NCVO – the National Culling of Voluntary Organisations

Background

This posting concerns the incredible behaviour of NCVO – the National Culling of Voluntary Organisations – over the past 30 years, which has contributed to:

  • unprecedented numbers of voluntary and community organisations becoming more dependent on fast shrinking public funding, thus rendering them subservient and forced to bid for contract funding for carrying out central and local government policies
  • support for New Labour and Coalition Government policies, including the Compact, Flexible New Deal, the Work Programme and Transforming Rehabilitation – so that voluntary and community organisations are left to beg for crumbs from the table of private prime contractors
  • support for New Labour and Coalition Government policies to replace public with private funding through social investment as a futile response to austerity – funding which is irrelevant and inaccessible for most organisations paying NCVO subscriptions
  • closure and withdrawal of services delivered by many voluntary and community organisations which used to play a vital role in supporting local communities

Foremost in criticising NCVO’s role in all of this has been the Independence Panel for the Voluntary Sector. But NCVO has now solved that problem by buying the Independence Panel.

The Independence Panel for the Voluntary Sector has surely now lost all credibility through taking NCVO money.

Huckfield is reminded of that great 1930 Laurel and Hardy film classic Another Fine Mess (1). But after their escape from that tunnel riding two unicyles, Stan Laurel and Ollie Hardy went on to make many more great films – which is more that can be said of many previous NCVO members, which have been forced to close.

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NCVO Buys Out its Biggest Critics

On Wednesday 11 February 2015, Third Sector carried this story by Andy Ricketts Sir Stuart Etherington announces NCVO offer of £100k for new Baring Foundation panel (2). The carefully crafted Etherington statement said:

“In the same way that the Deakin report was a creature of its time and its recommendations marked a turning point in the history of the voluntary sector, I hope this commission will enable the sector to shape its own future”

“Such an endeavour needs to be properly resourced and we are pleased to be offering £100,000 to support the work of this important commission.”

“Some key areas for a commission to consider, which will strengthen independence, are how to strengthen the sector’s independent mission and identity and the sector’s voice in a modern democracy… a new funding model for the sector that works for organisations that currently rely on state funding, including smaller organisations; and how to strengthen independent regulation.”

“Another Fine Mess” – what Stuart Etherington didn’t say

Stuart Etherington’s two very significant omissions are described in detail below:

  • It was NCVO which set up the Deakin Commission, which reported in 1996 and led to the Compact, under which voluntary and community sector become subservient to central and local government. Emma Carmel and Jenny Horlock labelled this Instituting the ‘Third Sector’ as a Governable Terrain (3):

    (p167)“Indeed, we pointed out that while the third sector is instituted as a governable, and thus a public, realm, its accountability, procedures and activities as a public service provider remain a matter for technocratic evaluation by state actors, rather than a matter for political debate and contestation”

    In other words, the voluntary sector had become an arm of the state. Since under the Compact it was NCVO which got voluntary and community organisations into this mess, Stuart Etherington’s words are standing history on its head.

  • The Independence Panel of the Voluntary Sector, previously funded by the Baring Foundation – as shown in detail below – directly and indirectly has been among NCVO’s strongest critics.

This posting therefore seeks to jog NCVO’s memory about its own history.

The Independence Panel for the Voluntary Sector and NCVO

These extracts from four Annual Reports from the Independence Panel show why NCVO has spent £100,000 to silence its critics.

Protecting Independence: The Voluntary Sector in 2012. Panel on the Independence of the Voluntary Sector (4):

(p27)“There is a danger that parts of the voluntary sector which deliver public services could in effect become not for profit businesses, virtually interchangeable with the private sector”

(referring to events in Canada)“Independence once enjoyed by mutual aid and religious organisations has evolved into a complex, embedded relationship with government in which the nonprofit and voluntary sector primarily strives to achieve a productive interdependent partnership rather than an independent or civil society relationship”.

Independence under Threat: The Voluntary Sector in 2013: The Panel’s Second Annual Assessment (5):

(p43)“The NCVO and ACEVO were clear in evidence that they actively campaigned on behalf of the sector without fear or favour and were unaffected by receiving state funding. …. They also argued that influence behind the scenes could sometimes be more effective“.

(p43)“… leading infrastructure bodies came under attack from within the sector when they wrote as ‘charity leaders’ to the Economic Secretary to the Treasury on 19th October 2012 saying that they ‘were looking forward to working with you to build a more sustainable economic future for our country, by stimulating growth and tackling the deficit’. The letter was seen by some as placing the voluntary sector at the disposal of the government machine”.

(p43)“We also believe that infrastructure bodies could do even more than just question practices that threaten the independence of the sector – for example by launching judicial reviews of contractual terms which reduce independence”.

Independence Undervalued: The Voluntary Sector in 2014. The third annual assessment of the Independence Panel (6)

(p44)“The Panel’s view is that, under the last few governments, the trend has been for state bodies to manage relationships with the voluntary sector through markets. Current procurement and contract practices lead the government to treat the sectors as interchangeable because they are in competition”

An Independent Mission: The Voluntary Sector in 2015. The Panel’s Fourth and Final Annual Assessment (7):

(p14)“As one of our members, Professor Nicholas Deakin puts it, ‘The voluntary sector risks declining over the next ten years into a mere instrument of a shrunken state, voiceless and toothless, unless it seizes the agenda and creates its own vision.’”

