Social Enterprise — Question for Short Debate

– in the House of Lords at 3:47 pm on 6 October 2011.

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Tabled By Baroness Andrews

To ask Her Majesty's Government what proposals they have for promoting social enterprise.

Photo of Baroness Andrews Baroness Andrews Labour 4:09, 6 October 2011

My Lords, it gives me great pleasure to open this debate on social enterprise. I am particularly gratified that at this hour on a Thursday so many noble Lords have decided to join it. That clearly indicates that we consider this issue to be very important. Since I tabled the debate some months ago, there has been a cast change. I am very pleased to see that the noble Lord, Lord Wallace, will reply to the debate, and I look forward very much to hearing the Government's response.

I had hoped to have the debate earlier in the year, but today's debate has turned out to be more timely. We urgently need to discuss the future of social enterprise, particularly in the light of the comments made by the Chancellor at the Conservative Party conference this week about how to revive the economy. My argument is very simple: if the Government were really smart, the Chancellor and his colleagues would engage, as a matter of priority, with the social enterprise sector to provide it with the tools it needs to prompt growth through innovation, enterprise, skills and jobs, particularly in hard-pressed communities. There is not a moment to waste.

It is fair to say that this country is a world leader in recognising the unique possibilities of social enterprise, whether we are talking about social business or the habit of enterprise, which is clearly now spreading across the whole of the third sector. Over the past few decades we have seen a range of very effective and successful models emerging.

Some years ago I had the enormous privilege to work with Lord Young of Dartington, probably the greatest social entrepreneur of the previous century, when he was creating the School for Social Entrepreneurs. That was a hugely prophetic idea and one which has not only had great success in this country but has been replicated in other countries. The school and the growth of social businesses in general across the country show how innovation, skills, jobs, enterprise and social solutions can grow modestly but effectively in local circumstances, and sometimes in very unpromising circumstances.

The evidence suggests that social enterprises can succeed where private enterprise might fail or not entertain the idea of going. That is why, no doubt, in 2010 the Government promised to support the creation and expansion of mutuals, co-ops, social enterprises and charities so that they could have a greater say in the running of public services. It was a brave step forward, but it was not a new idea. My colleague on the Front Bench and I were in a department which committed itself entirely to the promotion of social enterprise. With the New Deal for Communities we saw in very disadvantaged communities across the country extraordinary innovations developing by way of social enterprise. I think, for example, of the Shoreditch Trust, led ably by Michael Pyner, and many different examples across the country. However, more significant than the scale or the diversity of the sector- £20 billion at one estimate-is the rate of growth, the evidence of sustainability and the public support that it commands.

We hear a lot about how the private sector is the solution to our economic malaise and how it must lead the economic recovery. In fact, the research undertaken by Social Enterprise UK, tellingly called Fightback UK, contains evidence of how, compared with the private sector SMEs, social enterprise shows three times the level of start-ups. It is outstripping private sector SMEs in growth, confidence and sustainability. I give a couple of examples of that. Some 800 social entrepreneurs who have graduated from the School for Social Entrepreneurs generate jobs to the value of £13 million each year-70 per cent of them are in the 20 per cent most deprived communities. Unlimited, another extremely interesting social innovation set up with millennium funding years ago, has enabled the most vulnerable in our society-refugees, no less-to start successful small businesses which address the aspirations as well as the needs of communities which might otherwise be excluded. The problem is that this window of opportunity may now be closing, just at the point when we need new ideas, new energy and new commitment. To quote from the SEC's research:

"Social enterprises working in public services are drastically low on confidence. A large proportion of these are planning redundancies or turning away from public service markets".

Across the third sector as a whole, there has been a 5 per cent reduction in jobs just in the past year.

Social enterprises seem to be facing a perfect storm. On the one hand, they have cuts in public spending and services which have a disproportionate effect on them because they are nearly always outward-facing into the public sector. On the other hand, they have not been equipped with the tools to enable them to compete with a highly capitalised private sector. Specifically, we see cuts in grants but, more critically, cuts in contracts from local authorities and national bodies. There is an absence of strategies or support for local and national commissioning to enable the sector to contribute. There is an increase in demand for local services, which is bound to increase in the next three years.

So far we have not seen much understanding from this Government of the impact of this and we have not seen a great deal of response to these threats. The Mutual Support Programme announced by Francis Maude in November 2010 has yet to materialise, as has a national programme for third sector commissioning. Therefore, my first question to the Minister is: when will these policies be published and what will they contain, and what impact does he think they will have? On the other hand, all the signs are that, far from public service markets opening up to social enterprise, they are being captured by a small number of highly capitalised large private sector providers. The barriers to entry at the moment are simply too high for even the most efficient social business. The Wise Group, which has an outstanding record of performance, to everyone's dismay lost out to massive private sector providers to deliver the welfare to work programme.

The Government's health flagship, Central Surrey Health, which is an exemplary social enterprise, lost out to Assura, which is 75 per cent owned by Virgin. If these bodies fail, what hope is there for smaller social enterprises, no matter how good and no matter how efficient? At the same time, they are of course, like other small businesses, being turned down for loans by banks. This week, I understand that a leading social enterprise with £5 million-worth of contracts was refused a £50,000 overdraft to ease its cash flow.

The Minister may well say that Big Society Capital and social impact bonds give us a way out of all these problems. They will help but they will not solve the structural problems that we are facing. For example, I understand that the pilot which is under way in Peterborough on reducing reoffending has generated partnership but not from the private sector; it is from the charitable sector and charitable investment. Social impact bonds, which are a very important new idea, are very cumbersome and slightly oblique. They will be very slow to deliver, or to understand how to deliver, the long-term complex, subtle problems that they are supposed to be assisting with. I should be interested to know from the Minister what lessons are being learnt from the way that these two initiatives are working so far.

The diagnosis is fairly simple. If the country is to take advantage of what social enterprise can offer, it means putting the resources, advice and skills into commissioning bodies, whether it is health or social care or crime reduction, so that they can identify, design in and invest in social enterprise. It means recognising the ecology of social enterprise in the system and why outcomes need to be defined appropriately and not by imposing crude regimes such as payment by results on the sector. There has to be a serious and intelligent attempt at dealing with lending and capitalisation. For example, why do the Government not ensure that further investment in the banking system from UK taxpayers will be bound to quotas on SME lending and job creation in the UK's most deprived areas?

In a very timely fashion, George Osborne came forward this week with seven plans for credit easing to support small businesses. Can the Minister tell me whether this will extend to social enterprise and, if not, why not, and will he be an advocate for extending the principle to social enterprise? It also means supporting the sector itself, enabling umbrella bodies such as Social Enterprise London or the Social Enterprise Coalition to spread and support good business practice in order to jack up competitiveness.

It means, in short, promoting national infrastructure to extend and exploit the value of social enterprise for social and economic benefit, drawing on local, national and international expertise and knowledge. Those are not my words but those of the prospectus of partnership offered by the University of Plymouth, which is leading the higher education sector in developing social enterprises to ensure that they become more competitive and more sustainable. That is a very progressive move.

If there were time, we might be able to wait for this to evolve, but there is not time for the economy or for the sector. Capacity and resources are draining away. The exam question for the Minister is: given the expectations raised and the urgency of the situation that we face, when will the Government engage with the sector on these very practical terms so that it can realise its economic and social potential? The Chancellor also said in his speech last week, very loudly and clearly, that he was willing to work with anyone. There are thousands of social businesses and thousands of social entrepreneurs who are willing to work with him. They are waiting for the chance to do so and I hope that he acts now on that opportunity before it is too late.

