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