(p43)David Robinson, founder of Community Links “described how, for different reasons, civil society has been losing its voice in recent years. .. Instead of defending its right to challenge poor business practices such as failure to pay the Living Wage, the voluntary sector’s response was largely to argue that it is a supporter of the private sector. The relationship to government, he argued, has become one of subservience

In this Final Report on page 7, the Panel identifies six challenges to the independence of the voluntary sector. In the Panel’s assessment, everything “continues to get worse”. This is strong implied criticism of the failure of third sector organisations like NCVO..

The 1978 Wolfenden Report – NCVO Hires a “Management Guru”

NCVO’s history shows its complicity and willing participation in nearly thirty years of central government endeavours to make voluntary and community organisations subservient and more like businesses, so that they can tender to deliver public services cheaply.

The 1978 Report of the Wolfenden Committee on The Future of Voluntary Organisations (8) foreshadowed the rise of a range of third sector intermediary organisations as policy influencers. Brandsen et al in Third Sector Policy Communities in Europe: a comparison of the UK, the Netherlands and Sweden (9) describe Wolfenden’s Report as “a turning point in a number of senses”,including its “justification for strengthening a horizontal policy architecture centred on the idea of ‘intermediary bodies’ at the local and national levels”.

NCVO’s response to this was to hire a “management guru” to turn voluntary and community organisations into businesses. Colin Rochester in 2013 described this process in Rediscovering Voluntary Action: The Beat of a Different Drum (10):

(p49)“As early in the process as 1981, the report of a working party on ‘Improving Effectiveness in Voluntary Organisation’, set up by NCVO and chaired by the management ‘guru’ Charles Handy, pointed to the need for the sector to embrace some of the management practices of business and led to the establishment by NCVO of a Management Development Unit (National Council for Voluntary Organisations, 1981).

In 1993, Barry Knight’s detailed analysis in Voluntary Action, the Centris Report (11) describes this further:

(p46)“The Handy Working Party of 1981, which put management firmly on the agenda, was titled ‘Improving Effectiveness in Voluntary Organisations’”

Voluntary Action, the Centris Report (11) responded to NCVO themes by suggesting that the voluntary sector might be split into a “first force” of service providers and a “third force”, mainly of advocacy groups. This restructuring theme became mood music for Conservatives and New Labour.

NCVO, the Deakin Commission and the Compact

In 1994, NCVO once more took the lead by setting up a Voluntary Sector Commission under Professor Nicholas Deakin. The central recommendation of Meeting the Challenge of Change: Voluntary Action into the 21st Century: Report of the Commission on the Future of the Voluntary Sector in England (12) was that there should be a formal concordat between the voluntary sector and government. But to be fair to Deakin, he did not envisage the subservient relationship which then developed.

Though the Conservative Government was not keen on a concordat, in 1997 the Labour Party’s Building the Future Together: Labour’s Policies for Partnership between Government and the Voluntary Sector (13) called for a Compact – a new relationship with the voluntary and community sector. The History of the Compact (14) shows rapid progress in this new relationship, in which NCVO was soon reduced to a junior partner:

  • 1997 Conference of leading sector umbrella bodies backs NCVO’s proposal for a Compact Working Group on Government Relations (set up as Compact Working Group, now renamed Compact Voice)
  • 1998 Compact agreed and launched
  • 2000 Funding Code published (revised 2005 as Funding and Procurement Code)
  • 2000 Local Compact Guidelines published (revised as Local Compact Implementation Workbook, 2006)
  • 2001 Volunteering Code published (revised 2005)
  • 2003 Community Groups Code published

In September 2002 the Treasury in its Cross Cutting Review: The Role of the Voluntary and Community Sector in Service Delivery (15) set out the terms on which it was prepared to engage with voluntary and community organisations:

(p5)“This review of the role of the VCS in service delivery set the strategic framework for the discussions in this year’s spending review. Its overall objective was to explore how central and local government can work more effectively with the sector to deliver high quality services, so that where the sector wishes to engage in service delivery, it is able to do so effectively”

In effect, central government said to NCVO members “You can take it or leave it”!

No wonder that by 2004, Kate McLaughlin in Towards a ‘Modernised’ Voluntary and Community Sector (16) was again writing about a “bifurcation of the sector”, in similar vein to Voluntary Action, the Centris Report (11):

(p562)“one ‘modernized’ sector dependent upon substantial public money and dedicated to the production of ‘world class’ public services and one non-institutionalised sector dependent upon primarily voluntary income and working at the margins of public service delivery and in the sphere of civil society”

Her forecast proved accurate. In March 2005 in his Consultation Document Strengthening Partnerships: Next Steps for Compact: The Relationship between the Government and the Voluntary and Community Sector (17) Charles Clarke as Home Secretary sought a two tier Compact:

(p6)“Opting into the commitments in Compact Plus would entitle organisations to display a new kitemark on their publicity material (similar to the Investors in People standard), and achieving Compact Plus would need to reflect the work and processes involved in reaching this standard”

But because of the May 2005 General Election, the Compact’s Annual Meeting with Ministers was delayed until November 2005 and Charles Clarke’s attention was diverted elsewhere.

For 25 years NCVO had tried hard to refashion voluntary and community organisations as businesses. But now New Labour wanted brand names and kitemarks as well!

NCVO was probably saved by the May 2005 General Election and Charles Clarke’s attention being diverted by foreign prisoners in British jails and his ultimate dismissal.

NCVO won’t welcome being reminded of all this by anyone.