Photo of Baroness Wheatcroft Baroness Wheatcroft Conservative 4:20, 6 October 2011

My Lords, I first congratulate the noble Baroness, Lady Andrews, on securing this debate on what is such an important issue which could be so beneficial to our country. I confess that, over the years, I have learned a bit about entrepreneurs and enterprise, but "social enterprise" was a term with which I only relatively recently became acquainted. I have known many entrepreneurs. Only a few of them would claim to have been social entrepreneurs; some of them probably should not have been let out on civil society.

Social enterprise is now a growing phenomenon, and we should all be doing all we can to encourage it. Before going more deeply into that, I make a plea that we do not fall into the trap of thinking that if businesses are not social enterprises they are antisocial. From what I hear, someone was coming dangerously close to asserting in Liverpool last week that businesses that were not social were antisocial-not his words, mine. That is misguided. Business generally is a force for good. It creates jobs, produces wealth and provide for our pensions. We are in a terrible financial state at the moment. We need business to help us out. To categorise businesses as producers or predators is simplistic. To suggest that there should be differential tax rates for them is to risk turning Her Majesty's Revenue into an outpost of the Taliban, threatening physical floggings for those companies which flash a glimpse of predatory tendency.

All businesses should, in one way or another, see themselves as social enterprises benefiting the community not just through various charitable donations but through a wide range of their activities. Nevertheless, there is a special breed of organisation now emerging under the term "social enterprise", and we need to help that sector to grow. The noble Baroness, Lady Andrews, detailed the obstacles that currently face many in that sector. There is no denying those obstacles but personally, given the straitened finances of the country, I do not think that it is such a bad thing if charities step in and invest in those enterprises rather than them having to depend on public sector handouts.

We also have the Government making serious moves to encourage social enterprise. We heard about the Big Society Bank. It is shaping up now and, through the big society investment fund, has made its first loan of £1 million. By 4 July, the closing date for the first applications, there have been 57 entries. Many of those will receive funding in the medium term from the Big Society Bank. It will have resources of £600 million. That will be leveraged because of the way that the money goes to investing institutions, which will then put that into the hands of the many smaller organisations that are going to do the good work that they can.

The Government are also making it easier for social enterprises to win public sector contracts. There is a new website, for instance, that speeds up the process. They do not have to go through the early stage application forms that larger contracts require. The Government are also cutting the red tape that is one of the real barriers to small firms generally and social enterprise, too.

My noble friend Lord Hodgson of Astley Abbots produced a report earlier this year entitled Unshackling Good Neighbours, which was an excellent read. It contended that enterprise and energy, particularly social enterprise, was being held back by a combination of red tape and a bureaucratic wish to cut back risk. In one telling example, he cited the snow code. Some noble Lords may be familiar with the Government's snow code. I recommend it. It says that you will probably not be prosecuted if somebody falls down after you have cleared the ice. That is not the sort of satisfaction that people need. They need to be sure that if they have done their best they will not be dragged through the courts. The whole tenor of regulation at the moment is prohibitive. It does not encourage people to do things. The snow code is just one of the bureaucratic barriers to enterprise.

To be fair, the Government have put a moratorium on regulation for small firms-the smallest-and that will benefit some social enterprises. They have launched the red tape challenge in an attempt to scythe through all the regulations but the scythe is blunt. We need a stronger weed-killer to deal with this crop that keeps producing new barriers. There are too many regulations. Despite the barriers, community interests continue to generate thriving social enterprises. The registrar of community interest companies now has almost 5,000 companies on his books. They are businesses that are committed to social enterprise and to doing social good, but they can also pay a dividend-a dividend that is capped but nevertheless an incentive for people to invest in them. All sorts of businesses have subscribed to becoming community interest companies. Very few are turned down. One that was, I am told, was a sadomasochistic organisation that claimed that it produced public benefit because it disseminated information. That shows a lack of education in what social enterprise is all about. The Government could spread the word much more than they already do. Jobcentres, for instance, should really be making more of the opportunities that there are for people to launch social enterprises.

There are other positives that the Government could do without great cost. I refer noble Lords to Robert Ashton, who dubs himself "the barefoot entrepreneur". He has been a social entrepreneur, has written books and comes up with ideas. I shall cite just two of them. He suggests that community interest tax relief should be at the same level at least as that for the enterprise investment scheme. That seems a reasonable suggestion. After all, if you are investing in businesses for the good of the community, why should you not get the same incentives as those who are investing in small risky businesses in the hope of making big profits? Even at a time of straitened finances, I suggest that the Government might want to look at that. His other proposal, which I fully endorse, is that unemployed graduates might be put to work in social enterprises. Before very long the subsidy that they would need would turn into a wage paid for by the social enterprises that they would help to grow. It seems to me that the big society intern programme would be no bad thing.

Photo of Lord Bhattacharyya Lord Bhattacharyya Labour 4:29, 6 October 2011

My Lords, we are all indebted to the noble Baroness, Lady Andrews, for giving the House an opportunity to debate the Government's plans to support social enterprise.

Social enterprise is a very broad topic. As time is limited, I will focus on one issue that is essential to achieving the Government's ambition: the need for social innovation to drive the strength of social enterprise. Social innovation is a vital yet often neglected component of any social enterprise. It is the development of new technical, product or process solutions to pressing social issues. At the root of any successful social enterprise, you will find social innovation.

The most famous social enterprise in the world is the Grameen Bank, with its hugely innovative approach to microfinance, but even Grameen faced challenges when expanding its innovation to different environments such as cities. As microfinance expanded, banks struggled to maintain the bonds of trust that sustained the early lending programmes. Indeed, Mohammed Yunus, who was given a Nobel Prize, has criticised the impact some microlenders have had on the urban poor. Yet those people still desperately need capital to improve their lives. Therefore, there is the demand for more regulation but that would not stave off the predatory lenders. This is a challenge only further innovation can answer. You have to find new ways if the old ones are not working. In Britain, there is a tendency to focus on identifying new funding methods, not developing the social innovations which will attract funding. Both are vital.

Take the case of social impact bonds, which Professor Paul Corrigan has recently argued should be expanded into the NHS. In a recent paper he showed that innovative methods of managing patients with diabetes or severe asthma can reduce costs and A&E admissions. He powerfully argues that bonds can help deliver these changes if the innovation is credible and sustainable. Whether it is developing a better inhaler for severe asthmatics or helping diabetics manage their blood sugar without hospital visits, any attempt to fund social enterprises through mechanisms like bonds will require proven improvements. Bond investors will not be convinced by hopeful assertions. They want hard evidence. This requires investment in the discipline of scientific evaluation.

This can lead to a Catch-22 familiar to all entrepreneurs: developing an idea into a working product requires funding, yet funders require evidence the product works. As a result, we find many social enterprises travel more in hope than expectation of outside investment. Without support for social innovation, we risk creating wonderful social market models, then finding that no one is in a position to take advantage of them. The Government are taking some welcome steps. The Innovation in Giving Fund is most welcome, as is the Social Action Fund to support structural innovation, and the Big Society Bank.

However, I am concerned that the initial big society capital proposal suggests that the only innovation the Big Society Bank will be mandated to support is financial innovation. If the last few years have taught us anything, surely it is that financial innovation alone is not a good basis for long-term growth. We should make it a priority to support social enterprises that wish to pursue social innovations. Without support, they will find it difficult to compete with private businesses that can fund research and evaluate new products with superior cash flow.

