This is a long and detailed Huckfield briefing about what is happening in Social Enterprise and the Third Sector. It might even be called ‘the Strange Death of Social Enterprise’. In summary, it shows that national London-based Third Sector Organisations are gradually undermining the basis of Social Enterprise.

This briefing – with apologies for its length and detail – shows that the dividing line between Social Enterprise, the wider Third Sector and private sector is already blurred, with the result that many looking on now find difficulty telling what is a Social Enterprise.

Many endeavours of Third Sector national organisations to extend the influence and heighten the status of Social Enterprise and Third Sector organisations in public service delivery are commendable.

But their downside is that many in the media and wider public no longer truly understand or recognise a Social Enterprise or Third Sector structure. “Social Enterprise” now stretches all the way from private companies and multinationals with a progressive Corporate Social Responsibility to local community structures whose main purpose is changing lifestyles and communities

There are some interesting recent examples of this:

BBC Newsnight Programme

One occurred during a BBC “Newsnight” Programme on Tuesday 21 February 2012 in its coverage of a report “Social Enterprise Schools – a Potential Profit Sharing Model for the State Funded School System” by the Policy Exchange, a right leaning Think Tank. The Report described schools run by for profit companies as Social Enterprises. Despite a rebuttal by Social Enterprise UK, many people must now be wondering what constitutes a Social Enterprise.

Cabinet Office “Growing the Social Investment Market”

Before this, there was the Cabinet Office document “Growing the Social Investment Market: A Vision and Strategy” February 2011. This clearly saw the potential of the Social Enterprise contribution of 1.5% of GDP to “help unlock a slice of the £95 billion of UK charitable income and endowment assets for social investment”.

This Cabinet Office document sought to use the size of the Third Sector as an indicator of the size of private investment which it might attract. The SIZE OF SOCIAL ENTERPRISE SECTOR is discussed later.

“Teach Yourself Lansley”

Though completely unconnected with anything above, one of the best recent examples was in the Guardian’s signposting on Thursday 02 March 2012 to John Lister’s “Teach Yourself Lansley“. This defined Social Enterprise as follows:

“Social enterprise: (oxymoronic noun) interim nonprofit private provider paving the way for proper private takeover”

Senscot’s Social Enterprise Code of Practice

Against this background of increasing confusion, Senscot (the Social Entrepreneurs Network Scotland), of which Huckfield is a Board Member, at the Social Enterprise Exchange at SECC on Tuesday 27 March 2012 will launch its own Code of Practice. This includes:

  • a more precise definition of Social Enterprise and its operating environment
  • no dividends for private external investors
  • an “asset lock” to prevent the sale of assets.

To Save Yourself Time

Since this is a long and detailed Huckfield briefing, to save time, use this link to go straight to CURRENT SITUATION below. This enables you to skip background details and takes you directly to more recent developments.


This Section below provides links and gives a brief summary of developments in the Department of Work and Pensions/Job Centre Plus and the Department of Health, leading to David Freud’s important paper in March 2007 “Reducing Dependency, Increasing Opportunity: Options for the Future of Welfare to Work: An Independent Report to the Department for Work and Pensions“, which sets out policies for the “prime contractor” mechanism which now forms the basis for the Work Programme across the UK and National Offender Management Services in England. Freud’s “prime contractor” mechanism will probably extend to future contracting for NHS services under the Coalition’s Health and Social Care Bill 2011 – the biggest shakeup of the NHS since its inception.

Employment Zones April 2000

The introduction of the policy for Employment Zones began significant contracting out of DWP/JCP services to independent providers. This was one of the corner stones for much current delivery.

Public and Commercial Services Union (PCS) Paper June 2006 and ACEVO Response

In a timely and prescient paper, the PCS Union warned that the dividing line between the private sector and Third Sector was already being blurred.

Developments in NHS Commissioning and Procurement

From 2005 to 2008, strong policies were emerging from the Department of Health, including a Social Enterprise Unit, which favoured the development of Social Enterprises as NHS service providers.


This Section provides links and describes how the previous Government prepared the ground for the incoming Coalition Government to introduce the Work Programme model as a basis for future Government commissioning.

David Freud’s “Welfare to Work” Report March 2007

Though only parts of David Freud’s Report were introduced by Gordon Brown’s Government, it laid the foundations for the Coalition’s Work Programme and its policy of using “prime contractors”.

James Purnell’s White Paper “Reforming Welfare for the Future” December 2008

This White Paper in December 2008, with its endorsement of the DWP Commissioning Strategy, began further to develop the basis for the Coalition’s commissioning policy. Its commissioning for Flexible New Deal delivery paved the way for the Work Programme.

ACEVO Third Sector Task Force February 2009

The ACEVO Task Force, despite good intentions, signalled its conditional acceptance of the Government’s proposed reforms, including significant prime private sector contractors.


This Section provides links and summarises events leading to current policies.

Modernising Commissioning Green Paper December 2010

This Green Paper sets out the Coalition’s intention to widen public sector commissioning procedures.

“Growing the Social Investment Market” February 2011

This Cabinet Office paper made clear that an expansion of Third Sector public service delivery would need a range of policies, including tax incentives, to stimulate more direct private investment in the Third Sector.

Open Public Services White Paper July 2011

The White Paper is specific about opening public service delivery to wider tendering and commissioning.

Tax Incentives for Private Investment 2012

This Section describes NCVO and Social Enterprise UK proposals for tax incentives to stimulate private investment in the Third Sector.


This Section provides links and describes some latest developments which may have contributed to a blurring of boundaries between Social Enterprise, the Third Sector and private involvement.

ACEVO and NHS Competition

ACEVO policy supports more competition in NHS delivery – a different line to most organisations seeking to oppose Andrew Lansley’s Health and Social Care Bill.

ACEVO’s Structure

Despite ACEVO’s good intentions through using its structures to broaden the operational base of the Third Sector, some of these risk causing confusion externally between private and Third Sectors.

Social Enterprise UK, BBC Newsnight and the Policy Exchange

BBC Newsnight’s recent coverage of the Policy Exchange Report on “Social Enterprise Schools” and the response of Social Enterprise UK has done little to clear wider public misunderstanding of what constitutes a Social Enterprise.

National Audit Office and “The Introduction of the Work Programme”

Extracts from the first National Audit Office Report on the Work Programme in January 2012 show that Third Sector subcontractors are not treated well.


This Section highlights significant differences between Social Enterprise UK and others on the size of the Social Enterprise sector in the UK. These differences in definition also contribute to wider public misunderstanding. A more precise definition is needed on what constitutes a Social Enterprise – which is what the Senscot Code of Conduct seeks to do.


Through dedicated programmes, this short section explains how the Scottish Government’s more direct support for Social Enterprise represents a different policy approach. Future Huckfield briefings will provide more details on policies in Scotland.


Drawing together themes from above, this Section offers conclusions and pointers to the future.

National Offender Management Service and Prisons in England

Bidding for delivery of National Offender Management and HM Prison Services represents the “second wave” of prime contractor commissioning, involving different kinds of partnerships. Huckfield has attended a briefing for these.

Unions and The Third Sector

Unions are showing increasing interest and involvement in communities, the Third Sector and not for profit structures. As their membership from these sectors increases, they will resist further private sector investment.

And, Finally

Some pointers for the future. Despite the policies of their national organisations, through increasing private sector involvement and payment by results, many Social Enterprises and Third Sector organisations will draw their own dividing lines to distinguish themselves from the private sector.

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Links have already been provided above to those sections which follow.