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December 2008 – NCVO Supports Foundations for the Work Programme

In December 2008 New Labour laid the foundations for the development and operation of the current Work Programme in James Purnell’s White Paper Raising Expectations and Increasing Support: Reforming Welfare for the Future (18)

(p46)The DWP Commissioning Strategy “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”

There was widespread recognition from third sector organisations that this opened the door wide to large private sector providers. So it should have been obvious to NCVO that the rules of the game had changed.

In July 2008, before James Purnell’s Raising Expectations White Paper (18) the Association of Chief Executives of Voluntary Organisations (ACEVO) set up a Third Sector Task Force. Welfare to Work Reform: The Third Sector’s Role: Third Sector Taskforce Final Report (19) was published in February 2009. The Task Force, on which NCVO was represented by its experienced Policy Director, Liz Atkins, recognised that the private sector would play a dominant role:

(p5)“This follows publication of the Freud report (20), 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.”

For New Labour in March 2007 David Freud’s Report Reducing Dependency, Increasing Opportunity: Options for the Future of Welfare to Work (20) provided the foundations for Flexible New Deal in 2009, which the Coalition easily transposed into the Work Programme. His Report on page 107 even points to Universal Credit!

But instead of challenging any of this, the Third Sector Taskforce Final Report (19) including NCVO, pinned its hopes on getting funding from the proposed Social Investment Bank:

(p6)“..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”.

(p6)“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”.

So the Task Force, including NCVO, offered support for the private prime contractor model – despite considerable evidence presented about third sector difficulties, as shown in the Third Sector Taskforce Final Report (19):

(p11)“According to the ACEVO survey, just 13% of respondent TSOs have a dedicated contracting team…”

All this meant that under the Work Programme there was little NCVO could do, except to seek improvement in the terms and conditions under which private primes might subcontract to voluntary and community organisations.

Huckfield pointed out this diminished role of third sector subcontractors at the mercy of private sector primes to Stuart Etherington when he addressed a meeting of West Midlands Charities in Birmingham on Friday 28 October 2011.

Huckfield was not involved when NCVO in April 2013 published the NCVO and Serco Joint Code of Practice. (21)

As shown above, under the Compact NCVO allowed the Government to become the puppet master. Under the Work Programme NCVO allowed private prime contractors to become the puppet masters. NCVO won’t enjoy being reminded of all this.

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NCVO Supports all the Coalition Government’s Big Policies

On December 07 2010 the Coalition Government’s Office for Civil Society published its Modernising Commissioning Green Paper (22). Page 9 emphasised fundamental changes:

  • Introducing payment by results across public services
  • Setting proportions of specific services that should be delivered by independent providers, including civil society organisations

The NCVO Green Paper Response : Modernising Commissioning: Increasing the role of Charities, Social Enterprises, Mutuals and Cooperatives in Public Service Delivery (23) said in its Executive Summary:

(p2)“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”

Against this mighty onslaught from Government, NCVO’s response mainly focuses on measurement of outcomes, transfer of assets, sharing risk and making markets more accessible to third sector organisations.

The December 2010 Modernising Commissioning Green Paper (22) paved the way for massive private investment foreshadowed in the Cabinet Office paper “Growing the Social Investment Market (24). The Government’s vision was clear:

(p17)“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 Cabinet Office Open Public Services White Paper in July 2011 (25) also represented a major policy shift, with its strong presumption in favour of commissioning:

(p40)“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”

For NCVO on July 11 2011, Stuart Etherington made an initial response to the Open Public Services White Paper, which included:

“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.

Though NCVO may have recognised difficulties through payment by results systems in the Open Public Services White Paper (25), it did not opppose its thrust or basic principles.

NCVO followed the same course oh Social Investment Tax Relief. In response to the Government’s proposals on Social Investment Tax Relief (26) NCVO up a Working Group which produced the NCVO Commission on Tax Incentives for Social Investment: Analysis and Recommendations (27)in January 2012:

(p22)“the Government should consider how equity or equity-like investment made directly into enterprises established for community or social benefit should be eligible for Community Investment Tax Relief (CITR)”

As in its response to major Government proposals above, NCVO once more sought to encourage more social investment by private investors in third sector activities.

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NCVO’s Belated Awakening on Social Investment

After its continuing advocacy of Big Society Capital and social investment, NCVO is belatedly beginning to accept that this doesn’t work. In a posting on September 17 2014, G8 Social Investment: What do you need to know? (28), Andrew O’Brien, NCVO Senior Policy Officer wrote:

“Many voluntary organisations are not investment-ready either because they lack the skills/experience to be able to factor social investment into their plans or they lack the capacity and time to consider it”.

The ACEVO Task Force Report (19), the NCVO Green Paper Response Modernising Commissioning: Increasing the role of Charities, Social Enterprises, Mutuals and Cooperatives in Public Service Delivery (23) and the NCVO response to Open Public Services White Paper (25) all pin their hopes on social investment and Big Society Capital.

Despite its constant advocacy and support for social investment, NCVO at last seems to have awoken to the reality that social investment may not be the answer!

There is mounting evidence, including the May 2014 Big Society Capital’s Social Investment: From Ambition to Action: Annual Review, Report and Accounts 2013 (29):

(p41)“…. 19 investments with a value of £47.9mn have been signed and £13.1mn has been drawn down. Big Society Capital’s expectation is that the average investment will typically take between 3 and 6 years to fully draw down.”