If we do not help social enterprises innovate, we risk regularly repeating the recent failure of NHS Surrey to award its community services contract to a social enterprise, as investors or commissioners will worry about the stability of social business models and the quality of social products. The Americans are ahead of us here, with their recently announced Social Innovation Fund. This brings together state, private sector and philanthropic funding to encourage R&D and to rapidly expand innovation in the undercapitalised social enterprise sector. We should pursue a similar initiative in the UK.

The NHS Social Enterprise Investment Fund might offer a model to expand further; for example, the fund is helping Bromley Healthcare develop ideas like virtual wards to reduce expensive A&E admissions. Beyond the NHS, the UK does not yet do enough to support social innovation, but the capability exists. NESTA, the Young Foundation and the Skoll Foundation are all interested in supporting what you might call social R&D. It is four years since the Young Foundation's report on social innovation was produced and a clear lead from the centre is still needed. Therefore, perhaps I may ask the Minister what plans the Government have to extend the important area of support for social innovators. We could look at how social innovation could help social entrepreneurs to develop products with a clear impact in areas such as accident reduction, child safety or offender management. We are rightly setting up mechanisms that make social enterprise attractive to investors. We must also help social enterprise to develop attractive innovation for investors. We need social innovation to make social enterprise work.

Photo of Lord Newby Lord Newby Liberal Democrat 4:35, 6 October 2011

My Lords, I, too, thank the noble Baroness, Lady Andrews, for introducing this timely debate. I begin with a declaration of interest as the chair of Live Sport Community Interest Company, which provides education programmes to disadvantaged children via the medium of sport, and as chair of the All-Party Social Enterprise Group.

Previous speakers have already mentioned a number of advantages that social enterprises bring and I should like to refer to three of them. The first has to do with the ethos. The commitment of those who work for many social enterprises is often exceptionally high. The consequence of that is that the productivity of those enterprises is correspondingly high. An example which I have given previously in your Lordships' House is that of Sandwell Community Healthcare Services, which was able to take over services provided by the local authority and to do it for literally half the price. One of the main contributions towards that saving was that the number of days of sick leave fell from 30 to three. It was all to do with the motivation of people who in their previous local authority guise had not been valued or motivated.

Secondly, social enterprises tend to be extremely flexible, partly because they are small and partly because they tend to have a very flat management structure but they do have the flexibility that one associates with the small business sector more generally. Thirdly, the sector appeals to a new sort of entrepreneur. Many people, particularly young people, want to be exactly the kind of social innovator to which the noble Lord, Lord Bhattacharyya, referred. But they do not want to do it via the medium of a straightforward private sector company or through a public body. They want to have a go themselves. They have an idea and they are just like other entrepreneurs, except that their motivation is towards producing a social good rather than a straightforward commercial good.

However, the sector now faces a number of problems, to which, to a certain extent, reference has already been made. The first is the problem of scaling up. Most social enterprises are small for a number of reasons. One is that they are typically over-reliant on a charismatic founder. I see a charismatic founder in the shape of the noble Lord, Lord Mawson-sparing his blushes. The challenge is how, as it were, to clone these charismatic individuals who start an enterprise and get it to a certain size, but then find it very difficult to get beyond that size because there are not the support structures that there are around straightforward private sector activity.

The second general constraint around scaling up relates to finance. There is limited scope for investing in community interest companies bar in a straightforward way because of the asset lock and the limit of dividends. There is an unwillingness in the banks to invest in the sector because it is slightly outside the ordinary. Even in good times, banks find that challenging. At the moment, they find it impossible. So there is an over-reliance on high net worth individuals and charities to fund the sector.

The good news is that the sector has grown significantly and there is more recognition that value is to be had in investing in it. It will be very interesting to see how big society capital uses its resources and £600 million is quite a nice start. We hope that it will act quickly and that the big banks which have contributed a third of that will be so inspired by what they see that they might get the habit and either use big society capital through which to invest more of their own funds or put money into social enterprises directly.

There is also quite a lot of activity around more traditional forms of funding. The report commissioned by the City of London Corporation from ClearlySo on investor perspectives on social enterprise showed that there was plenty of scope for progress there. The report produced by my noble friend Lord Hodgson, to which the noble Baroness, Lady Wheatcroft, referred, had the sensible idea of creating a social investor, equivalent to the established concept of an experienced investor, which would make it easier for people to invest in charities and social enterprises. I hope that the Minister will say that the Government support that proposal.

The other big issue that has been referred to relates to winning contracts, given that a large proportion of social enterprises look to the public sector for contracts. The starting point in terms of problems is that the cost is typically twice as much for public sector contracts as private sector ones. There is a terrific inertia in many parts of the public sector in terms of providers. The sector has a comfort zone of who it likes to give contracts to and is very wary of going outside that, particularly in the risk-averse environment in which we now find ourselves. As the noble Baroness mentioned, large private sector operators have the ability to undercut smaller social enterprises. They have huge resources with which to do the whole bidding process.

Finally, there are ridiculous delays-I see them myself-between the point at which a public sector body says that in principle it is prepared to let a contract go to a social entrepreneur and then actually signs it and makes the first payment. From my own experience, that sometimes takes well over six months. The social enterprise does not very often have six months of cash flow to cope with that kind of delay.

What is to be done? First, some social enterprises go on the back of successful private sector contractors for the work programme and other big public sector programmes. They become subcontractors, which is a way forward but not ideal. Secondly, on my point about the timeliness of decision-making, the Government ought to see whether there could be a presumption in terms of making a decision and finishing a contract with a social enterprise-and more generally SMEs-within a certain timeframe. This dragging on, which is now almost an art form in parts of the public sector, is very worrying. Thirdly, I commend the Public Services (Social Enterprise and Social Value) Bill which Chris White introduced in another place last November. It has government support and would nudge local authorities and other public sector providers into supporting social enterprises. Social enterprises do much good work already but they have much greater potential.

Photo of Lord Mawson Lord Mawson Crossbench 4:42, 6 October 2011

My Lords, I join other noble Lords in thanking the noble Baroness, Lady Andrews, for securing this important debate. We are all conscious that we live in a world that is quickly changing around us. If you stand still, you can feel as though you are moving backwards. People are no longer willing to accept the same predictable services from the public sector but are demanding higher quality services, more choice and the personalisation of services. In reality, can governments deliver this choice?

The situation in Europe at present is just one example of political drama that makes people wary of trusting governments. People are sceptical-often with good reason-of politicians who hide behind grand phrases, processes and hubris but take little care of the detail and fail to deliver positive, practical and sustainable action. In the social enterprise sector in Britain at present, I, along with many of my colleagues, welcomed the coalition Government's pledges about social enterprise because they are exactly in the right direction of travel. Yet, worryingly, there is a growing sentiment in the sector that these promises are just not being delivered on and once again governments cannot be trusted to turn rhetoric into reality.

The coalition Government agreement had two main pledges to support social enterprises in public service delivery. First, they said that they will support the creation and expansion of mutuals, co-operatives, charities and social enterprises, and enable these groups to have much greater involvement in the running of public services. Secondly, they will give public sector workers a new right to form employee-owned co-operatives and bid to take over the services they deliver. This will empower millions of public sector workers to become their own boss and help them deliver better services. Yet, as has been said, the Social Enterprise Coalition, which represents many in the sector, while standing in a slightly different place to me, cannot see at present much support for social enterprises delivering public services. What we all see, they say, is a lot of stagnation: the waters, instead of being clear, are increasingly muddy. The Mutual Support Programme which was announced by Francis Maude in November 2010 has yet to materialise. The national programme for third sector commissioning, a programme designed to support the commissioning of social enterprises and charities, has not emerged.