This section offers a brief history of some of the main background events leading to the publication of David Freud’s “Welfare to Work” paper in March 2007. It is not exhaustive but seeks to highlight important developments leading to the current situation.

Employment Zones April 2000

The first foundations of the current Coalition Government’s Work Programme were laid with external provision of Department of Work and Pensions and JobCentre Plus services 12 years ago under New Labour.

Following trials in pilot areas, contracting out of the Department of Work and Pensions/Job Centre Plus services began with Employment Zones in April 2000. As described in November 2003 Report “The Wider Labour Market Impact of Employment Zones” by the Warwick Institute for Employment Research:

“Employment Zones (EZs) were introduced in April 2000 as a means of tackling the relatively high levels of long-term unemployment that persisted in some localities despite the general fall in the number of claimant unemployed in Great Britain. A total of 15 areas were designated as EZs and within these areas the main programme for long-term unemployed adults – New Deal 25plus – was replaced by the EZ programme. EZs represented a radical approach to tackling the problem of long-term unemployment. The new approach was characterised by a ‘client centred’ approach (emphasising personal choice and client responsibility), flexible delivery of services funded through a Personal Job Account and a focus on progression into sustainable employment (reinforced by a regime of output related payments to zone contractors)”.

The Warwick Institute of Employment Research Report concluded on page 77:

“The key finding of both studies is that the EZ programme had a small, positive impact on the programme target group, relative to their situation when supported by mainstream Jobcentre Plus services and provision for adult long-term unemployed (ND25plus). The findings were remarkably consistent. Both studies found that there was a measurable and significant reductions in the stock of adult long-term unemployed in the EZs areas. The time series analysis of unemployment outflows found an increase of around one percentage point in the aggregate outflow rate of the adult long-term unemployed in EZs. The analysis of individual data found that this impact was greatest for those who became newly eligible for the programme rather than the stock of those already eligible at the start of the programme”

In 2003 the Employment Zone approach was extended to include 18-24 year olds who had previously participated in New Deal for Young People (NDYP) and to allow those who were significantly disadvantaged in obtaining employment to join the programme at an early stage. Prior to April 2004 one contractor in each area operated the EZ but in April 2004 the six largest EZs were converted to multiple provider zones.

In his Independent Report to the Department of Work and Pensions on March 05 2007, “Reducing Dependency, Increasing Opportunity: Options for the Future of Welfare to Work” David Freud on Employment Zones on page 54 wrote:

“Since 2000 the Department has experimented with contracting out complete programmes in 13 areas, called Employment Zones. In these the long-term unemployed (and in some cases lone parents) are referred to private providers for a period of 30 weeks, with largely outcome related payments based on job entry and retention for 13 weeks.

“There is now a wide body of research on these pilots, which suggests that the greater flexibility in Employment Zones also leads to improved outcomes – but at a higher price. As Table 4 shows, job starts in Employment Zones are six percentage points higher, at 40%, than their comparators. For sustainability the gap is even larger with Employment Zones achieving 34% – up 9 percentage points. The evidence suggests that single provider zones do rather better than multiple providers – certainly in terms of starts and more marginally in terms of sustainability”.

This shows that from 2000 onwards, contracting out of significant DWP and JobCentre Plus provision and delivery was gradually becoming a permanent feature.

Public and Commercial Services Union (PCS) Paper June 2006 and ACEVO Response

Against this background, the Public and Commercial Services Union showed increasing concern about contracting out of services delivery.

In June 2006 a paper “Third Sector Provision of Employment-Related Services“, by Steve Davies from Cardiff University and published by the PCS Union, highlighted growing difficulties caused by this wider array of Third Society organisations.

In his Forward to the paper, PCS General Secretary Mark Serwotka highlighted these difficulties:

“Even the term “Third Sector” itself seems to be a questionable one. The leading organisation lobbying for contracting out employment services – the Employment Related Services Association (ERSA) – is composed of profit-seeking businesses, long-established charities, hybrid government/charity organisations and non-profit making organisations who aim to increase their “market share” of public contracts.

“Some seem to have maintained a local focus and close relationships with users, but this is far from being the rule. Only a few of the voluntary sector organisations were found in the report to have clear structures for involving users of the services, while private companies are, naturally, structured around delivering profits.

“In some cases, the founders of these companies derive very substantial benefits. For example, the report identifies the highest paid director of WTCS Ltd (formerly Westcountry Training and Consultancy Service) as receiving over £580,000, while the sole shareholder Dr Sarah Burnett also received £100,000 in dividends. Emma Harrison of a4e (formerly Action for Employment) collected over £1.1 million in dividends alone in 2005”

All this now sounds remarkably prescient in view of a4e recent events. On the Employment Related Services Association (ERSA), the PCS Paper continues:

“ERSA, the main lobbyist for the extension of the contracting out of employment services is dominated by private companies that make millions of pounds of profit from job brokering and training, and large charities that are increasingly dependent on contract funding from government. Through their trustees, some of these charities have very close links with the business lobby with their own interests in opening up public sector markets”.

ACEVO (the Association of Chief Executives in Voluntary Organisations) in “Speaking Truth to Power: Third Sector’s Relationship with Government” October 2006, in response to the PCS report’s concern that “third sector involvement in public services will lead to “privatisation” said:

“Greater third sector involvement in public services is likely to occur through formal commissioning processes, in which bids from a variety of organisations are sought and assessed by public sector commissioners. Thus, through contractual arrangements and regulation, the public sector will retain the ultimate control and ownership of those services. This model only involves “privatisation” as defined by PCS, viz. some form of independent involvement in public service delivery. It does not imply any privatisation in the more widely understood sense”.

In response to the PCS concern that the Third Sector includes private companies, ACEVO responded:

“The private companies within ERSA membership are not, and are not considered by anyone to be, part of the third sector. ERSA membership is open to any organisations that “provide services delivered as part of publicly funded programmes designed to assist with employability or the creation or sustaining of employment” . ERSA membership therefore includes organisations from both the private sector and the third sector”.

As a paid up UNITE member, concerned about developing trade union opposition to Social Enterprise, Huckfield submitted comments to the ACEVO response. These comments were strongly influenced by openings which were then expanding for Social Enterprise and the Third Sector under policies from the Department of Health as described below.

In 2006, UNISON also published a Report on “Social Enterprises and the NHS: Changing Patterns of Ownership and Accountability“. In his Forward on Page 2, Dave Prentice, UNISON General Secretary, writes:

“As the report makes clear there are concerns that the traditional appeal of social enterprise – a focus on innovation, sustainability and community empowerment – may be undermined by a greater emphasis on a business ethos and creating a diversity of providers.

“Furthermore, it is possible that some social enterprises may smooth the way for the involvement of the private sector in primary care – whether intentionally or otherwise.

“There is little doubt that social enterprises are an issue of growing importance for the NHS and those who work in it, and this report signals the need to keep rapid developments under close and constant scrutiny”.

As this Huckfield briefing later shows, the PCS Report and Mark Sewotka’s Forward and the UNISON Report on Social Enterprise and the NHS, both in 2006, were timely and prescient in their warnings about private sector involvement. Though at that time the Department of Health and others offered strong support for Social Enterprises in NHS delivery, this initial support described below has been overtaken by policies which encourage a higher level of private involvement. The blurring of private and Third Sector boundaries is now a serious issue.