Huckfield’s previous posting 2015-a Year for Killing Social Enterprise, Coops and Mutuals carries much more evidence about social investment not working.

Conclusion

A combination of Modernising Commissioning Green Paper (22), Growing the Social Investment Market (24) and the Open Public Services White Paper (24) sought fundamentally to change the delivery of public services – in many ways to the detriment of NCVO members.

Surely NCVO and other third sector infrastructure organisations could have made joint submissions outlining the serious doubts and concerns of the third sector, instead of accepting the role of private prime contractors and pinning hopes on a policy of social investment which doesn’t work?

No wonder that Independence under Threat: The Voluntary Sector in 2013: The Panel’s Second Annual Assessment (5) recommended:

(p43)“launching judicial reviews of contractual terms which reduce independence”.

Huckfield knows from so many anecdotes and discussions that large numbers of those paying NCVO subscriptions feel cheated and poorly represented. Here’s hoping that thousands of them will either cease paying their dues or at least make it clear that £100,000 could be better spent representing the genuine aspirations of members rather than buying off critics.

If this doesn’t happen, there is every prospect that the new Panel – however it styles itself – will become a mouthpiece to amplify NCVO’s ongoing litany of supine complicity and tame subservience to the Government of the day.

References

Huckfield apologises that some of the following are references to subscription academic journals. If readers can’t access any of these, please use the Contact Form on this site. Thank you.

(1)James Parrott (Director);Laurel,Stan;Hardy,Oliver. Another Fine Mess 1930 (You Tube) https://www.youtube.com/watch?v=SZfg9rk_9iQ

(2) Ricketts,Andy. Sir Stuart Etherington announces NCVO offer of £100k for new Baring Foundation panel. Third Sector, Tuesday 17 February 2015. http://www.thirdsector.co.uk/sir-stuart-etherington-announces-ncvo-offer-100k-new-baring-foundation-panel/infrastructure/article/1333459

(3) Carmel,Emma; Harlock,Jenny. Instituting the ‘Third Sector’ as a Governable Terrain: Partnership, Procurement and Performance in the UK Policy and Politics, 2008, 36, No 2, March 11 2009 http://www.ingentaconnect.com.gcu.idm.oclc.org/content/tpp/pap/2008/00000036/00000002/art00001

(4) Panel on the Independence of the Voluntary Sector. Protecting Independence: the Voluntary Sector in 2012, Baring Foundation, London, January 2012 http://baringfoundation.org.uk/wp-content/uploads/2014/09/ProtectingIVS2012.pdf

(5)Panel on the Independence of the Voluntary Sector. Independence Under Threat: The Voluntary Sector In 2013. The Panel’s Second Annual Assessment. Baring Foundation, London. http://www.independencepanel.org.uk/wp-content/uploads/2013/03/Independence-Under-Threat_webV.pdf

(6) Panel on the Independence of the Voluntary Sector. Independence Undervalued: The Voluntary Sector in 2014, Third Annual Assessment, Baring Foundation, London http://www.independencepanel.org.uk/wp-content/uploads/2014/01/Independence-undervaluedfinalPDF-copy.pdf;

(7) Panel on the Independence of the Voluntary Sector. An Independent Mission: The Voluntary Sector in 2015: The Panel’s Fourth and Final Annual Assessment
Independence Panel, 2015, Baring Foundation, London http://www.baringfoundation.org.uk/wp-content/uploads/2015/02/IP-Mission.pdf

(8)Wolfenden, John. The Future of Voluntary Organisations. Report of the Wolfenden Committee. Croom Helm 1978 http://archiveshub.ac.uk/data/gb237-coll-256

(9) Brandsen,Taco; Kendall,Jeremy; Nordfelt,Marie; Olson,Lars Erik. Third Sector Policy Communities in Europe: a comparison of the UK, the Netherlands and Sweden. May 2008, Catholic University of Leuven, Louven https://www.econbiz.de/Record/third-sector-policy-communities-in-europe-a-comparison-of-the-uk-the-netherlands-and-sweden-brandsen-taco/10003950146

(10) Rochester,Colin. Rediscovering Voluntary Action:The Beat of a Different Drum 2013, Palgrave Macmillan, Basingstoke http://www.palgraveconnect.com.gcu.idm.oclc.org/pc/doifinder/10.1057/9781137029461

(11) Knight,Barry. Voluntary Action: The Centris Report, 1993, 1-309, Centris, Newcastle http://www.centris.org.uk/publications.php

(12) Deakin,Nicholas. Meeting the Challenge of Change: Voluntary Action into the 21st Century: Report of the Commission on the Future of the Voluntary Sector in England. National Council for Voluntary Organisations, 1996, NCVO, London

(13) Labour Party. Building the Future Together: Labour’s Policies for Partnership between Government and the Voluntary Sector,1997 Labour Party, London

(14) History of the Compact. The National Archives 2008 http://webarchive.nationalarchives.gov.uk/20110314111751/http:/www.thecompact.org.uk/information/100018/100212/history_of_the_compact/

(15) HM Treasury. The Role of the Voluntary and Community Sector in Service Delivery: A Cross Cutting Review, September 2002, 1-52, HM Treasury, London http://webarchive.nationalarchives.gov.uk/20130129110402/http://www.hm-treasury.gov.uk/d/CCRVolSec02.pdf