Without some intervention, there is a real danger that public service markets will be opened up and dominated by a small number of large private sector providers. The Social Enterprise Coalition says that it has seen this happen in a number of public service markets: welfare to work, waste and others where a small number of private companies dominate and the barriers to entry are too high for social enterprises and other small businesses to operate. There is some truth in this and I know from past experience how government departments love to talk to large bureaucracies because they are adept at using that language. Bureaucracies love to talk to bureaucracies. Talking to small and medium-sized social enterprises is quite a different matter because they speak a different language. We will need more than websites to address this issue.

Some of us have seen all this before and it requires focused leadership in government to break into the impasse. I am a great believer in the power of the market but sometimes the Government have to intervene to make the market happen. The noble Baroness, Lady Thatcher, knew that.

There are three ways of governing: the centralised state solution, the market, or the present favoured choice referred to by our major parties as going local. While those of us who have operated at a local level for more than 30 years are tempted to welcome this attention, we worry that politicians on all sides do not actually comprehend a lot of the practical detail. The systems of government and the Civil Service can present themselves as something new but when you actually examine the details, old out-of-date processes and systems still prevail and are in danger of replicating themselves a thousandfold in local communities across the country. On my travels, I keep meeting old men in new clothes. There are real and very practical opportunities to grow the social enterprise sector in the process of going local, but it needs nurturing and it will not happen without the devil in the detail being understood within government.

If this does not happen, I fear that we will see yet another phase of a very expensive cycle. Vast sums of money are wasted every year by those politicians who do not take personal responsibility, get hold of the practical detail, and drive forward viable change. The public are tired of seeing very little change and know that the processes of government carry on very much as before, regardless of which party is in power.

There is a challenge here that has not been grasped because there are no particular easy brownie points to be gained by any Government if they grasp this particular nettle. Yet the long-term rewards will be worth the short-term difficulties.

I welcome both the localism and health Bills, but I ask the Minister what evidence there is that the Government are making life easier for those of us who are attempting to deliver these welcome changes on the ground. What evidence is there that there is a level playing field on which social enterprises can compete with large companies? What practical evidence is there that red tape is actually being removed? I can hear many fine words but outside your Lordships' House, the jury seems to be out on these issues.

The world may be changing but the systems of government and the Civil Service seem to chug on regardless. Without very clear and focused leadership within government none of this will happen and, as with all recipes, the end result depends upon proper preparation, mixing and baking. No one likes an undercooked chicken.

This pretence at change will not do for the modern enterprise culture that our children are now growing up in-a culture where at the press of a button you can receive information from anywhere in the world about virtually anything; a culture where young people, through technology, are learning by doing. The public sector still thinks that the world is about process, system and strategy, but our children are growing up in an integrated world created by entrepreneurs like Steve Jobs, co-founder of Apple, who died today, based around people, relationships, practice and networks. These two worlds are fundamentally at odds and I see little attempt to address the issue from any of our political parties.

The big breakthrough will start to come where social enterprises and business work ever more closely together. My colleagues and I have created a regeneration business, which we have set up as a social enterprise, called One Church, 100 Uses-and I must declare an interest. We have recently moved our head office into the London offices of HLM architects, a business and a well respected firm of architects that operates nationally and internationally. This decision was taken because, as we grow the business, we recognise the potential synergies between us. The development of public buildings over the next decade may necessarily be more small scale with less money about. The churches in Britain own nearly 50,000 buildings across the country, many ripe for redevelopment in favour of the local community. Maybe there is synergy between this business and a small emerging social enterprise. We think there is, and are ready to discover opportunities together. We need to see more partnerships like this in the social enterprise sector.

Photo of Lord Wei Lord Wei Conservative 4:51, 6 October 2011

My Lords, I, too, thank the noble Baroness, Lady Andrews, for tabling this excellent debate, and declare an interest as an adviser to the Community Foundation Network. Given the limited time we have in this debate, I will not dwell on definitions, even though the term "social enterprise" does differ, depending on whether one uses the more narrow legal definition based on percentage of income earned, or the broader sense of the word, which comprises more a sense of solving social problems in an entrepreneurial way. I prefer to use generally the term "social venture", which explicitly encompasses both definitions.

There is much about government policy on promoting social enterprise that should be welcomed. Here I must declare an interest in having had a hand in developing some of it. It is particularly pleasing to note that while traditional volunteering and giving may be on the wane, social enterprises have been starting up at an explosive rate since the election. I believe these two trends are actually two sides of the same coin; as we age and as technology changes our lifestyles, it is not surprising that traditional attitudes to giving and volunteering, in which money and work may have tended to be handed over to professionals, are on the wane, and more and more people, old and young, want to give of their time and money in a more hands-on, technologically enabled-that is to say, convenient and, indeed, entrepreneurial-manner. Social enterprises or ventures will be the likely beneficiaries of such a shift.

Social enterprises facilitate all three parts of the Government's programme of sharing greater responsibility for tackling social problems with citizens, otherwise known as the big society. Social action, community empowerment and public service reform are all made possible through social ventures, and the Government have recognised this, for example through their national citizen service programme, which seeks to engage young people from widely different backgrounds in serving their communities, often through social action-orientated social ventures, or their programme of training community organisers who can help citizens locally develop social enterprises as a means of addressing neighbourhood issues, or through the big society capital wholesale fund, designed in large part to help social enterprises to achieve the scale needed to help compete for and then deliver devolved public services.

However, despite this great start, more could be done in each domain to encourage social enterprises to thrive. In the area of social action, for example, there needs to be more follow-through on implementing the recommendations on barriers faced by social organisations, including social enterprises or ventures in the report from the noble Lord, Lord Hodgson, Unshackling Good Neighbours, such as redrafting guidance from government departments that can be written in too risk-averse a manner, causing many smaller organisations to be overly fearful of liability and causing them to incur unnecessary costs that they can little afford.

In the area of community empowerment the Government need to encourage a more consistent treatment of social enterprises by local authorities and front-line officials, which in my view have a very wide range of attitudes to the role of such enterprises locally across the country. In some places, social enterprises are seen as a valued part of the local ecosystem and supported well, whereas in others they are seen too often as a quick way for the local state to offload assets. One low-cost way of achieving this better understanding of social enterprises in the public sector that I have come across is encouraging leaders from the public sector to work in the offices of social enterprise leaders, and vice versa, for parts of their week, which can often help to increase understanding of the challenges and strengths of each others' models and ways of operating, which can then lead to more nuanced policy and co-operation at a local level.

In the domain of public service reform, there remains a real need to create more of a level playing field in commissioning based on social value, as articulated in Chris White's Private Member's Bill, which was also mentioned earlier. Officials should desist from trying to water down provisions in the Bill for fear that they might complicate tendering processes or lead to economically inefficient decisions. On the whole, seeking social value does not, in my view, have to complicate or render commissioning decisions uneconomical. Rather, good commissioning should always seek to balance complexity and simplicity in the short and long term. Sadly, too much commissioning today seeks to go for the overly reductionist and short-term answer, which too often in turn leads to a lack of the originally desired outcomes and longer-term costs because best value principles were not followed. It is disappointing, for example, to see organisations such as Surrey Community Health not winning tenders and to see the lack of successful bids, so far, from employees in the NHS to form mutuals, which has a lot to do with the way in which commissioning is currently configured.