Developments in NHS Commissioning and Procurement

The NHS Purchasing and Supply Agency Procurement Guide: Alternative Provider Medical Services (APMS) published in August 2005, was a detailed guide to the wider range of conditions and circumstances which should be taken into account to accommodate Social Enterprises. Page 4 of APMS says:

“APMS is a relatively new contracting route for PCTs. Although services may be provided by non-NHS providers, NHS patients treated under APMS arrangements will remain NHS patients. In procuring for services, PCTs will wish to ensure that a range of prospective providers can apply.”

Page 7 of this Guide continues:

“APMS is a flexible contracting tool, which gives PCTs powers to contract for services from a range of providers and for a range of primary medical services. APMS cannot be used to contract for primary care pharmacy, dentistry or optometry services, which generally have to be commissioned by the PCT under the separate arrangements set out in the National Health Service Act 1977 (although, in some cases – eg. dispensing – these services can be included in GMS/PMS/PCTMS and APMS contracts). Under APMS, Primary Care Trusts have powers to contract with:

  • Commercial providers
  • Voluntary sector providers
  • Mutual sector providers
  • Public service bodies
  • GMS/PMS practices, through a separate APMS contract
  • NHS PCTs and NHS Foundation Trusts

All this signposted significant opportunities for Social Enterprise and Third Sector delivery in the NHS.

In January 2006 the White Paper Our Health, Our Care, Our Say was published by Patricia Hewitt as Health Secretary. Page 10 of the White Paper said:

Allowing different providers to compete for services
In some deprived areas of the country there are fewer doctors per head of the population than in others. We will increase the quantity and quality of primary care in these areas through nationally supported procurement of new capacity with contracts awarded by local PCTs. To assist this process, we will remove barriers to entry for the ‘third sector’ as service providers for primary care”.

Page 175 of the White Paper included:

Supporting the development of the third sector and social enterprise
One way of introducing high quality provision will be to promote better use of health and social care ‘third-sector’ providers. They include organisations from the voluntary and community sector, as well as other forms of values-driven organisations such as co-operatives”

The January 2006 White Paper was followed by further more detailed developments.

In February 2006, the Social Enterprise Coalition and the NHS Purchasing Agency published More for your Money: A Guide to Procuring from Social Enterprises for the NHS. The Guide explained on page 4:

“Social enterprises are also characterised by their ownership structures. Unlike most private enterprises, whose ownership is often determined by shareholder investment in the business, social enterprises can be owned by their users or customers, their employees, the wider community, trustees, public bodies, or a combination of different stakeholder groups”.

In February 2006, the Royal College of Nursing’s published its Policy Briefing Nurse Led Social Enterprise. In “Social Enterprises: Their Place in the Re Provision of Health and Social Care” on page 6, the paper said:

“Given the support for SEs within the White Paper Our Health, Our Care, Our Say with the incentive of set-up funding for aspiring CICs, it seems likely that they will become an increasingly attractive option for commissioners of primary care and community care services. The White Paper insists that, as businesses, they will provide a more flexible service and that they can respond quickly and dynamically to changing need and consumer preference. No matter whether that view is valid or not, SEs will still need to demonstrate excellence as employers if they are to retain a suitably qualified and skilled workforce.”

All this showed serious encouragement to develop Social Enterprise and Third Sector delivery in various parts of the NHS.

Department of Health Social Enterprise Unit October 2006

As promised in Our Health, Our Care, Our Say, a Social Enterprise Unit was established in the Department of Health. In October 2006, Sue White, as Head of the Department of Health’s new Social Enterprise Unit wrote seeking potential Social Enterprise NHS Pathfinders:

“The Social Enterprise Unit is seeking to identify social enterprises that are interested in taking part in its pathfinder programme and leading the way in delivering innovative services”.

In February 2007, an updated List of Social Enterprise Pathfinder Applicants was published, which included many well-known Social Enterprises, including Healthy Living Centres genuinely rooted in their local communities. Many Pathfinders received funding from the Department of Health.

In many ways, these developments from Department of Health and National Health Service represented a high water mark of Social Enterprises’ potential to become mainstream suppliers of NHS Services. Social Enterprise Pathfinder funding was followed by the Social Enterprise Investment Fund and the “Right to Request” for setting up a Social Enterprise, which Primary Care Trusts were obliged to consider. The Social Investment Fund is now managed for the Department of Health by the Social Investment Business. To save time and space here, these developments will be covered in a future Huckfield briefing.

Huckfield spoke at an ACEVO Conference on Third Sector Opportunities in the NHS in London on Thursday 15 March 2007. At the conference many active commissioners in the NHS favoured contracting with Third Sector organisations. But all this has been overtaken by further developments described below. The rules of the game have changed!

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This Section summarises more recent developments leading to the Coalition Government’s current policies, which have overtaken this initial support.

David Freud’s Welfare to Work Report March 2007

In December 2006, David Freud, former journalist, banker and Chief Executive of the Portland Trust was asked to:

“To review progress on the Welfare to Work programme since 1997, taking account of evidence from the UK and international experience, and make policy recommendations on how the Government can build on its success in using policies such as the New Deal to continue to reduce inactivity and inwork poverty, and meet the Government’s 80% employment aspiration.”

Though Social Enterprise was making genuine progress in the Department of Health, the publication of David Freud’s Report Reducing Dependency, Increasing Opportunity: Options for the Future of Welfare to Work: An Independent Report to the Department for Work and Pensions, should have prompted wider questioning among London Social Enterprises and Third Sector national organisations.

On page 6 Freud recommended, under “Contracting Support for the Hardest to Help”:

“And while there is no conclusive evidence that the private sector outperforms the public sector on current programmes, there are clear potential gains from contesting services, bringing in innovation with a different skill set, and from the potential to engage with groups who are often beyond the reach of the welfare state. Therefore this report recommends that once claimants have been supported by Jobcentre Plus for a period of time, back-to-work support should be delivered through outcome-based, contracted support”.

This foreshadowed payment by results – a payment mechanism which causes real problems to many Social Enterprises and the Third Sector.

On “The contracting system” on page 61, the Freud Report continued:

“The private and voluntary sector would, then, compete for long-term contracts to provide support to disadvantaged people, with payments based on successful individual outcomes over an extended period. Correctly contracted on output based criteria, providers will be incentivised to experiment and innovate to find effective solutions”

On page 62, he continued:

“However, more likely is a bidding process in which private sector prime contractors take the lead in building consortia, given the level of financial commitment and risk required. Within this model it would be an option to contract two or more prime contractors in a region, at least on a trial basis, although in practice it is likely that the complexity of operating in this arena will lead to significant efficiencies for sole consortia.”

On “Scale of contracts” on page 63 the Freud Report continued:

“This paper recommends that in principle the Department lets out prime contracts in each of the 9 regions and 2 countries in Great Britain. This should allow an adequate number of prime contractors for a competitive market to develop. It also offers the scale appropriate to attract major players from around the world”.

All this began laying foundations for the development and operation of the Work Programme.

James Purnell’s White Paper “Reforming Welfare for the Future” December 2008

Gordon Brown’s Government was reluctant to introduce the restructuring of JobCentre Plus delivery as envisaged by Freud. Only Freud’s recommendations requiring single parents to find work earlier were adopted. But then came James Purnell’s wider reaching White Paper “Raising Expectations and Increasing Support: Reforming Welfare for the Future” in December 2008.

On page 12, its Executive Summary said:

“So, we are confirming that we want to move to the ‘Invest to Save’ approach recommended by David Freud, also known as AME-DEL.(Annually Managed Expenditure: Departmental Expenditure Limits). This involves private and voluntary providers investing up front in getting more people back in to work, and being paid out of the resulting benefit savings”.