(16) McLaughlin,Kate. Towards a ‘modernized’ voluntary and community sector? Public Management Review, 2004, 6, 4, 555-562, Taylor & Francis London http://www-tandfonline-com.gcu.idm.oclc.org/doi/pdf/10.1080/1471903042000303337

(17) Home Office. Strengthening Partnerships: Next Steps for Compact. The Relationship between the Government and the Voluntary and Community Sector Home Office Consultation Paper, 2005, March 2005, March 2005, 1-56, Home Office, London http://www.oneeastmidlands.org.uk/sites/default/files/library/StrengtheningPartnership-NextStepsForCompact.pdf

(18)Department for Work and Pensions. Raising Expectations and Increasing Ssupport: Reforming Welfare for the Future December 2008, Department for Work and Pensions, London http://webarchive.nationalarchives.gov.uk/20130128102031/http://www.dwp.gov.uk/docs/fullversion.pdf

(19) ACEVO Third Sector Taskforce. Welfare to Work Reform: The Third Sector’s Role Third Sector Task Force Report February 04 2009, ACEVO, London. http://www.acevo.org/document.doc?id=42

(20) Freud,David; Department of Work and Pensions. Reducing Dependency, Increasing Opportunity: Options for the Future of Welfare to Work. An Independent Report to the Department for Work and Pensions 2007, Department of Work and Pensions, London http://webarchive.nationalarchives.gov.uk/20130128102031/http://www.dwp.gov.uk/docs/welfarereview.pdf

(21) NCVO; Serco. NCVO and Serco Launch Code of Practice to Raise Standards NCVO and Serco, London, April 11 2013. https://www.ncvo.org.uk/about-us/media-centre/press-releases/335-ncvo-and-serco-launch-code-of-practice-to-raise-standards

(22) Cabinet Office. Modernising Commissioning: Increasing the Role of Charities, Social Enterprises, Mutuals and Cooperatives in Public Service Delivery 2010, Cabinet Office, London https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/78924/commissioning-green-paper.pdf

(23)NCVO. Green Paper Submission: Modernising Commissioning: Increasing the Role of Charities, Social Enterprises, Mutuals and Cooperatives in Public Service Delivery.NCVO Consultation Response, December 2010, NCVO, London. http://www.huckfield.com/wp-content/uploads/2015/02/10-NCVO-Response-Modernising-Commissioning-Dec.pdf

(24) Cabinet Office. Growing the Social Investment Market: A Vision and Strategy 2011, p 17, Cabinet Office, London https://www.gov.uk/government/publications/growing-the-social-investment-market-a-vision-and-strategy

(25) Cabinet Office. Open Plan Public Services July 2011 Cabinet Office, London https://www.gov.uk/government/upload.s/system/uploads/attachment_data/file/255288/OpenPublicServices-WhitePaper.pdf

(26) Cabinet Office. Social Investment Tax Relief September 8 2014 Cabinet Office, London https://www.gov.uk/government/collections/social-investment-tax-relief

(27) NCVO. NCVO Commission on Tax Incentives for Social Investment. Analysis and Recommendations. January 2012. http://www.ncvo.org.uk/images/documents/practical_support/public_services/ncvo_commission_on_tax_incentives_for_social_investment.pdf

(28) O’Brien,Andrew. G8 Social Investment R: What do you need to know? NCVO September 17, 2014 http://blogs.ncvo.org.uk/2014/09/17/g8-social-investment-report-what-do-you-need-to-know/

(29) Big Society Capital. Social Investment: From Ambition to Action: Annual Review and Accounts 2013 May 2014, Big Society Capital, London http://www.bigsocietycapital.com/sites/default/files/BSC_AR_2013.pdf

2015 – a Year for Killing Social Enterprise, Coops and Mutuals

Alternative Commission on Social Investment – Wednesday 14 January 2015
Social Enterprise Question Time: “Social Investment: Friend or Foe?”

Huckfield is very pleased to be asked by the National Coalition for Independent Action to appear as a member of the panel at David Floyd’s Alternative Commission on Social Investment (1) at the School for Social Entrepreneurs at the Fire Station, 139 Tooley Street, London, which SSE shares with Social Enterprise UK and others – an interesting location!

This is the link for booking your place on Wednesday 14 January 2015 – Social Enterprise Question Time presents: Social Investment, Friend or Foe?

Huckfield hopes you can make it. If you’re unable to attend this interesting debate, this posting is offered in anticipation of what he hopes to say!

As a political aside – made from Huckfield’s political detachment in Scotland – since David Floyd’s Alternative Commission is funded by Esmee Fairbairn, things are beginning to look as though the hard line social investment lobby is now dwindling down to the Cabinet Office, Office for Civil Society, Big Society Capital, UnLtd and Social Enterprise UK. Huckfield wonders whether any of these might be hoping that the Final Report from David’s Commission provides a reason for jumping ship, or at least checking out the lifeboats?

What the Government is trying to do

Paul Johnson, Director of the Institute for Fiscal Studies, in his Introductory Remarks at the IFS Presentation (2) on Thursday 04 December 2014, following the Chancellor’s Autumn Statement, was clear in the Government’s intentions:

(p2)“So there is no spending dividend on the horizon. Far from it. There are huge cuts to come. On these plans, whatever way you look at it, we are considerably less than half way through the cuts”

(p4)“If you look specifically at spending by Whitehall departments, then about £35bn of cuts have happened, with £55bn to come”.