I believe that the Government have made a good start in supporting social enterprise and ventures in what are financially difficult inherited circumstances, but the pace has definitely slowed. The Government now need to show how they, too, can be socially entrepreneurial and implement further reforms to build on that strong start-not succumb to timidity or be stymied by bureaucratic roadblocks. To achieve this, they could well do more to work with the likes of community foundations, which are experts in facilitating the start-up, scaling and, increasingly, the turnaround of social enterprises up and down the country. Indeed, the community foundation movement covers about 97 per cent of the country.

I know from personal experience that there are parts that government ultimately cannot reach and I encourage social entrepreneurs, public servants and commissioners to work with their local community foundations to overcome the barriers that they face in helping to support the social enterprise sector, so that the many promising existing and newly started social ventures can continue to thrive, expand and collaborate, forming together a full part of the ecosystem of players needed, now more than ever, to strengthen our society.

Photo of Baroness Randerson Baroness Randerson Liberal Democrat 4:57, 6 October 2011

My Lords, as the noble Lord has just said, social enterprise is a very broad umbrella term and we could spend the whole of this debate just defining it. We could mean charities that do some trading or we could be talking about large commercial enterprises that redistribute their surpluses to their employees. Taking the generally accepted definitions, however, social enterprises contribute greatly to our economy. They contribute an estimated £24 billion annually and a consistent 1.5 per cent of our GDP, employing about 800,000 people. That is significant, but it could be much more significant still, so I thank the noble Baroness, Lady Andrews, for initiating this important debate.

As many noble Lords will know, I come from Wales, and I want to bring to your Lordships' attention one notable example of a social enterprise that flies in the face of the general trend that my noble friend Lord Newby referred to earlier: for social enterprises to be, on the whole, small scale. That pattern is indeed the same in Wales as in the rest of the UK, but we have one notable exception in Wales. That is Glas Cymru, better known to its customers as Dwr Cymru, or Welsh Water.

Glas Cymru is the only one of the privatised water and sewerage companies in England and Wales to adopt a social enterprise model and is a single-purpose company formed to own, finance and manage Welsh water. It provides services for some 3 million people throughout Wales and in the borderlands with England. It is a company limited by guarantee under the Companies Act and was established in 2001, when it was bought from Hyder plc, a traditional for-profit company. As a company limited by guarantee, of course, it has no shareholders, and its assets and capital investment are financed by bonds and retained surpluses. It is run by a board of members who have no financial interest in the company and receive no dividend. The customers do not own Glas Cymru; it is not a mutual. In other respects it has the same framework as other water companies, but customers receive a rebate on their water bills in times of surplus-and I declare an interest as a Glas Cymru customer. Customers get a good deal with lower bills, and profits are reinvested in capital development for the company.

When the company gave evidence to the enterprise committee of the Welsh Assembly, it stressed that in its view the model could be replicated elsewhere, and that is my point in raising this today. In its view, the energy market was a prime area for that model; its not-for-profit status has greater legitimacy and greater community involvement than a normal for-profit company. Glas Cymru believes that it is better equipped to make the long-term decisions and investments that are needed in the energy sector than a normal shareholder-owned short-term competitive company. I urge the Government to look at this model with an eye to the energy market as a whole and the renewable energy market in particular.

It is worth pointing out here that the political support of the Welsh Assembly Government was crucial when Glas Cymru was set up. It could not have been done without that support. The UK Government need to provide that political support if that model is to be replicated.

That is an example of a large-scale social enterprise, and there are of course others. However, as has been said, the general problem with social enterprises in the UK is the lack of suitable financial models to allow them to grow. There are a number of potential solutions to this problem, and several noble Lords have referred to that. The important thing is that the Government have a crucial role in developing the levers to ensure that suitable finance options are much more broadly available to allow social enterprises to grow and develop. The signs are good and a number of useful options were flagged in the government report on growing the social investment market, which was produced in February this year.

I shall touch briefly on an interesting option included in that paper: the idea of piloting a social stock exchange or providing incentives for existing stock exchanges to develop an exchange of stocks in social ventures. I believe that there is a largely untapped wealth of interest in investment in social enterprises. Many people would prefer to have a stake in their local community-based business. They are not necessarily interested only in getting the maximum possible profit and, despite being in very hard times now, many people would be prepared to give some of their money to invest in that kind of enterprise, with at least part of their investments going in that direction. I have long had an interest in local stock exchanges generally, and the model suggested in this Cabinet Office report is worthy of further investigation. I urge the Government to pursue it.

It is important that we move on from supportive rhetoric. We had such rhetoric from the Labour Government prior to the current coalition and it is important that the new Government, who have provided so much leadership on this, now provide some concrete support in the months to come.

Photo of Lord Haskel Lord Haskel Deputy Chairman of Committees, Deputy Speaker (Lords) 5:04, 6 October 2011

My Lords, many years ago, I was responsible for installing the first computers in our business in Leeds. They were a novelty. Everybody wanted to have a go and so we opened the office in the evening to staff and their families. Before long we had a little computer training co-operative going, which helped local people, particularly staff members' families, to get better jobs and do better at school. It certainly raised the morale, commitment and loyalty that the noble Lord, Lord Newby, spoke about.

Was it a social enterprise or a social venture as the noble Lord, Lord Wei, put it? In those days, we socialists-that is what we called ourselves in those days-spoke about common ownership. To most people, such as my noble friend Lady Andrews, social enterprise was contradiction in terms. A few of us were influenced by Michael Young, the social entrepreneur, who convinced us that business was as much about society as profit, as the noble Baroness, Lady Randerson, said. In truth, the name scarcely matters. What matters is that it was right for the time, it was right for the place and it was right for the people. Our little enterprise met the social need for people to become more computer literate: a local and specific social need which we did not even know existed when we started.

That is the secret of successful social enterprise, and why they are generally small and local. Otherwise they become ordinary businesses and lose their distinctiveness and that special aspect which sometimes enables them to succeed when ordinary business fails. As the noble Lord, Lord Mawson, explained, this is why in practice most big contracts in public services go to large private firms who, in turn, subcontract to local enterprises. This is in spite of the rhetoric from the Government, about which the noble Lord spoke.

It is easy to be cynical about social enterprises. It is easy to talk about them having mixed objectives and achieving neither. It is easy to talk about them being soft and therefore being crushed in the tough world of business. However, somehow, the idea of social enterprise keeps going. It just reinvents itself and adapts to the changing times. Indeed, its ability to deliver social benefits as well as commercial benefits may be another intangible asset that we have only just rediscovered about modern business.

The Government are making every effort to promote social enterprise, but they have got some of their thinking the wrong way around. Making 1 million public servants redundant and then trying to persuade them to sell their services back in the form of a social enterprise is getting things the wrong way around. Why? Because nobody is sure what need is being satisfied. Is it cutting public expenditure? Is it encouraging the private sector to provide public services? Or is it social engineering: trying to get people to improve themselves? Perhaps the Minister can clarify this, because until it is clarified it is not going to work properly.

There is clarity over what the Co-operative and Community Finance organisation is about. It calls itself the "lender for social purpose" and has been doing this for nearly 40 years. It raises money by public share issue and I declare an interest as a long-standing investor. Its prospectus says that it lends money for social purposes and collective benefit. But it is small, not because it has no money but because most social enterprises-apart from perhaps housing, mentioned by my noble friend Lady Andrews, or even water-also have a limited capacity to absorb and justify major loans and equity. Social enterprises have to perform. Their leverage is limited. Yes, we may do business with them initially because we support their social aims, but to get the repeat business they have to deliver quality, service, value, efficiency and profits like everybody else. So they have to be careful with debt.

