My Lords, I declare an interest as the owner of a consultancy third sector business. I also work in an unpaid capacity with a voluntary organisation called See the Difference, now known as the Giving Lab.
I very much welcome this debate, which is very timely given the huge amount of change and turbulence going on in what I call the third sector. I thank my noble friend Lady Scott for drawing a distinction between charities and social enterprises. I agree with the noble Lord, Lord Prescott, that there needs to be a great deal of clarity about terminology as fuzziness leaves room for individuals to be exploited, which I think is wrong. I am pleased that noble Lords have drawn a distinction in this debate between what is charitable and what is social enterprise. Last year, Social Enterprise UK kindly came up with a helpful definition of a social enterprise. It is a company which trades and earns at least 50% of its income through selling goods and services rather than through contracts in order to generate profits with which to pursue social and environmental purposes. That is entirely different from what a charity does. A charity works with a different skill set in a different way for a different purpose. That is important because much of the public policy which is being made at the moment has at its heart a confusion between social enterprises and charities. More than that, some charities whose traditional sources of income are disappearing are being told that they should become social enterprises. They are facing a lot of challenges in the way that they go about doing that.
The Americans wished upon us the term “not for profit”, which is deeply unhelpful; “not for dividend” is more accurate. Charities and social enterprises can and should make profits in order to do what they do and to be sustainable. Indeed, social enterprises have to make profits. That has a very important implication for social policy. It means that underfunded public sector contracts can no longer be palmed off to the charitable and voluntary sector. I do not think that people in government have understood the importance of that although some people are beginning to do so. I commend to all noble Lords the Public Administration Committee’s report of 2011, which looks at the way in which the big society is being implemented as a public policy by government. The committee was keen to
stress that as more and more public sector contracts are outsourced, it becomes more important for government to conduct an audit and accountancy trail about what happens in terms of funding and outcomes for people.
In passing, I mention the article by Zoe Williams which appeared in the Guardian this morning, in which she looks at the future of public service contracts and particularly the naïve notion that small charities will on their own be able to compete either with big charities and big-scale social enterprises or with private companies to take over what are essentially large public sector functions.
I am pleased to see the noble Lord, Lord Hodgson of Astley Abbotts, in his place. He and I have had a number of conversations. I very much look forward to his review of charity law. That report is due to be published soon. We must be clear that although social enterprises are developing and are very innovative and pose challenges to government and the existing charitable sector, charities will go on.
I conclude by mentioning three strategic interventions which I think the Government could and should make in order to help charities and social enterprises emerge from this period of turbulence stronger and more effective. The first is the need for there to be a toolkit which social enterprises and charities can use to determine whether they are investment-ready. There are a number of different sources of investment for those bodies but the people responsible for their governance have hard decisions to make about where to risk the small amount of resources at their disposal. There is a real need for them to have a tool that sets out those business decisions in a clear way that they can follow.
Secondly, charities have always struggled to demonstrate the outcomes they achieve for the people they work with. However, enormous progress has been made by a particular company, Triangle Consulting, which works with a number of different charities and bodies to develop what is known as an outcomes star. It enables charities working in different fields—mental health, drug and alcohol addiction, and older people—to show the outcome benefits for their client group. There is no outcome star for volunteering and, as my noble friend Lady Scott said, volunteering and the encouragement of it are critical to all this development in the future. I wonder whether the Government might look at supporting an outcomes framework for volunteering.
My final point relates to the digitisation of gift aid. The fact that it continues to be a paper-based exercise is holding back charities and social enterprises, and stops them engaging with a new generation of givers. Digitisation of gift aid will be an extremely important step forward for social enterprises and particularly for charities in the future.
12.50 pm