A practical solution in tight times
Social enterprises – using business models for social ends – present a 'tremendous opportunity,' says Labour MP Susan Elan Jones, as she urges the Government to support their growth.
When Wrexham Council decided to close down the Plas Madoc Leisure Centre in 2014, members of the local community clubbed together to save what they saw was a "vital local landmark."
After applying for funding and writing to various groups for advice on how to set up a community trust, they received support from the Wales Co-operative Centre and reopened the facility as ‘Splash Magic’ under community ownership later that year.
Since then the Splash Community Trust has tripled its paid full-time staff to 23, and continues to provide social welfare, leisure, education, health and well-being activities for the benefit of the community. Far from relying on grants, the trust is financially viable, using private sector business models to achieve these social ends.
Splash Magic is only one of many social enterprises in Wrexham, and one of 68,000 in the UK contributing an estimated £24bn to the economy.
Susan Elan Jones, Labour MP for Clwyd South and Chair of the APPG on Charities and Volunteering, sees social enterprises as a "tremendous opportunity" to achieve social ends – with or without austerity – and is leading a debate today to ask Ministers to acknowledge their value, and recommend ways to help them grow.
“Social enterprises are happening organically,” says Jones. “If Local Government isn't able to run a service then people are looking at social enterprise as an option. In some ways it’s the result of a cuts agenda, however I think as a model it’s something that’s very much worth having.”
As defined by the national body, Social Enterprise UK, “Social enterprises trade to tackle social problems, improve communities, people’s life chances, or the environment.” They make money on the open market – whether it be a coffee shop, a bus service or even a bank – and reinvest profits back into their community service. “So when they profit, society profits.”
"It's not ideological," Jones stresses. “It’s cutting through all that dry abstract thinking. I actually think it would be awful to see politics becoming more inward looking and ideological, at a time when people who are doing social programmes really are not.
“People set these up because they want to do something – it’s politics at its best – it’s about new ideas and what works.”
And they do succeed. The State of Social Enterprise Report 2015, supported by Santander, found that 52% of social enterprises grew their profit in the past 12 months, compared to only 40% of conventional SMEs. This is despite the fact that 31% operate in the top 20% of deprived communities.
However, the same report found that 39% of them felt that a lack of finance was holding back their sustainability.
As social enterprises generally struggle to secure finance through conventional bank loans, the 'social investment market’ enables them to find investors wanting to do something good with their money; who are willing to accept a smaller financial return when the social return is greater.
"Social investment is the enabler of social enterprise," Jones will say today. “It's the use of finance to achieve a social, as well as a financial return.” She will be making three technical recommendations in the debate, aimed at improving access to social investment.
Firstly, as neither charities nor social enterprises are allowed to issue equity for investment, they often secure finance in exchange for 'quasi-equity’ (a percentage of future earnings, rather than shares in the business). Under current regulations this must be disclosed as ‘debt’ on the balance sheet, making the enterprise appear less solvent than it is.
It’s a minor tweak, but if ‘quasi-equity’ could be disclosed as ‘equity’ rather than ‘debt,’ it would be a lot easier to secure additional finance.
“It’s the sort of thing commercial organisations can do, but social enterprises can’t,” she adds.
She will also ask whether social investment tax relief could be expanded, so those making investments could deduct more of it from their income tax bill; and whether Social Impact Bonds, that reduce risk for the enterprise, could be made more available.
“I think it’s quite exciting,” Jones adds. “In part it’s something that’s already here, and many of the sorts of people who were previously drawn into politics are now looking at the social enterprise sector as a way of generating social improvement.
“But I think it’s time has come as well. We now need to look at how we can support these people with good ideas who are setting up practical projects.”
The above article by Susan Elan Jones MP first published on politicshome.com in Jun, 2016.