“This period of innovation will be further enhanced by the proposals we have already announced for a ‘Right to Bid’, where we will turn the traditional tendering process on its head by inviting organisations to approach us with suggestions about how they can enhance our services”.

In “Devolving to Providers” on page 46, James Purnell’s White Paper continued:

“In February 2008, the Department for Work and Pensions published its Commissioning Strategy, which set out our vision for modernising and strengthening the welfare-to-work market. It opens the way for larger, longer contracts with providers rewarded for their success in helping more people into sustained work; where customers receive a more personalised and flexible service; and where delivery of employment support is integrated into local services. These principles are already shaping the commissioning for Phase 1 of the Flexible New Deal, which starts in October 2009”.

In preparation for the commissioning of Flexible New Deal, alongside Social Enterprise and Third Sector representatives, Huckfield attended attended a DWP Briefing on Flexible New Deal at Parkhead, the Celtic Football ground, on Wednesday 25 February 2009 on behalf of a potential bidder.

Part of the Huckfield Client report included:

“The Head of Supplier Management, explained that DWP was seeking to build relationships with top 30 suppliers, but this could be up to 50.

“There would be longer programmes of 5 to 7 years, building a strategic relationship with providers. There would be a shared understanding of objectives, with increased flexibility through open specifications in return for improved performance. This could include a “Black Box” approach, with providers telling DWP the best way to do things. This could result in Increased job outcomes and reduced cost per outcome. DWP still wanted smaller suppliers as subcontractors.

“DWP was seeking a single provider or Special Purpose Vehicle to deliver and manage across a range of services. There could be a range of organisations under an SPV as a legal entity. This could offer choice with more than one provider in particular area – so that competition could be offered between local providers”.

There was widespread recognition from Social Enterprise and Third Sector organisations attending on that occasion that the door was opening wide to large private sector providers. Even larger public sector operators would have difficulties in making bids on this scale and size.

Huckfield discussion while at the DWP briefing at the Celtic ground with other Social Enterprise and Third Sector providers in attendance confirmed their early recognition that their likely role would be as secondary or tertiary subcontractors. So by the beginning of 2009, many recognised that the rules of the game had already changed.

ACEVO Third Sector Task Force February 2009

In July 2008 in advance of the White Paper, ACEVO (the Association of Chief Executives of Voluntary Organisations) set up a Third Sector Task Force. The “Third Sector Taskforce” on “Welfare to Work Reform: Third Sector’s Role” reported in February 2009. On page 5 “Reform of Public Service Delivery” the Task Force recognised that the private sector would play a dominant role.

“DWP has introduced a new commissioning strategy that firmly establishes the need for contractors to achieve high, measurable, standards of delivery, both in terms of quantity and quality. This follows publication of the Freud report, the outcome of which is a new prime contractor model, in which each successful prime will operate in a large geographical area with a big population. It is already clear that most of these prime contractors will come from the private sector and that they in turn will be looking for sub-contractors with a strong, effective and consistent delivery capability”.

But on page 6 the ACEVO Task Force Report pinned its hopes on assistance from the proposed Social Investment Bank:

“For Third Sector organisations to take part in the DEL:AME (Departmental Expenditure Limits: Annually Managed Expenditure), due to commence in March 2011, it will be essential that the later recommendation in this report re the Social Investment Bank is implemented quickly, as few Third Sector organisations will be able to afford the substantial cash outlay needed to take part in programmes which only produce income 12–18 months later. With the likelihood that, if successful, the DEL:AME principle will be extended to all major contracts for Welfare to Work programmes and probably more widely still, it is vital that access to up-front funding (possibly £1bn will be needed) is available to potential third sector contractors, so that they can compete on a level playing field with the private sector companies that will be attracted by the longer-term funding of these programmes”.

One the Role of the Third Sector in Welfare to Work Delivery on page 6, the ACEVO Task Force Report continued:

“The scale of the new contracts and the “reward” mechanism for providers will create a greater opportunity than ever before for the third sector to support prime contractors in the delivery of public services. If that opportunity isn’t exploited, it may lead to the unwanted effect of freezing out third sector providers, so it is essential that arrangements are in place to encourage the strongest possible involvement by the Third Sector”

Tony Hawkhead, the ACEVO Task Force Chair, wrote on page 2:

“The recommendations range from the strategic to the technical, but all would make a difference. In particular, the recommendation for a Social Investment Bank, a new form of investment in the third sector, could transform the sector’s ability to get involved, not only in Welfare to Work programmes, but in a whole range of public service delivery activity”.

The ACEVO Task Force Recommendations on page 13 said:

  • “A Social Investment Bank should be set up, building to a minimum of £250 million start-up capital. This could be provided by a mix of unclaimed assets funds and matching funding from the Exchequer. As this is going to take considerable time to create, a smaller interim SIB should be set up to support the sector as soon as possible.
  • Capacitybuilders should work with organisations such as REACH to create a “clearing house” where TSOs can identify and recruit trustees with the skills and experience to support public service delivery.
  • Up to £5 million of DWP pump priming should be provided to support existing work by primes in strengthening the capacity of potential TSO partners. This needs support from third sector representative bodies and, possibly, Train to Gain. DWP and third sector representative bodies should work quickly to set up a transparent mechanism for deciding on the fund’s fair allocation and use.
  • DWP contracts should be structured to reward the gathering and sharing of good practice by all contracting organisations”.

Despite its advocacy in the ACEVO Task Force Report, the Social Investment Bank or Big Society Bank has been a long time in the making and is still not properly funded nor fully operational as originally envisaged. The difficulty with the Task Force’s recommendations, is that even when fully operational, it is doubtful whether the Bank’s main purpose will enable resourcing of Social Enterprises or the Third Sector to compete with or become prime contractors.

Further ACEVO Task Force recommendations included:

  • “A central service of technical contracting expertise should be set up, funded by DWP, to smooth the contract process between TSOs and prime contractors. The service should be transparent and neutral.
  • DWP and its providers (third and private sector) should establish a set of contracting “norms”, consistent with the Compact.
  • Performance by prime contractors against DWP’s Code of Conduct should be assessed objectively, and should directly affect the contractor’s star ratings. The assessment should concentrate on whether clients have had a positive and beneficial experience.The assessment should concentrate on whether clients have had a positive and beneficial experience.
  • There should be a more transparent process for resolving disputes arising from the Code of Conduct, in order to avoid unnecessary, time-consuming and expensive litigation, and to encourage faster, more informal, resolution of disputes”.

These Task Force conclusions and their broad support for proceeding with the prime contractor model were reached despite considerable evidence presented about Third Sector difficulties, as shown on page 11 of the Task Force Report:

Expansion of third sector skills and knowledge
There is strong evidence that TSOs need new skills and knowledge if they are to participate effectively in public service delivery, and realise their potential to deliver welfare to work schemes. Such skills would include knowing how to bid successfully, negotiating with primes and managing contracts that are paid on results. According to the ACEVO survey, just 13% of respondent TSOs have a dedicated contracting team, but 51% believe they would benefit from having one. There is also strong evidence that this is a difficult challenge for the third sector. There is little funding available for such capacity-building. TSOs rarely have the knowledge and resources needed to invest in the necessary training and development”

Despite the ACEVO Task Force Report’s acknowledgement of Third Sector difficulties, though its support for the Social Investment Bank and other pre conditions have not been met, commissioning with private prime contractors is developing rapidly, as shown below.