Apart from these direct cuts by Whitehall Departments and local government, the Government seeks to shift as much delivery as possible outside the public sector, where it perceives less encumbrance from proper contracts of employment, wages and terms and conditions. This shift outside the public sector involves:

  • conversion of central and local government departments into so called “public service mutuals” – often without the participation of those whose jobs are affected
  • social investment, social impact bonds and payment by results – the subject of this Alternative Commission on Social Investment (1)

The intended purpose of this frenetic activity, generously funded by the Cabinet Office, Office for Civil Society, Big Society Capital and Big Lottery, is that the public purse only pays the marginal cost of delivery – for one more unit of output. So indirect costs, overheads and infrastructure are funded elsewhere – initially through a reconstructed third sector and ultimately from private philanthropy, investment and equity. All this is now being sold round the world by the British Council, with UnLtd and Social Enterprise UK in tow.

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Labour Struggles with Third Sector Policy

As we say in Scotland, Labour is in a real guddle over social enterprise and the wider third sector.

Whatever the result, it seems that little will change after the General Election of Thursday 07 May 2015. Chi Onurwah MP, Shadow Cabinet Office Minister, has said We intend to define what social enterprise means. (3) Though this sounds encouraging – especially since Chi doesn’t have the usual “political researcher” background – this is not easy territory, especially since many problems described below emanate from the original New Labour Department of Trade and Industry definition in Social Enterprise: A Strategy for Success (4) in July 2002:

(p13)“A social enterprise is a business with primarily social objectives whose surpluses are principally reinvested for that purpose in the business or in the community, rather than being driven by the need to maximise profit for shareholders and owners”

Defining social enterprise in basic business terms has caused trouble since New Labour and the Coalition have sought to extend this to cover most of the wider third sector.

(Huckfield here declares an interest as a member of the Board of the Social Entrepreneurs Network Scotland (Senscot), which has its own Voluntary Code of Practice for Social Enterprise in Scotland (5), which enshrines an asset lock and doesn’t support distribution. It emphasises “the values and behaviours by which we recognise each other”)

In case you missed this just before Christmas, on Wednesday 10 December 2014, Lisa Nandy MP, Shadow Minister for Civil Society Minister, unwrapped more New Labour thinking to revive New Labour’s Compact with the Voluntary Sector. Since in many Whitehall Departments the Compact is viewed as a mechanism for bringing greater discipline to the wider third sector, this is mixed news.

Third Sector reported her speech Labour would reverse recent changes to judicial review (6), of Wednesday 10 Deceember 2014:

“She told Third Sector this would help move away from the current situation in which at least half of public contracts go to big private providers, which subcontract to charities or social enterprises. In some areas of the country, including my constituency of Wigan, the Work Programme was literally less effective than doing nothing”

Perhaps someone should remind her that it was New Labour, when in October 2009 it rolled out its Flexible New Deal programme, which introduced all the basic elements of the Work Programme, including private prime contractors?

According to the Guardian’s General Election 2015: Labour’s Vision for the Charity Sector,(7) Lisa Nandy continued:

“They will also allow government departments to reserve specific contracts for social enterprises and not-for-profits – avoiding a situation where charities and social enterprises are in a bidding war with private companies and huge reserves”.

But all this falls very short of saying that New Labour will legislate for this. The section below shows what needs to be done.

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The Rush to Mutuals

The Coalition Government, supported by New Labour, many Labour Councils, Coops UK, the Coop Group and many others, are rushing headlong to spin out “public service mutuals” as cheaper delivers of public services. For the Coalition Government, this entails a minimalist interpretation of the EU’s new Procurement Directive, transferring risk to employees and, after three years, opening these public service contracts to full blown competition from Serco, G4S and the rest – in other words, privatisation by stealth.

Transposition into UK Law of the EU Procurement Directive

Huckfield hopes that Lisa Nandy’s speech above commits New Labour to amend the Transposition of the 2014 EU Procurement Directives (8), which, following a deliberately short four week consultation period in September/October 2014, the Coalition Government wants to rush onto the Statute Book by March 2015.

Though the Coalition Government wants to use a UK version of the EU Procurement Directive to help Councils and the NHS to set up Public Service Mutuals, it intends that any kind of organisation may qualify, since its ownership structure, including employee ownership, need only come into effect “if and when it performs the contract” – as shown on page 20 of the draft Public Procurement: Public Contracts Regulations 2015 (9).

So the Coalition Government’s intention is that private companies can compete for this work and change their structures only if and when they get the contract.

On page 63 of the Draft Regulations (9), under Contract Award Criteria there is provision for contracts to be awarded solely on the basis of cost or cost effectiveness without any quality criteria, and without provision for exclusion of organisations with previous ethical breaches, including blacklisting, failure to observe employment tribunal decisions, health and safety and environmental and tax breaches.

Since the Coalition intends to rush all this onto the Statute Book before the General Election, why can’t New Labour now make it clear that it will introduce basic amendments to make possible what Lisa Nandy has already said?

Fortunately, Scotland has its own procurement regime and the Scottish Government is in no similar rush to transpose the EU Directive into Scottish law, which is not required till April 2016.

Rich Pickings for the Mutuals Consultants

For reasons shown above, the UK Coalition Government is rushing to spin out ‘mutuals’.

The Kings Fund Report of Review of Staff Engagement and Empowerment in the NHS (10), in July 2014 on page 34 refers to “40 new mutuals delivering services in the NHS”. Some of these spinouts appear to have involved little staff consultation and minutes of any setup decisions are not accessible under Freedom of Information.