Indeed, the big society and other fundraising ideas may not be all that relevant unless the terms on which loans are made are eased, and the need for more formal management is changed. Social investment bonds may be an idea whose time has come-the social investment market is expanding-but these are early days. We will have to see whether they survive the innovation of the City without the social innovation that the noble Lord, Lord Bhattacharyya, spoke about.

Traditionally, most social enterprises work in towns and cities: housing maintenance and refurbishment, collective living, training, health and welfare, especially for the benefit of those who are failed by the usual system and have particular needs. Interestingly community ownership is moving to the countryside where community-owned shops are replacing some of the many village shops which close each year.

An article in Tuesday's Financial Times told us that there are 60,000 social enterprises in the country, employing 800,000 people and turning over £24 billion a year. I suspect that figure depends on what you mean by social enterprise, but obviously this is a growing sector-growing in terms of numbers and public acceptability. The concept is being promoted by the Government; it has its own advocacy body, business schools are teaching it and institutions are appointing social entrepreneurs in residence.

As the noble Baroness, Lady Wheatcroft, suggested, jobcentres could also play an important role. All this is to the good and, like other noble Lords, I hope this is the way business is going. I wish it every success. I also hope it does not allow itself to be taken over by-or become part of-the existing business establishment. It would then lose its distinctive, special and attractive features and that would be a loss.

I am most grateful to my noble friend Lady Andrews for moving this Motion. It gives us an opportunity to debate some of the better business practices-not social business practices as the noble Baroness, Lady Wheatcroft, suggested-about which my party leader spoke last week.

Photo of Baroness Scott of Needham Market Baroness Scott of Needham Market Liberal Democrat 5:13, 6 October 2011

The noble Baroness, Lady Andrews, has done the House a great service by tabling this debate today, which has demonstrated that huge disagreement is not needed for an interesting debate. We by and large agree, but nevertheless there have been lots of different and interesting points. It is perhaps not surprising that we agree because one thing which unites us, wherever we sit, is a sense of public service. That is why we are active in your Lordships' House. It is also why we do what we do outside this House. As we go around the country, the ideal of public service is absolutely alive and well. Everywhere there are people who, in some way or another, devote their life to service to the public.

Until fairly recently, I regarded public service and the public sector as synonymous. I was wrong and I admit it. I was also wrong to believe-as I did until 1997-that all that was wrong with our public services was a lack of funding. I am sure that privately if not publicly even Members opposite would accept that the large amounts of money put into public services in the last 10 or 15 years have not delivered the outcomes for many of our citizens that we would have hoped. I am not going to theorise why, although I strongly feel that the blame, if you want to call it that, does not usually lie with individual workers. Personally, I deplore the demonisation of people who choose to work in the public sector.

However, if we are looking for solutions and ways to improve public services, the solutions very often lie with the people who are working within our public services. They are the key to reform and making services more flexible, responsible to individual need and circumstances, locally focused and cost-effective. Last year, I met a former youth worker in Suffolk who had left the county council and set up, almost by accident, a social enterprise. She is doing great things with young people with multiple problems. Local social services had to admit that they had virtually given up on those young people, but that lady has been able to deal with it.

Earlier in the summer, I met Dai Powell, who runs Hackney Community Transport. Founded in 1982 from very modest beginnings, it now operates across the country and last year provided more than 12 million passenger journeys. Government need to be sure that they know where these existing, very successful models of social enterprise are. Something like Hackney Community Transport should be used as a benchmark for service delivery, because it is not only cost-effective and efficient but also ethical and locally responsive. It would make a change for government to benchmark against that rather than conventional service delivery.

In this current economic climate, as we have heard, there is a great incentive for this sector to grow, but the danger is that it is seen as some way of getting public services on the cheap, which it certainly is not. Nor will this growth somehow happen all by itself. Some will of course, but if we are to see the step change that the Government seek, then the Government have to get serious about it.

How do they do that? First, they have to play their part in creating a culture in which social enterprise is seen as a serious career option for people leaving education and for those looking for work, and not as some sort of last resort of employment. In this regard, Ministers' attitudes are crucial both in terms of saying the right thing and ensuring that social enterprise is seen as an intrinsic part of service delivery and not bolted on as an afterthought. It needs to be mainstreamed into all policy and legislative decisions.

Secondly, the sector needs support. I recently spent a very enjoyable day with the School for Social Entrepreneurs in Ipswich, where I met a variety of people seeking to set up social enterprises. Their dedication and enthusiasm will carry them a very long way, but professional support in finance and business planning, legal frameworks and so on is key, and this is where the school comes in. The Ipswich school is great, but we need more of this sort of thing right across the country. We also need social enterprises which themselves help other social enterprises. My colleague in Suffolk, Craig Dearden-Phillips, does this very well through his business, Stepping Out. Social enterprises need help not only in being established but in scaling up, as my noble friend Lord Newby, said, although not every social enterprise wants to get bigger-that is precisely the point.

If services are to be divested from local authorities or health trusts, it is senior managers from those bodies who are likely to head the social enterprises. If they are to make the transition from senior manager to chief executive, they will need help in doing so. Social enterprises continually cite public procurement policies as a major obstacle to growth. The Government need urgently to address that.

For many years now, local authorities have been encouraged to join together to create purchasing consortia to benefit from economies of scale from larger contracts, but this simply has the effect of freezing out new providers who are smaller and in the long run generates higher costs by driving diversity and competition out of the market.

Traditional procurement and commissioning tend to focus on hard financial data and lose sight of those rather harder-to-measure aspects such as advocacy, support and accessibility-those things which make social enterprise so attractive.

The Government have to give serious thought not to giving a handout to this sector but to giving it a step up, perhaps by thinking about quotas for the transfer of services or, as my noble friend Lord Newby said, about speeding up the process, which is so protracted that it stymies local initiative. Starting a new social enterprise is a huge risk for the individuals concerned. They need assurances over length of contracts and the future of the pensions that they have built up while working in the public sector.

The other major problem, which a number of noble Lords have addressed, is finance, both in terms of availability and affordability. A policy of credit easing-or whatever we call it- needs to be extended to mutuals and social enterprise.

Social enterprise has so much to offer us in terms of value for money, flexibility and genuinely responsive public services. The track record of such organisations in some of the poorest and most deprived parts of our country is already impressive, but we can do so much more to unlock the energy and enthusiasm of all these people who are genuinely committed to public service.

Photo of Lord Hunt of Chesterton Lord Hunt of Chesterton Labour 5:19, 6 October 2011

My Lords, I am grateful to be able to speak in the gap. This is a most important debate, led off by the noble Baroness, Lady Andrews. I was head of the Met Office, an example of a large public sector operation, which relied hugely on community involvement. In fact, many of the community activities supported by this big public body then led to local enterprises. Community projects in the environment lead to tremendous skill and know-how, and I sometimes think that the Government should encourage protest as a way of developing great expertise and local activity. Some of these have become quite successful businesses and social enterprises.

My other point is that it is very important that the government agencies that are interacting with these local groups, and encouraging them, do more to publicise them. We should not denigrate the role of the internet; it can play a tremendous role in explaining what is being done, and it enables other countries to see what is being done here, from-as one might say-an export point of view.

However, one should not ignore that some complex local community exercises involving health and businesses and local communities can be publicised, for example, on London buses. For instance, these tell you what to do if you are suffering from air pollution and are dealing with your local doctor, and want to get very specific local information. Indeed, it was rather disappointing that the Cabinet Office did not, in describing the scheme this year, describe all the aspects that would be possible. There is more to be done by central government and large corporations to help social enterprise.

