts should go to proper businesses. Social Enterprise UK wants the Financial Services Bill to include a clause to ensure that the two new financial regulators support the development of social investment.
The Government have made a good start. Their announcement last week of additional funding is hugely welcome. They have gone well beyond mere rhetoric and are beginning to examine a comprehensive range of policies across government and to ask every time, “Will this encourage social enterprise?”. Social investment should be at the very heart of the Government’s being. It boosts the economy, reduces unemployment, reinforces localism and increases social mobility.
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