In September 2014, the Cabinet Office Suppliers: Information and Contract Opportunities (11) showed 67 proposals for “mutual spinouts”, mostly from local authorities, supported through £4.18mn of consultancy support from the Cabinet Office, with a further 11 awaiting “contract opportunities” with £618,000 approved consultancy support. No wonder that Mutual Ventures, which has so far received £1.1mn, and Bates, Wells and Braitwaite, which has received £430,688 from the Cabinet Office, are so keen on public service mutuals.

This is the same solicitors’ firm Bells, Waites and Braithwaite which on Wednesday 21 January 2015, is offering a seminar called Calling Time on the National Minimum Wage:

“to equip you with the necessary knowledge to respond effectively to challenges from employees, staff representatives and unions regarding the classification and payment of sleepovers, on-call time and travelling time. You will be provided with practical tips for managing the risk of legal challenges”.

This doesn’t give an appearance that mutuals spun out by Bates, Wells and Braithwaite will be generous in interpreting the National Minimum Wage.

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The Rush to Social Investment

The rush to social investment is at the same frenetic pace as mutuals spin outs – except that it’s not going very well, which may be one of the motives behind funding the Alternative Commission on Social Investment (1).

Social Investment involves loans, philanthropic venture capital, equity and ultimately individual private investment to provide the infrastructure, indirect costs and basis for delivery of public services. It means measurement and monetisation of outputs and payment by results. Above all, it usually means that if providers don’t deliver, they don’t get paid.

Government Attempts to grow the Social Investment Market

Ronald Cohen’s Final Report of the Social Investment Task Force Social Investment: Ten Year On (12) in April 2010 and the Growing the Social Investment Market: A Vision and Strategy (13) in February 2011 are rivals in social investment optimism.

Chapter Five of the Final Report of the Social Investment Task Force Social Investment: Ten Year On (12) says:

“If 5% of the £86.1bn estimated to be invested in ISAs (Individual Savings Accounts) were also directed to Social Investment, this would generate a flow of an additional £4.3bn. Taken together, these four sources – philanthropic foundations, institutionally managed assets, grant funding and individual savings accounts – could generate £14.2bn for Social Investment”

The Coalition Government’s Cabinet Office White Paper, February 2011 Growing the Social Investment Market: A Vision and Strategy (13) in Chapter Two simply echoes this:

“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.”

But the practical experience has been very different. Since, so far, despite a significant commitment of funds and resources, there have been few willing takers, the Coalition Government has tried:

  • Government subsidies and funding schemes, including using the Big Lottery to pay returns to investors, which, though Ministers can direct Big Lottery, hardly fits within the spirit of New Labour’s National Lottery Act 2006 (14).
  • channelling social investment through Big Society Capital and a range of Social Investment Financial Intermediaries (SIFIs) – many of which don’t have a background in social enterprise and the wider third sector. For a really down to earth view on SIFIs, please read Robbie Davison’s latest posting 2014: Little has changed in Social Finance and now we have Profit with Purpose vehicles – Let’s hope 2015 turns out better (15)
  • widening the “social enterprise” eligibility criteria to include for profit companies limited by shares, so that external private investors get a return from social investment
  • introducing Social Investment Tax Relief and raising the Dividend Cap for Community Interest Companies so that external private investors get a bigger return

‘Profit with Purpose’ from the ever helpful UnLtd

As shown above, part of the Government’s effort to make social investment work involves widening eligibility for those organisations able to participate. In September 2014, with Cliff Prior from UnLtd as Chair, the Social Impact Investment Taskforce’s Mission Alignment Working Group produced Profit with Purpose Businesses (16), which includes the following:

(p10)“There is often resistance to the notion that social purpose entities should be allowed to earn income and distribute profit”

(p18)“From a legal point of view, the main difference between profit-with-purpose business and social or solidarity enterprise is the degree of flexibility regarding the distribution of profits and use of assets. The key principle that a primary focus on impact can be combined with at least a partial distribution of profits is common to both, and our proposed legal framework allows for either”

(p18)“Social mission businesses are not the only businesses that may create significant social impact or be appropriate recipients of impact investments…..the category of businesses-seeking-impact is less well defined than that of social mission businesses and
essentially includes any business that intends to create a social impact but does not share all of the defining characteristics of a social mission business”

The 43 pages of Profit with Purpose Businesses (16) advocates that a wider range of eligible structures, possibly including Benefit Corporations imported from the United States, should be allowed to access social investment funds.

Page 28 of this Report includes:

“The law of the country should not prohibit investment managers or fiduciaries responsible for investing pension funds or endowments from investing some portion of those funds in businesses-seeking-impact.

This makes George Osborne’s liberalisation of Annuities Regulations appear cautious in excess!

Cliff Prior became Chief Executive of UnLtd in November 2006. Since then UnLtd has increased the percentage of companies limited by shares which may benefit through its various funds. Referring to the recent disagreement with Senscot and CAN, in Third Sector on Thursday 18 December 2014, in ‘Profit with Purpose’: the Dispute over doing well while doing good (17), Stephen Cook wrote:

“The argument apparently came to a head when in July 2012 the UnLtd board considered an internal report that showed that, between May 2008 and December 2011, 25% and 37.5% respectively of the stage two and three grants (the larger ones) from its main fund, the Millennium Awards Trust, went to companies limited by shares. The proportion in Big Venture Challenge – larger UnLtd matched awards made with Big Lottery Fund money – was 44%”.