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This Section summarises events leading to the Coalition’s current policies.

Modernising Commissioning Green Paper December 2010

On December 07 2010 the Coalition Government’s Office for Civil Society published a “Modernising Commissioning Green Paper“.

On page 9 the Green Paper referred to key elements:

“In the Spending Review 2010, the Government committed to increase the diversity of provision in public services by increasing competition and consumer choice. This will involve consideration of three key elements:

  • Introducing payment by results across public services
  • Setting proportions of specific services that should be delivered by independent providers, including civil society organisations
  • Introducing new rights for communities to run services, own assets and for public service workers to form mutuals”

On page 16 the Green Paper referred to financing from the Big Society Bank:

“Big Society Bank to help civil society organisations access more resources and play a bigger role in delivering public services. The Big Society Bank will work, over the medium term, with new and existing social finance intermediaries to support the growth of a bigger, well functioning and sustainable social investment market”.

This is the same Bank advocated by the ACEVO Third Sector Task Force Report, which is still not operational.

The Social Enterprise Coalition “Response to Modernising Commissioning: Increasing the Role of Charities, Social Enterprises, Mutuals and Cooperatives in Public Service Delivery” January 2011, was hesitant on payment by results. The SEC Response said on page 4:

“Finally payment by results can mean that organisations with the strongest balance sheet and greatest ability to raise working capital are given an advantage above those that can deliver the best outcomes. This can severely limit market entry and have the unintended consequence of limiting choice and innovation.

“The Social Enterprise Coalition therefore believes that payment by results as a principle requires an approach where risk is shared between the public sector and civil society organisations. We would support mechanisms where parts of payments are dependent on the outcomes delivered but not the entire payment. We know of examples of contracts where 20%-30% of payment is dependent on outcomes and results delivered. We feel that such schemes provide the benefit of a greater results based incentive, while not creating a barrier for civil society organisations, limiting market entry, or disincentivising innovation.”

Under Big Society Bank on page 10, though supporting the principal of a Big Society Bank, the SEC Coalition Response continues:

“The Big Society Bank needs to be independent, flexible, risk taking and capable of being a market shaper”.

But this response then then surely compromises its position by supporting Social Investment, with its need for payment by results to attract private funding:

“Social investment is a market which requires support in order to develop. The Big Society Bank should aim to develop both the supply of and demand for investment within civil society, particularly to Social Enterprises. It should make investments, whether equity or equity-like, use its balance sheet as a guarantee to leverage further private finance, help existing intermediaries raise further finance for investment and help develop new forms of financial products. It should also help with investment readiness and tackle the lack of investment knowledge.”

Once again, this is a conditional response which depends on a Bank which has yet to become fully funded or operational. Much of the SEC Response accepts a need for the attraction of private capital through social investment. But private investors will seek not only a return but dividends, based on a payment by results system, with which Third Sector organisations have difficulties.

In December 2010, the National Council for Voluntary Organisations NCVO made its submission on the Green Paper “Modernising Commissioning: Increasing the role of Charities, Social Enterprises, Mutuals and Cooperatives in Public Service Delivery“.

The NCVO response to the Green Paper is a little confusing. Section 1.5 of the Executive Summary on page 2 says:

“It is likely that a shift toward a payment by results model would exacerbate these problems if decisive action is not taken. The Big Society Bank is a part of the solution to that problem”.

But Sections 2.9 and 210 on page 4 seem to undermine this, especially if “NCVO shares the Government’s desire for a greater focus on outcomes in public services”:

  • “2.9 NCVO shares the Government’s desire for a greater focus on outcomes in public services. Too often, services have been geared towards delivering narrow outputs and in meeting short term performance targets. A genuine shift towards outcomes would allow the necessary flexibility to reform services.
  • “2.10 There are, however, significant challenges associated with a shift towards outcomes. First, the ways in which outcomes are measured (and agreed between partners) is complex and will also take time. There needs to be an acceptance of a fair share of risk on both sides in both toward outcomes”.

All this means that while ACEVO, the Social Enterprise Coalition and NCVO all recognise that problems will be caused for Social Enterprises and Third Sector Organisations through systems based on payment by results, they have not been fundamentally opposed to their introduction. This paves the way for the scale of private investment foreshadowed in the Cabinet Office paper “Growing the Social Investment Market” described below.

“Growing the Social Investment Market” February 2011

Though it heralds a significant increase in direct private sector investment and involvement, this Cabinet Office Paper of February 2011 has not received the focus and attention it deserves. Section 2.3 on page 17 made the Government’s vision clear:

“2.3 We do not underestimate the degree of challenge, or the timescale required to realise our vision. But the opportunity is large. UK charitable investment and endowment assets alone account for nearly £95bn. If just 5% of these assets, 0.5% of institutionally managed assets and 5% of retail investments in UK ISAs were attracted to social investment, that would unlock around £10bn of new finance capacity.”

The contribution of Social Enterprise and the Third Sector is used as a yardstick for the level of private investment to be attracted. Section 2.7 on page 17 the Cabinet Office paper recognised the dilemma thus posed for Third Sector organisations:

“2.7 For other voluntary, community and social enterprise (VCSE) organisations, our vision ofers opportunity. Our intention is neither to privatise the social sector nor to bring it into the public sector. Social investment is not a panacea. We recognise that some VCSE organisations may prefer not to seek financing of this type. However, we believe that many VCSE organisations will want to consider social investment as a potentially useful tool to help them increase the scope, reach and longer-term sustainability of their activities.”

Section 2.12 on page 18 continued:

“2.12 For other financial services firms and intermediaries, such as traditional investment managers, advisers and pension funds, our vision will see them being prepared to invest a greater proportion of their assets and their clients’ assets in social investments, while building the resources and expertise necessary to research and evaluate the opportunities presented by this new class of assets. We envisage them developing a range of new products which will open up the social investment opportunity to a broader and better informed investor community”.

The effect of this Cabinet Office paper was to shift attention and debate from Social Enterprise and the Third Sector to Social Investment, including Social Impact Bonds. There will be more on these in a future Huckfield briefing.

Open Public Services White Paper July 2011

The Open Public Services White Paper in July 2011 introduced a strong presumption in favour of Commissioning on page 29, Section 5.2:

“In the services amenable to commissioning, the principles of open public services will switch the default from one where the state provides the service itself to one where the state commissions the service from a range of diverse providers”.

On page 30 in Section 5.8 the White Paper continued:

“The Government will consult with local authorities and the wider public sector about how to go further in opening up locally commissioned services in:

  • customer contact
  • planning
  • property and facilities management
  • back-office transactional services
  • family support
  • support for looked-after children
  • trading standards and environmental services
  • housing management

On page 39 in Section 6.4 the White Paper continued:

“We now want to embed across our public services the idea of diverse and innovative providers competing to raise standards. This includes freeing up those already working in the public sector so that they can find new and better ways to deliver services. There is now a rich pattern of autonomous providers within the public sector, including local health trusts, Academies, public corporations, leisure trusts, trading funds, further education corporations and arm’s-length management organisations. These organisations are increasingly competing for their income and with each other – all within the public sector.”

On page 40, Section 6.9 the White Paper continued:

“As well as increasing the diversity of service providers, there is an opportunity and need for more innovation in the financing of public service providers. The Government’s policies challenge the traditional approach to finance in each of the public, private, and voluntary, community and social enterprise (VCSE) sectors. For example, payment by results requires capital investment to cover both cash flow before payments are made and the risk that the anticipated results will not be achieved”

On page 43 in section 6.17 the White Paper mentions a range of Employee Ownership options, including the Right to Provide, Mutual Pathfinders, the Mutuals Task Force, the Mutuals Support Programme, the Enterprise Incubator Unit and Post Office Mutualisation.

