Thursday, 22 March 2012

Curious George wonders what is stopping social investment?

The Chancellor’s budget announced £40 million to support civil society support organisations and, more intriguingly, that the Treasury would be looking into what barriers there were to social investment. I think I could help there, because my worry is that social enterprises doing extraordinary things to serve communities are going to the wall for the lack of investment.

The general consensus on the budget seems to be that it’s good for business and there were more than the average name checks for charities and social enterprises. While middle-income pensioners lost out, nothing much was said about creating jobs and the reduction in National Insurance that many small businesses were hoping to see didn’t materialise. There was a sense from this budget that while George Osborne has lost his faith in many so-called wealth creators, he is still holding out for social enterprise.

If the phone rings tomorrow and they ask me what I think the barriers to social investment are, and in case it doesn’t ring, they go something like this:

Social enterprises are under capitalised with restricted access to affordable borrowing. Specialist lenders have and remain a vital stop gap but we must get the high street lenders to cough up more to social enterprise.

If we can agree a set of social value indicators, these, as well as contract value, could be used to assist borrowing. These indicators are going to be key as they could be used to simply determine what value the social enterprise held if it was working within the public sector. For instance, a value of returning a long-term unemployed person to a full-time job could be the indicator used to borrow against what Government will pay.

The above is vital for many reasons but not least the dodgy ways many social enterprises have to manage their cash flow. Here Government can be of further assistance by paying promptly. At SEL we have payments from a European programme long since successfully completed, administered by the UK Government that is two years in arrears. That is Government using small business to bankroll delivery and is completely counterproductive.

Social enterprises are now struggling to access information about best practice and get the business development they need because the infrastructure bodies that conveyed that information, particularly at regional level, are no longer funded. Here social enterprise is not being picked on but when the Government ended funding for business support and regional development, it created a perfect storm for social enterprise advisors as these specialists had not developed historic links with local authorities in the way charities had and instead worked closely with the now defunct Regional Development Agencies. I think it is fair to say that in this instance the baby has been thrown out with the bath water.

A website and the odd conference is a poor substitute for the many thousands of people who have passed through SEL training and one-to-one business advice sessions alone; these services now only available to those with a budget. If we want legions of social enterprises springing up in the private sector creating jobs and selling innovative products to the British consumer and staff-led independent service providers operating within the public sector, someone has to lead the way and act as the catalyst. Bodies like the Transition Institute, which I chair, is a case in point. The public sector workers who contact the Institute have no budget because until day one of trading they are not a company. If the Government wants more staff-led spin-outs, and I believe they do, these people need access to the advice and detailed business development required to set up often large heavily geared bodies from day one. The lack of that support often creates the impression with a parent body that a mutual solution is more risky that a private sector company with plenty of capital. The choice of large private companies with access to capital over staff-led community-based entities is becoming common and could constitute the biggest missed opportunity of this Government if nothing is done. 

Social enterprise needs to be even more on trend. To achieve this we as a sector have to belt up about governance models and put up with a little flash behaviour remembering that jobs created and environmental solutions found are more important than who owns what. I speak to enough social entrepreneurs who have invested their savings, redundancy payments and remortgaged their houses to know that a conversation about director dividend is the least of their worries and should be the least of mine.

What do you think? What have I missed? Still even if we don’t all agree on the priorities I think a Chancellor that wants to discuss barriers to growth is a unique opportunity and one we shouldn’t miss out on. Let’s not be shy, let’s tell George how he can be the Chancellor who created more social enterprises than any other thereby turning niche behavior into mainstream ethical business activity.

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