Last month, the Cabinet Office Parliamentary Secretary Oliver Dowden announced the government’s plans to create more social value from £49bn worth of public sector contracting in line with the Social Value Act and with the Civil Society Strategy. The new scheme, created in partnership with Claire Dove, Crown Representative of the Voluntary, Community and Social Enterprise sector and former chair of Social Enterprise UK, will be supported by a scorecard that provides a framework for public procurement that includes the company’s values and recognises its positive impact in society.
Responsible Finance welcomes the government’s plan and recognises it as a step forward to support the growth of social enterprises in the UK. Acknowledging the true economic value of social entrepreneurs is now more important than ever for achieving sustainable and equitable development. However, more needs to be done to support the redefinition of business value creation and tackle some of the toughest social challenges through business.
According to the latest figures from Social Enterprise UK, there are around 100,000 social enterprises in the UK, worth £60bn to UK GDP. The sector is one of the most inclusive and diverse with 41% of businesses led by women and 51% with a majority female workforce. It currently employs 2 million people and is increasingly creating job opportunities in deprived communities. A number of mature social enterprises are operating at considerable scale, delivering public sector contracts to a high quality while employing thousands and turning over tens or even hundreds of millions. Notable examples include HCT Group, Catch22 and Turning Point.
However, the fact that many social enterprises face greater difficulties accessing finance and business support compared to commercial businesses can’t be ignored. Access to the right finance “at the right time in the right form remains the principal barrier to sustainability and growth,” according to SEUK. Despite the existence of several funding sources for social entrepreneurs such as grants, loans and equity investments, the capital need for social enterprises exceeds the supply that they can access.
Responsible Finance providers currently play a major role in addressing the funding gap for social enterprises in the UK. In 2018 responsible finance providers lent £138 million to 475 social enterprises where 25 new businesses were created, 360 were safeguarded, 510 jobs were created and another 3,550 were safeguarded. Moreover, they are acting as business boosters by providing advice and mentoring services in the early stages of the business.
For instance, The Employability Trust is a ‘learning factory’ for NEETS (people not in employment, education or training), helping people into long-term employment. The charity and social enterprise is located in one of the 10% most deprived areas in England and trades in the manufacturing industry. Supported by responsible finance provider Key Fund, it has been working with Jobcentre Plus, charities funding committees and private businesses who provide clients and contract work since 2018, helping over 180 people into work.
Right at Home UK provides a range of care packages for clients to enable them to stay in their own home. Clients may have a range of needs including dementia, cancer, end of life care, respite care or just need companionship and a bit of extra support. The organisation received a start-up loan from responsible finance provider Lancashire Community Finance allowing it to recruit and train new carers and improve the marketing management. The social enterprise is now firmly embedded in the community and has had a major impact by making care services more accessible for people in several areas in Preston and South Ribble.
Finding accessible, affordable and integral financial support for social enterprises, especially in the early stages of the business can be challenging. And accessing capital for covering the cashflow needs for public contracting can be even more challenging. Responsible finance providers are betting on an integrated approach to support social enterprise creation and growth. Backing up our businesses is not just a matter of access to finance, it also means providing resources to help them to scale up, access markets and gain resiliency in times of uncertainty.
However, the sector needs an adequate fit-for purpose growth platform that enables its potential and increases its competitiveness. Access to finance, business mentoring and advice, and an appropriate market infrastructure are needed to support the government’s plan.
The Social Value Act has already been bolstered: since March this year, commissioners in Central Government (but not local government) have had to “explicitly evaluate” social value, not only “consider” it. But for many commentators the Act, while welcome, has brought potential but not enough impact.
This new initiative brings further opportunities for social enterprises to secure work and for the public sector to contract and deliver high quality services. But the effectiveness of it depends on how competitive and innovative these enterprises can become in an open market, for which investment and access to working capital will play a major role. At the same time, process and timetables must be adapted to reflect the differing needs of smaller social enterprises to larger commercial organisations.
Adequate financial, technical and business support could release the potential that these enterprises have as an engine of growth and development. We must take advantage of their positive economic and social spillovers. As a sector, we are committed to providing financial alternatives for social enterprises to help them to scale up, promote inclusive growth and maximise their impact on society and the environment.
Luisa Mendoza, Communications and Membership Assistant
Responsible Finance