There is no doubt that the combination of the “Modernising Commissioning” Green Paper and Open Public Services White Paper represented a major policy shift in the delivery of public services. ACEVO, the Social Enterprise Coalition and NCVO made separate submissions in response to the White Paper. Surely these might have carried more weight if a joint submission had been made which outlined the serious concerns of Social Enterprises and the Third Sector?

ACEVO’s Response to the Open Public Services White Paper on October 10 2011 encouraged more competition in public service delivery:

“In both cases we believe there is a case for Government to promote a health provider market, ensuring that the shape of the provider market is determined primarily by what is in the interests of taxpayers and service users, not what is in the interests of particular providers”.

” We recently surveyed all third sector subcontractors involved in the Work Programme (with 148 responding, ie. just under a third of all third sector subcontractors) and found that 42% thought DWP’s differential pricing would not be adequate to ensure the Work Programme helps harder-to-reach client groups, with 47% unsure and only 9% responding that it would be adequate. At the very least this suggests that there is a need to ensure that the success of the Work Programme in supporting the hardest to help is monitored, and remedial action taken if it is found not to be wanting”

Though the ACEVO response advocates a “Right to Redress” and adherence to the Merlin Standard, the trouble is that comes too late when bad practice has been carried out.

In response to the Government’s July 2011 Open Public Services White Paper, Social Enterprise UK and Co-operatives UK published a joint “Response to the Cabinet Office’s Open Public Services White Paper October 2011

In reply to “How can we stimulate more openness and innovation in public services through new types of provision?” the response said:

“Managing risk and outcomes-based commissioning
…”We therefore welcome the government’s desire to focus commissioning on outcomes rather than outputs and encourage government to help build trust between commissioners and providers to facilitate this. However, we do not believe that results based payments should account for the full or even majority value of the contract. Given the relatively low margins in public services – particularly when it comes to the delivery by socially motivated organisations –retaining smaller proportions of funding back for results would create the same incentive for outcomes, but balance the cash flow requirements of the sector.

On behalf of the National Council for Voluntary Organisations (NCVO), on July 11 2011, Stuart Etherington made an initial response to the Open Public Services White Paper, which included the following on funding and payment by results:

“Access to finance and cash flow is another major barrier denying voluntary organisations from taking on a greater role in service delivery. The Big Society Bank is a positive step towards remedying this, but will not be able to provide finance to the whole sector. There is an ongoing need for a range of grants, loans and contracts to make services accessible and sustainable.

“We are pleased that the Government has acknowledged that whilst Payment By Results and competition have potential, that neither of those are ends in themselves when considering public services. In the case of payments by results, we agree with the principle of rewards for high quality performance. However, some NCVO members have expressed concern about its implementation”.

The July 2011 NCVO Policy Analysis on page 7 under “Finance and Payment by Results” said:

“As PBR is likely to be extended under these proposals, there will be implications for all providers. Whilst PBR has some potential, and as a general principle it is right that high quality work and the right outcomes are rewarded, there remain some concerns:

  • PBR will potentially exclude organisations which cannot bear the financial risk, or have enough working capital to ‘wait’ for payment
  • There remain considerable complexities around how outcomes will be defined
  • Weighting payment amongst various providers will be complex – and this is likely to be necessary when dealing with individuals and communities with complex needs where there are multiple public service interventions

All this shows that ACEVO, the Social Enterprise Coalition and NCVO have all rightly recognised difficulties caused for Social Enterprises and Third Sector Organisations by more payment by results systems in the Open Public Services White Paper. Surely their further analysis might have formed the basis of a more effective joint submission on these difficulties?

Tax Incentives for Private Investment 2012

The National Council for Voluntary Organisations (NCVO) set up a Working Group which produced the NCVO Commission on Tax Incentives for Social Investment: Analysis and Recommendations in January 2012, which included Social Enterprise UK. Basically the Report seeks to extend direct private investment in Third Sector Operations. On page 22 “Recommendations”, the Report says:

“Second, the Government should consider how equity or equity-like investment made directly into enterprises established for community or social benefit should be eligible for CITR, along the following lines:

“The meaning of “CITR” would be extended to read: “entitlement to tax reductions in respect of amounts invested by [individuals or companies] in community development finance institutions or through equity or equity-like investment into enterprises established for community or social benefit”.

“The eligible bodies capable of receiving CITR investment would be extended to include:

  • bodies accredited as CDFIs under ITA 2007
  • registered charities
  • Community Interest Companies registered with the CIC regulator
  • Community Benefit Societies registered with the Financial Services Authority (or its successor)
  • other company forms such as Companies limited by shares and Limited Liability Partnerships (LLPs) majority owned by the above registered charities, CICs or ‘BenCom’ societies.

“Direct investment of this type would entitle the investor to the same reliefs as those available for investment into a CDFI and would be subject to the same restrictions where applicable.”

Other parts of this Report seek to make it easier for tax relief available under the Enterprise Investment Scheme and Venture Capital Trust to be available to those investing in the Third Sector.

In further support of incentives for private sector investment, on January 27 2012 Social Enterprise UK in a “Letter to respond to the Department for Business, Innovation and Skills: Improving Access to Non-Bank Debt – Call for Evidence” sought relaxation of regulations to permit more direct private investment:

“Other initiatives that we believe the government should explore include:

  • Reform of tax incentives – We would like to see the government seriously consider the recently submitted policy recommendations from the Commission on Tax Incentives for Social Investment, of which Social Enterprise UK are members
  • Regulatory framework reform – In particular, we would like to see the government review the current financial promotions rules with a view to providing exemptions for community and social finance offers. Underpinning any exploration into reforming the regulatory framework, we would also like to see how individual socially motivated investors could be benefitted and supported. In the same vein, to look at collective investment models/products designed around actively courting retail investment – e.g. retail social impact bonds, crowd funding – which could perhaps work in a similar way to ISAs with protections against exploitation such as caps”

These NCVO and Social Enterprise UK approaches encourage further Social Investment by private investors in Third Sector and Charitable activities. All of this represents a significant policy shift which supports the Cabinet Office Paper “Growing the Social Investment Market:A Vision and Strategy” February 2011, the main purpose of which is to encourage more private investment in the Third Sector. This surely represents a national policy shift not widely understood or recognised among many Social Enterprises or wider Third Sector Organisations?

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This Section describes some latest developments which may unfortunately continue to blur dividing lines between private and Third Sector organisations .

ACEVO and NHS Competition

ACEVO’s Chief Executive chaired the “Choice and Competition : Delivering Real Choice” Panel for the NHS Future Forum as part of the Prime Minister’s “pause” in consideration of the Health and Care Bill 2011. Part of the Future Forum’s recommendations made on June 13 2011 included:

“competition should be used to secure greater choice and better value for patients – it should be used not as an end in itself, but to improve quality, promote integration and increase citizens’ rights”

This recommendations are not supported by the professional organisations and others which have moved amendments in the House of Lords which to restrict competition in the NHS.

ACEVO’s Chief Executive has consistently advocated more competition in the NHS, as at the ACEVO North Conference September 29 2011:

“This means taking the principles set out in the White Paper – the principles of diversity, of choice, of transparency, of free competition – and translating them into concrete actions. We’ve heard a lot of promises from the government over the past year, about levelling the playing field for all providers, and creating the conditions for fair and open competition across the public service environment. Now we need them to deliver on those promises.