Photo of Baroness Smith of Basildon Baroness Smith of Basildon Shadow Spokesperson (Energy and Climate Change) 5:21, 6 October 2011

My Lords, I have greatly enjoyed this debate. The expertise and support in your Lordships' House is one which the social enterprise sector will be immensely gratified by. I congratulate my noble friend Lady Andrews on procuring such an important debate, and making such a powerful case. She and others have pressed the Government to match words with deeds. I should declare an interest as a member of the Co-op party, and that I sit as a Labour and Co-op Peer in your Lordships' House.

No definition is going to be exact, but I always think of social enterprise businesses as those with a heart as well as a head; businesses where profit is measured not just in financial terms, but in how it benefits society. An expression I often use is of businesses that aim for a triple bottom line: that is, good for its business and employees, good for society and good for the environment-in shorthand, perhaps, good for people, profit and the planet.

How that profit is used is absolutely key. Social enterprise's prime objectives are social and/or environmental. That is not in any way critical of other businesses that have social objectives, but what gives social enterprises their distinctive character is that their social or environmental purpose is their primary purpose, and profits are reinvested in the business. The beginnings of social enterprise can be traced back to the Co-op's Rochdale Pioneers of the 1840s, which led to other co-operatives and social enterprises being set up in what is now a worldwide ethical movement.

I should confess to your Lordships' House that my last ministerial position in government was at the Cabinet Office with responsibility for social enterprise, including seeking to establish what was then called the social investment wholesale bank, bringing new finance to social enterprise. Delighted as I was to hold that brief, I never really thought that social enterprise sat well in the Cabinet Office, with what was then the Office of the Third Sector and is now the Office for Civil Society. Social enterprises are businesses-as we have heard, very successful businesses-but with a wider definition of what means success in business.

I was taken by the comments of the noble Baroness, Lady Randerson, about Welsh Water. Indeed, when I was a Northern Ireland Minister, I tried to export the model of Welsh Water to Northern Ireland Water. It has still not resolved the issues there, and it might do well to listen to the comments the noble Baroness made today. Social enterprises are not just about the third sector, and there must continue to be a greater discussion about the role that BIS can play in promoting and supporting social enterprises. I found my meetings with Business Ministers invaluable, and I hope that co-operation is continuing, and expanding.

Although I am consistently impressed by social enterprises, I also get frustrated-that frustration has been illustrated in other comments today-that those in charge of procurement choose not to recognise, or just do not understand, that they could take into account the wider benefits that a social enterprise can bring.

I do not know whether your Lordships are hearing the same "dentists' drills" as I am and whether their teeth feel as uncomfortable as mine on hearing that sound.

The previous Government set up a Cabinet committee, of which I was a member, with the exciting title of "Miscellaneous 37", to address some of the issues around procurement. Many of these issues also affect small businesses. As the noble Lord, Lord Haskel, highlighted in his very knowledgeable speech, too often social enterprises have lost contracts to larger businesses which, although delivering on price, may not provide the added value or success of a social enterprise. Those larger businesses then sometimes subcontracted the provision of services to social enterprises. That cannot be right. Often a social enterprise has provided a service at a far lower cost than that for which the original contract was awarded. All we were seeking to do was to ensure a level playing field so that one sector did not have an automatic built-in competitive advantage over another.

This is a difficult area but one in which we were making progress. However, the new Conservative Government-sorry, coalition Government; that was a genuine error-went further. Francis Maude, as the Cabinet Office Minister, said in November 2010 that millions of public sector workers-the noble Lord, Lord Mawson, referred to this-would be given the opportunity of,

"spinning themselves out of the public sector, and taking control of their lives and of the services they provide".

However, he rather unexpectedly added that this "right to provide" public services would in some cases,

"see services handed to new social enterprises without the need for a competitive tender".

As an example of extending this brave new world, he cited Central Surrey Health. Other noble Lords have mentioned that. That organisation was set up in 2006 under a Labour Government. Two former directors of the local primary care trust launched a social enterprise with 650 nurses and therapists who each had a £1 not- for-profit share in this new business. They provide services for the PCT. Although it has not been free of criticism, as is the case with all new businesses, it is highly regarded. It is clear that staff motivation and enthusiasm is second to none. Any profit made is reinvested in local services. Francis Maude was enthusiastic, saying, "They are my poster people". Therefore, your Lordships will understand how expectations in the sector were raised by these comments, especially as regards the tendering process. When so many charities and voluntary organisations were worried about their services in the face of government cuts, many saw this as a potential lifeline. However, when a major new contract came up in the neighbouring area, it was not Surrey Health-the social enterprise "poster people"-but a private company, Assura Medical, 75 per cent owned by Virgin, that won the contract. The noble Lord, Lord Mawson, also referred to that.

I use this example to highlight the great difficulties for social enterprises in bidding for such contracts on a level playing field. Uncertainty was also created for employees leaving the public sector to join a social enterprise. Instead of "not having to tender", as referred to by Francis Maude, they can later lose the provision and control of that public service to a private company in a way that was never initially intended. We all want to avoid another Southern Cross situation occurring.

The central point is the need to take into account the wider social and environmental benefits as part of the assessment process. Other noble Lords have referred to this as being an important way forward. It is also about improving the capacity to bid, providing support and assisting possible social enterprise consortia, such as was previously done through Futurebuilders. The consensus in your Lordships' House is that social enterprise is not a political football to speak warm words about and then fail to deliver on when in government.

I was struck by the comments of the noble Lord, Lord Bhattacharyya, on social innovation. It seems to me that it is the crux of the matter. For me the real value of social enterprises, and where they make the most difference and greatest contribution, lies with those which identify a need which is not being met and then devise innovative solutions to meet that need. They also make an enormous contribution to the economy, including employment. We have heard the examples of Sandhurst Community Care and Hackney Community Transport. One of my own favourites is Jamie Oliver's restaurant Fifteen. This is a restaurant that gets young people, many of whom have convictions, to learn a trade and get their life back on track. Divine Chocolate, led by Sophie Tranchell produces first-rate chocolate and, for the first time, ensured that cocoa farms were not being ripped off. It helped to establish a farmer's co-operative in Ghana and today almost every chocolate company in the world is looking to be fair trade. Another of my favourite social enterprises is the Elvis & Kresse Organisation, which, seeing how many fire hoses were going into landfill, used that high-quality and very expensive waste for bags, purses and luggage. It then gave 50 per cent of the profit it made to the Fire Fighters Charity.

These examples and others we have heard about are truly inspirational. I also urge the Minister to listen to the social enterprise ambassadors. We have heard about these already from the noble Baroness, Lady Scott. They were introduced by the Labour Government and really impressed me. They are not asking for something for nothing. They are not asking for an unfair advantage but they are asking and seeking to grow the social enterprise sector with the knowledge and experience they have. They need recognition of their work and a level playing field that properly evaluates their worth and their value to society so that they can make their contribution to the economy.

As the noble Baroness, Lady Andrews, made clear, the danger is that we have lost so many of the programmes that support social enterprises; and government announcements are not yet anything more than that. I hope the Minister will be able to positively address the questions of the noble Baroness, Lady Andrews. If the banking crisis and recession has taught us anything it should be about values. The cheapest is not always the best and value for money can be achieved in more ways than one.

