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Why the new minister is good news for social enterprises

Rob Wilson, the new Minister for Civil Society, has now been in post since September but is he leading in the right direction for the sector and social entrepreneurs? I believe so.

The Minister has not only written a policy on growing the social investment market, but also openly stated that “social entrepreneurship is a good way to get more dynamism and vigour into the economy.” For instance, in a recent interview in Third Sector he revealed plans for a £100m fund for supporting charities and social enterprises through each stage of development.

His interest in funding the social business sector is welcome news, as the government’s current legislation significantly limits social investment. Just last year, over 1,000 social enterprises dissolved, the majority citing lack of investment as a key cause.

Having set-up 14 charities and social enterprises, I’ve experienced first-hand the difficulties faced when trying to generate investment. It’s particularly hard to secure funding at business start-up phase, as I found with my current venture.

It took me a full year of hard work to secure initial investment for Connect Assist and nine years later we now employ over 110 people in one of the lowest-income areas of the UK. So why was it so hard to secure investment?

In October, the law changed to encourage more investment into community interest companies (CICs), by scrapping the cap on the amount paid to individual shareholders.

While this is a great start, we need more. CICs are still confined by an asset lock, meaning only 35 per cent of profit can be distributed to shareholders and the rest must be either retained within the CIC or used for community benefit. Reassessing the asset lock is crucial, as, in its current guise, it appears to be stifling investment, which has a knock-on effect when it comes to sector growth.

“Profit-with-purpose” businesses are increasingly popular, such as those funded by UnLtd. These businesses are usually limited companies with specific social values. However, social goals aren’t incorporated within the business’ legal structure, meaning it can be equally as difficult to secure certain funding without an official social enterprise status.

While I understand the thinking behind asset locks as a means to preserve the social basis of an enterprise, I am concerned that in their current form they restrict social enterprises from competing with the private sector for funds from a wider group of investors. How can we evolve and grow as a sector if investors get a much better return on investment elsewhere? I would be interested in finding another means to preserve the social in social enterprise and the Minister’s recent comments suggest he may be too.

Rob Wilson has stated one of his priorities for the sector is to pursue sustainability, and in doing so he believes charities will become self-sufficient instead of depending heavily on government grants. In the same interview he specifies he is trying to build a system that ‘helps [social enterprises and charities] with getting the first round of funding,’ which includes the new £100m fund. I can’t think of a better way to further support social enterprises in getting off the ground than scrapping asset locks.

While much of the criticism of the new Minister from the sector has focused on his opinions on the lobbying bill, he has stated that charities should be able to campaign and challenge, but must not stray into party politics. This is an improvement on Brooks Newmark’s comments on charities “stick[ing] to their knitting”, and I hope that the new Minister calms down the unhelpful rhetoric on campaigning.

Although the Minister may not have a strong track record in supporting charities’ right to campaign, what he does have is a background in entrepreneurship, an interest in social investment and a passion in supporting social enterprises financially – and experience of the Treasury, which I hope will make him a strong ambassador for social enterprises.

While the £100m fund is a great start, it is not the only solution needed to the problems faced by the social enterprise sector. If the Minister is truly passionate about “reducing the paperwork and permissions” that repress our sector’s “great work,” he will need to focus on changing legislation so social enterprises can compete on a more level playing field as a major provider of public services. Only then will we know if he is as committed to injecting dynamism back into the sector as he claims.

 Patrick Nash is chief executive of Connect Assist, a social business that provides helplines and digital services in the charity sector

  • David Floyd

    I’m slightly bemused by this contribution to this long-running debate.

    The author seems to have done a great job getting a successful social enterprise up and running, then growing it to the point where it employs over 100 people.

    He doesn’t say whether the form he ended up using to do this is CIC form or not. Either way, assertions aside, there is no evidence – and the author doesn’t offer any – that CICs in a general sense have more difficulty finding investment (or are more likely to go bust) than non-CIC SMEs in a general sense.

    That’s not to say that (one of the) CIC structures is the most practical choice for every conceivable social enterprise – or that it’s best structure to use to raise investment in all circumstances. Clearly it isn’t.

    There are plenty of examples of successful social entrepreneurs/enterprises have decided that a conventional CLS structure – or, equally, a non-CIC CLG or one of the available charity or co-operative structures – are the one right for them. Others operate as sole traders or unincorporated groups.

    There’s lots of factors that might influence an entrepreneur’s choice of structure including: the markets they operate in, the amount and type of funding they need to start or grow the business, and their beliefs and principles regarding none, some or all of ownership, decision-making, profit distribution or impact measurement.

    I don’t have a purist approach to which of these decision should mean an organisation can use the relatively broad description ‘a social enterprise’ but the CIC is a particular set of social enterprise structures specifically designed to have some characteristics and not others.

    The changes to the CIC model that the author is proposing would – removing the dividend cap and the overall asset lock – would create a Trigger’s broom version of the structure.

    Without the asset lock and dividend cap, all you’re left with of CIC is the annual CIC report – these are a good thing but hardly enough to justify the existence of CICs and a regulator to regulate them.

    I’m happy to congratulate the author on his achievements irrespective of what structure he’s used but not clear why he think it’s either appropriate or useful to effectively tell 10,000 CICs to ditch their structure because they use a structure that doesn’t work him.