“Delivering on the promise of reform also means sending the right messages to commissioners about making use of the third sector. So I expect the Government to stand firm on competition-related issues as the health bill passes through the Lords”.

All this shows ACEVO policy at variance with Opposition amendments against the Government’s Health and Social Care Bill in the Commons and Lords. The main thrust of these amendments seeks to reduce or confine NHS competition.

ACEVO’s Structure

Though understandably ACEVO seeks to extend and widen the influence of the Third Sector, some of its own structures may unfortunately cause a blurring of divisions between private and Third Sectors.

ACEVO offers “Corporate Partnership“:

“For corporate organisations, there are two primary reasons to join ACEVO: to access the market of third sector chief executives, and to build a profile around sustainable business and CSR.”

Corporate Partnership offers access to Our Members, shown as “34% with income of £1mn to £3mn, 15% of income of £5mn to £20mn and 4% greater than £20mn”

Under “Relationships“, ACEVO offers:

“If we get this right from the start, we will be able to work together and meet your objectives. Activating your brand, generating business and bringing you closer to the third sector are easier for us when we know you and how you operate”.

ACEVO’s “Sustainable Business-Cross Sector Partnership Creation” seems determined to blur distinction between Third and private sector even more:

“It has become clear that the narrative around corporate responsibility is shifting. We are seeing a move away from the language of CSR, towards sustainability. Traditional methods of corporate philanthropy have been exposed as somewhat Victorian and there is a movement, which is gaining significant momentum, pushing for sustainable methods of engagement. ACEVO has a unique position to drive this debate: we have access to the brightest thinkers in the third sector, and are reaching out to business to join this movement.

“Our steering group has been tasked with exploring the key building blocks – those crucial elements of a partnership that we need to replicate for new partnerships to work effectively and with maximum impact”.

ACEVO deserves credit for its efforts to widen the acceptance of Third Sector organisations to participate in public service delivery. But in pursuing these objectives, some of its own structures may unfortunately heighten confusion in the public mind about the private sector, Social Enterprise and the Third Sector.

Social Enterprise UK, BBC Newsnight and the Policy Exchange

Social Enterprise UK, responding to BBC Newsnight’s coverage on Tuesday 21 February 2012 of the Policy Exchange’s proposals for Social Enterprise Schools, said:

“The story blurred the lines between the private sector and social enterprise, which is an important concern for our sector. Private companies exist to make a profit for their owners and shareholders, whereas social enterprises exist and make a profit in order to tackle social issues. The social purpose is enshrined in a social enterprise’s governing documents and takes precedence. A private company simply reinvesting 50% of its profits back into the business does not make it a Social Enterprise”.

The Policy Exchange “Social Enterprise Schools” publication on page 44 suggests the following model:

  • Social enterprise with a flexible asset lock
  • 50% of any surplus to be distributed as dividend to shareholders
  • Remaining 50% of any surplus would have to be reinvested in the service

“Due to the substantial initial external investment that will be required, it should be permissible for 50% of any school’s surplus to be extracted as a reasonable return on that initial investment. As we will explore below, it would be desirable to encourage teacher ownership, and be able to offer staff a personal financial stake in the school they work in (or in the broader provider company).

The Policy Exchange Report on page 46 recommends a Monitor (in line with the NHS Monitor favoured by ACEVO):

“Such a regulator would have the ability to monitor anti-competitive behaviour and would also guard against any one provider becoming too dominant and allow the risk of failure to be spread more widely.

“In addition, in the event that for-profit provision went beyond the social enterprise model at some future stage, the regulator could also have responsibility for an insurance scheme whereby a levy was raised from for-profit providers, contributing towards a risk pool to guard against failure”

“A rule where operators of a social enterprise secondary school would receive no share of any surplus unless a certain percentage of all students achieve expected levels of progress might be a sensible starting point”.

For many onlookers, once we get into arguments over territory like this, most of those outside a narrow circle of Social Enterprise cognoscenti will not be able to understand these differences.

Before this, the Chief Executive of Social Enterprise UK posted his Blog of September 06 2011:

“At Social Enterprise UK HQ we’re seeing an upsurge in interest – potential start-ups looking for advice, social enterprises realising that they’re part of a movement (it still amazes me how many organisations there are out there that don’t realise they’re actually a Social Enterprise), but perhaps most interestingly, big corporates are knocking on our door wanting to know how they can get into the world of social enterprise”.

This description of those organisations which “don’t realise that they’re actually a Social Enterprise” should surely give cause for concern? If they don’t know themselves whether they are a Social Enterprise, how will those looking on understand the difference?

National Audit Office and “The Introduction of the Work Programme”

On Tuesday 24 January 2012, the National Audit Office produced a Report on “The Introduction of the Work Programme

The Report recommends on page 11:

“Early indications show that subcontractors are dissatisfied with the approach taken by some prime contractors. The Department should carry out spot checks to make sure that its own standards for prime contractor management of subcontractors are implemented and should consider conducting a survey of subcontractors to be assured that the standards have been applied”.

The Report says on page 31 Section 2.9:

“Successful bidders offered performance levels greater than those achieved under previous welfare to work schemes as well as those assumed by the Department in developing the Programme. Based on the discounts offered by the successful prime contractors the Department estimates that prime contractors offered discounts of £250 million if they secure the performance promised in their bids.”

This National Audit Office Report is surely recognition of the secondary role to which which Social Enterprises and others are now relegated in a bidding process dominated by private sector prime contractors?

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Some of these difficulties, differences and blurring of divisions arise from Social Enterprise UK’s wider definition for the Social Enterprise Sector. In “Growing the Social Investment Market:A Vision and Strategy” February 2011, on page 13, the Cabinet Office believes that Social Enterprises now produce 1.5% of UK GDP:

“1.7 Social ventures are also making a big contribution to economic growth in what remains a challenging economic and fiscal environment, and can play an important role in helping to re-balance the economy. Already their economic impact includes:

  • a £24 billion annual contribution to the economy – equivalent to 1.5% of GDP – based on the formal definition of social enterprise used in the Small Business Survey by the Department for Business, Innovation and Skills (BIS)
  • making a positive contribution to employment. Social enterprises alone employ at least 800,000 people, and support the labour market by operating in disadvantaged areas and offering employment opportunities to traditionally excluded groups”.

This estimate of the size of the Social Enterprise Sector comes from the Annual Small Business Survey 2007/08 which is used in the Social Enterprise Coalition’s Report on “The State of Social Enterprise 2009“, which reports on page 8:

“According to data from the Annual Survey of Small Business UK (aggregated data 2005–07), there are approximately 62,000 social enterprises in the UK with small and medium social enterprises contributing £24 billion GVA (Gross Value Added) to the UK economy”.

The SEC Report shows a wide range of organisations and structures in the survey, many of which Senscot would find it difficult to recognise as social enterprise:

“Whilst some social enterprises are very large, with turnovers in excess of £100 million, the majority operate at small-business scales, with a median turnover of £175,000”.

But the SEC Report does not discuss basic eligibility characteristics for a Social Enterprise.

In contrast, in “Approaches to Measuring the Scale of the Social Enterprise Sector in the UK” September 2010, the Third Sector Research Organisation at Birmingham University showed that according to one measurement on page 11 only around a quarter of these might be Social Enterprises.

