Social Enterprise — Question for Short Debate

Part of the debate – in the House of Lords at 4:29 pm on 6th October 2011.

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Photo of Lord Bhattacharyya Lord Bhattacharyya Labour 4:29 pm, 6th 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.