Photo of Lord Wallace of Saltaire Lord Wallace of Saltaire Lords Spokesperson (Cabinet Office), Lord in Waiting (HM Household) (Whip) 5:31, 6 October 2011

My Lords, I thank noble Lords for the immensely valuable and expert contributions to this debate, including the speech we have just had from the noble Baroness, Lady Smith of Basildon, who has reminded us that there is a great deal of continuity between what this Government are determined to do and what their predecessor was determined to do and in the obstacles faced by the last Government and this Government.

I thank the noble Baroness, Lady Andrews, for the debate and remind her that I was happy to show her around Saltaire last summer. I often think that Saltaire is in many ways an easy and ideal community, not only because is it a very beautiful village in which the Guardian outsells every other newspaper, and partly for that reason untypical, but because it is full of self-motivated people interested in public service naturally taking part in local activities. I only wish that was common across the whole country. Part of the problem that we face, in answer to the noble Baroness, Lady Scott, is that we do not have, across the entire country, the same level of motivation or willingness to participate in local public community life that we want to generate. That is part of what this Government are now attempting to do.

We support social enterprises because these are now integral to a more active, fairer and more prosperous society. We see social enterprises as ways of supporting citizens in communities to take more power into their hands and to build what the Prime Minister calls the big society-a more engaged and less passive society. Social enterprises are also an important part of a business community that contributes to our economic prosperity. I take the question asked by the noble Lord, Lord Haskel, about how one defines the extent of this large and rather amorphous area, but the estimate that the social enterprises employ 800,000 people and generate 1.5 per cent of GDP is a fair rough estimate that suggests, as we expand this sector, how very useful it can be.

We are supporting social enterprises as far as we can across the whole of government, from pushing through mainstream reforms to recognising the potential of social enterprises, by making it easier to start up and run social enterprises by leveraging resources, by increasing the opportunities and support to help social enterprises grow and by promoting social enterprises in the public sector and beyond. We all recognise how large a task this is and we also recognise how diverse a sector we are talking about.

Some of us have been talking about community assets-local shops, pubs, community halls and grounds. I can think of at least two Members in this Chamber whom I know well who are involved in the setting up and management of community shops. I am very sorry that the noble Lords, Lord Morris of Handsworth and Lord Jay of Ewelme, are not here to take part in this debate today. I have enjoyed talking with them about how they have got involved in regenerating that sort of local community asset. We are also talking more about community interest companies and non-profit organisations which are providing employment and socially valued services. I am familiar with the Cellar project in Shipley, which helps to provide a route back to employment for people who have suffered mental health problems and, in the process, generates a certain amount of income for itself and gives people confidence back in their ability to work.

We are also talking about mutual providers of public services. I have spent some time during the past year with an excellent charity in Yorkshire, Together Women, which has been dealing with first-time women offenders and has had enormous success in reducing the rate of reoffending among women. However, it is dependent on grants from central government and has not yet been able to move, because central government is not doing it yet, into the social interest bonds where it can say, "We are saving you money, so let's have a different sort of contract from being dependent on central government grants"

We recognise the enormous obstacles that we are facing. Many of our citizens are still very passive. They talk about their rights; they expect services to be provided; but they do not understand that they need to take a much larger part in providing those services among themselves-sometimes preferring to complain rather than to share public responsibility. The government documents that I have been reading as I have read myself into my new responsibilities talk a great deal about encouraging a widening of neighbourhood councils. I am conscious that neighbourhood councils are not easy to set up in some of our cities and in a number of our smaller towns. Regenerating the self-confidence and self reliance of local communities is itself a long-term project. The previous Government did some work in that area; we are continuing it. It is a long-term task.

We are talking about a wider attitude change towards public life, public responsibilities and public engagement in self-government at the local level. Having said that, we are also talking about a broader attitude change. Central government, as a number of people have remarked, often resists the idea that you can really trust local people to run things in their own way. The national media lumps the term postcode lottery on anything that appears a little odd, a little more diverse. Business, especially in the financial sector, should not simply be thinking about its responsibilities to shareholders on a quarterly and annual basis. They should also be thinking about people in local authorities and citizens.

The noble Lord, Lord Wei, and others, have talked about the problems of commissioning. The assumptions underlying commissioning showed that there are real problems with people in central government not yet having thought through what sort of different approach we need.

Increasing investment under the big society capital approach is part of how we are attempting to change the way in which the sector is funded and to transform its relationship with government and public services. The Big Society Capital Group will be at independent financial institution that aims to increase investment in social enterprises. It will do that by supporting organisations that invest in the sector and will be a champion for social investment with policy-makers, investors and stakeholders in the sector and the public at large.

Of course, this is not the ideal time or circumstance in which to encourage new enterprises to grow, so provision of diverse sources of funding is extremely important to all of us. The national survey of charities and social enterprises last year showed that just over one-third of those charities and social enterprises surveyed received some form of funding from central government. So this is not a universal problem for the sector. Community foundations have been mentioned and other sources of funding are also important. Too much dependence on the state and on the central budget has not been good for the voluntary sector. Our aim is to reduce that over the long term, to move towards local contracts and contracts for services provided, and as far as possible, to foster self-generating and self-funding activities where appropriate.

We thoroughly agree with the noble Baroness, Lady Wheatcroft, that business is generally a force for good, but there are issues when one is also looking for a culture change. I am conscious that in the pub sector, for example, the role of the pub companies and of some venture capital trusts has been very much to damage the provision of the availability of community assets for local communities and indeed, to attempt to buy up small breweries for their property assets and then close them.

I am happy to say that my pension fund, the University Superannuation Scheme, is actively taking part in seeing how far pensions can provide social enterprise funds. We all need to be thinking about that sort of thing, or those of us who are a little involved in what our pensions should be doing. The noble Baroness, Lady Randerson, talked about other forms of providing financial social capital, so to speak. We want to encourage closer co-operation between business and social enterprises and between business and the whole voluntary non-profit sector.

The noble Lord, Lord Mawson, talked about the barriers to entry. That again is an area that we need to keep pushing to ensure that central government does not go for the easy aim. Nearly 300 welfare-to-work contracts have been awarded to voluntary sector providers. Of those 300, two have been large-scale contractors, and the other 289 are subcontractors. So we have been making some progress in this regard.

On the question of red tape we are also moving ahead. The noble Lord, Lord Hodgson, has made some 17 regulations in his report, some of which we can do something about. The Association of British Insurers has now moved on the question of ensuring that volunteers do not have to pay more for their car insurance if they are using their car to assist in voluntary activities. That is a useful, small but important step forward. The Payments Council has similarly announced that cheques will now be retained for as long as they are needed. There are a number of small things like that that can make a difference to local enterprise activities.

On the social impact bonds experimentation in Peterborough, the Government intend to build on that with four more pilot social impact bonds that aim to help troubled families in four local areas. We are moving forward on that and it is seen as a success. We are therefore pushing forward on a range of different fronts: social investment; the new big society capital enterprise; and other means of support for this very important sector. It will take some time and means a whole range of changes at different levels. The most important level is to get more back down to the local level, to get more local engagement. Social enterprises, the Government believe, are vital in their contribution not only to economic growth and employment but to a fully participating society.

We have made our support for social enterprises a key element of different parts of this Government's programme and we have a strong package of market and individual enterprise-level policies that we hope will help social enterprises to start up and grow. I finish by again thanking the noble Baroness, Lady Andrews, and to say that we all need to keep pushing on this. We all recognise the cultural and mindset obstacles that we face at all levels of government: the economy, business and ordinary people themselves.

House adjourned at 5.44 pm.