On page 5 ‘Results’, the Report said:

“The survey focused on organisations registered as Companies Limited by Guarantee (CLGs) or Industrial and Provident Societies (IPS) only and was used to provide an estimate of around 15,000 social enterprises or 1.2% of all enterprises in the UK. It was estimated that they contributed £18 billion to GDP, and employed 475,000 paid staff, of whom two-thirds were full time. Of these 15,000 social enterprises, 88% were CLG and 12% were IPS. Two thirds reported having charitable status, of whom 93% were CLG and 7 per cent IPS.”

The difference between the size of the Social Enterprise sector as measured by the Cabinet Office and Social Enterprise UK’s State of Social Enterprise 2011, compared to that evidenced by the Third Sector Research Organisation, provides further evidence of a blurring of boundaries and definitions of what constitutes a Social Enterprise.

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Since the Amendment by Green MSP Mark Ballard to the Scottish Government’s Voluntary and Social Economy Motion in the Scottish Parliament on Thursday 19 May 2005, in Scotland a distinct policy of support for Social Enterprise has emerged. His amendment:

“recognises the breadth of the social economy in Scotland; further recognises the distinctive contribution that co-operatives and social enterprises make to the social economy; recommends the development of a differentiated strategy to meet the specific needs of the social enterprise sector of the social economy, and further recommends that such a strategy be developed in partnership with social enterprises and their networks beyond the voluntary sector, be aligned with the development of the Co-operative Development Agency and be aligned with the Department of Trade and Industry’s strategy to support social enterprise across the rest of the United Kingdom.”

In response to this and following a detailed consultation, Rhona Brankin MSP as Communities Minister introduced “Better Business: A Strategy and Action Plan for Social Enterprise in Scotland” in March 2007, with £1.5mn support for Social Enterprises. This was a comprehensive strategy with three aims:

  • Aim 1 Raising the profile and proving the value of Social Enterprise
  • Aim 2 Opening up markets to Social Enterprise
  • Aim 3 Increasing the range of finance available to develop Social Enterprise

This was followed by the Enterprising Third Sector Action Plan 2008-2011, with the following objectives:

  • Objective 1: Opening markets to an enterprising third sector
  • Objective 2: Investing more intelligently
  • Objective 3: Promoting social entrepreneurship
  • Objective 4: Investing in skills, learning and leadership across the third sector
  • Objective 5: Providing support for business growth
  • Objective 6: Raising the profile of enterprise in the third sector
  • Objective 7: Developing the evidence base

This Action Plan was initially funded through £8.75mn of £93mn identified for development and support of the Third sector in the Scottish Government Budget in November 2007. £30mn was allocated to the Scottish Investment Fund and £12mn for direct investment through the Third Sector Enterprise Fund. £1mn was allocated to the Social Entrepreneurs’ Fund, launched in November 2008 for individuals to set up a business with a social or environmental purpose. An additional £500,000 was made available until March 2012.

On July 27 2010 a detailed Progress Report on the Action Plan was published.

This was followed by an Evaluation of Third Sector Investment and Support by Scottish Government Social Research in September 2010. Its Conclusions and Recommendations in Section 7.1 on page 49 said:

“It is clear from the study findings that the package of funding and support has been very well received by third sector organisations, stakeholders and other funders. The evidence indicates that the overall approach that has been taken is the right one and has a significant contribution to make to developing an enterprising third sector. There are some gaps and areas for improvement but the key message is that the package should not be significantly altered, rather it should be fine tuned to maximise its impact.”

During the 2007 to 2011 Scottish Parliament, basic Scottish Government funding for Social Enterprise has been provided through:

Where appropriate, these programmes are now extended. An example of Scottish Government funding for the future is in the £1.5mn Ready for Business Programme. The December 2011 Programme Announcement showed that Ready for Business will seek to:

  • improve the profile of Third Sector suppliers with the public sector buying community and thereby open markets
  • strengthen understanding and application of Community Benefits in Procurement
  • encourage routine use of co-production in the design of public services and development of Public-Social Partnerships

The hallmark of all these Scottish Government programmes of funding support is that they are detailed and specific and do not seek private sector involvement. Despite ongoing general funding difficulties, there is still £25.9mn in the Scottish Government’s Budget of Tuesday 31 January 2012 for the Third Sector.

Future Huckfield briefings will cover the Scottish Government’s policy in more detail.

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Following the Coalition Government’s Modernising Commissioning Green Paper in December 2010, the Cabinet Office paper Growing the Social Investment Market in February 2011 – with its advocacy of private investors’ ‘social investment’ – and the Open Public Services White Paper in July 2011, the future shape of public service delivery is becoming more clear. The responses of ACEVO, Social Enterprise UK and NCVO, while raising some difficulties, have supported the thrust of these policies.

National Offender Management Service and Prisons in England

Events in England for commissioning in the National Offender Management Service and Prisons represent the “second wave of the primes” – with private sector primes forming partnerships with larger Third Sector organisations.

On Friday 24 February 2012, Huckfield attended a briefing in Durham from The Local Alliance – SERCO, Turning Point and Catch 22. Many colleagues from smaller organisations were pondering how they might fit into a bidding partnership obviously dominated by SERCO.

Expressions of Interest rightly ask smaller organisations about their capacity and delivery volumes they anticipate. The Local Alliance Durham briefing also stressed that this should not be the only contractual services delivered by those expressing interest.

Another consortium is the ‘HMPS Partnership’ – HM Prison Service, MITIE, the Shaw Trust and Working Links. There will be others.

All this leaves many Social Enterprises and Third Sector Organisations at the end of the chain, with fears that they will be beaten down in price for services where they have a proven track record of delivery. They know that this system of “primes” and payment by results is becoming the norm.

Unions and The Third Sector

Trade unions are taking a new interest in Communities and the Third Sector. A Campaign for Learning event in London on Monday 12 March 2012 brings together unions, communities and the Third Sector nationally for the first time. UNITE now has a Community, Youth Workers and Not for Profit sector, a new Unite for Our Society site and is piloting new new Community Branches. All this shows an increasing trade union interest and presence in Third Sector activity.

The Unite Community, Youth Workers and Not for Profit Sector proclaims:

“UNITE is the lead union for the not for profit sector, setting out a progressive agenda to support all who work for charities, professional bodies, housing associations and many other workplaces, from the very large to those that employ only one or two people”.

There is no doubt that this influx of new membership into UNITE and other trade unions will resist greater private sector involvement in Social Enterprise and the Third Sector.

And, Finally

The prime contractor model and payment by results are spreading widely throughout Department of Work and Pensions, JobCentre Plus, the Ministry of Justice, National Offender Management Service and Prisons. When Andrew Lansley’s Health and Social Care Bill finally reaches the Statute Book, there will be more.

Where these are areas of policy devolved to the Scottish Government, many of these changes will not happen. The Scottish Government has resisted contracting out, commissioning and tendering for NHS, Prisons and the services which it controls. But tax incentives for private investment encouraged by Social Enterprise UK and NCVO do affect Scotland as part of the UK taxation and welfare systems.

Meanwhile, rather than influencing public services delivery, surely these national organisations representing the Third Sector will find themselves restricted to a role in negotiating with private sector primes to secure better terms and conditions for subcontractors?

All this represents a brave new world of private sector direct investment, Social Investment, including Social Impact Bonds, payment by results and the emerging threat of privatisation of the Third Sector.

This Huckfield briefing suggests that many smaller Social Enterprise and Third Sector organisations may be driven to draw their own line in the sand.

But this line will be in a different place from that drawn by their national representatives.

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