Section 3 on eligibility for UnLtd’s Application Guidance for its 2015 Big Venture Challenge Fund (18), gives the game away:

“Social entrepreneurs with ventures of any legal incorporation form may apply – that includes charities, not‐for‐profit Companies Limited by Guarantee, Community Interest Companies or for‐profit Companies Limited by Shares…..We expect social entrepreneurs to want to put the social mission to the fore and to wish to protect it for the future to ensure investment delivers increased impact as well as generating increased revenues”.

This careful phrasing “put the social mission to the fore and to wish to protect if for the future” surely covers any organisation which chooses the right words to describe what it does?

‘Purpose with Profit’ has always been clear – to make Social Investment work!

Huckfield is a bit puzzled by David Floyd’s posting Purpose Unclear (19) on Monday 05 January 2015, where he seeks to understand Cliff Prior’s purpose.

Huckfield has always thought that the motive of New Labour and Coalition Governments, Big Society Capital and UnLtd were always very clear – to secure and use more private money for funding public services, now that austerity – irrespective of the outcome of the Thursday 07 May 2015 General Election – is the new normal.

The real trouble is that since New Labour’s 2008 Dormant Bank Accounts Act and the introduction of Big Society Capital in 2012, the Cabinet Office, Big Society Capital and their tame retinue of Social Investment Financial Intermediaries have recognised that they can’t make it work – because neither the supply nor demand for significant social investment really exist.

In this posting Purpose Unclear (19) David refers to Nick O’Donohoe’s posting How Social Investment has Developed in 2014 (20) posting on Friday 12 December 2014. Nick was once more admitting that Big Society Capital can’t shift its social investment money.

“Social investment as a tool for reforming public services, and social investment to meet the repayable finance needs of small and medium-sized social enterprises are two very different things, requiring different approaches, and currently at different levels of success. And these two things do not even cover the entirety of what we are considering at Big Society Capital when we are thinking about the social investment market”

What on earth does “the entirety of what we are considering at Big Society” mean? If you read through the rest of Nick O’Donohoe’s piece, he’s mostly talking about passing on money to intermediaries. There’s not much evidence of any of this actually hitting the ground for hard pressed organisations. He continues:

“However, there are clearly challenges around complexity, unnecessary oversight and bureaucracy. Commissioners and arrangers need to address these issues”.

Despite the Cabinet Office funding programmes, Big Lottery and other subsidies and the rest, this is really BSC-speak for “We can’t get it to work”.

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Social Investment – the Hype and the Reality

The First Billion: A Forecast of Social Investment Demand (21), published in April 2012, by Boston Consulting Group and Big Society Capital, set a breathtaking pace for extravagance:

(p8)“We found market participants to be bullish about the future. From around £165mn of social investment deals made in 2011, our study shows that demand for social investment could rise to £286mn in 2012, and then to £750mn in 2015, finally reaching around £1bn by 2016 if trends continue as forecast”.

In Impact Investment: The Invisible Heart of the Market, the Report of the Social Investment TaskForce (22), on September 15 2014, the Taskforce chaired by Ronald Cohen continued in the same vein.

This Report shows a massive international commitment of resources for social investment promoted by the UK Presidency of the G8 Summit at Lough Erne in June 2013. There is a myriad structure of International Working Groups on Impact Measurement, Mission Alignment and International Development, not to mention National Advisory Boards in Canada, Australia, France, Germany, Italy, Japan and USA. Page 18 of this Report talks about The First Trillion of social impact investment!

Big Society Capital’s Annual Reports

Against all this hype, Big Society Capital’s first two Annual Reports and Accounts demonstrate clearly the harsh reality of very slow growth for the social investment market.

Big Society Capital’s First Annual Report (23), published on Friday 10 May 2013:

(p10)“By the end of 2012 we had committed £56mn to 20 different intermediaries, £19mn firmly committed and £37mn subject to matching finance being raised.”

Further harsh reality was shown in May 2014 with the publication of Big Society Capital’s Social Investment: From Ambition to Action: Annual Review, Report and Accounts 2013 (24):

(p41)“…. 19 investments with a value of £47.9mn have been signed and £13.1mn has been drawn down. Big Society Capital’s expectation is that the average investment will typically take between 3 and 6 years to fully draw down. Alongside the signed investments made by Big Society Capital, £55.5mn has been committed by co-investors, taking the total value of capital available to the market to £103.4mn.”

Even allowing for any qualifications of a meagre £13.1mn drawing down of funds from Big Society Capital in 2013, the size difference between this – which shows drawing down of funds to intermediaries not to end beneficiaries – and the “first billion” and “first trillion” above, is alarming.

In its July 2013 Report, Growing the Social Investment Market: The Landscape and Economic Impact (25) City of London Economic Research Department shows both the limitations and limited penetration for Social Investment:

“The development of the Social Investment Market is sparse and highly concentrated. The three largest organisations accounted for 81% of total investment (by value) in 2011/12, and seven organisations accounted for 91% of investment”

As a proportion of all social investment, this Report continued to show that 90% was for secured loans, mostly through social banks, and only 1% for Social Impact Bonds. As might be expected, despite the limitations and slow growth of the UK Social Investment market, the Government itself continues in ever optimistic mode.

Growing the Social investment Market: 2014 Progress Update (24), published by the Cabinet Office and Minister for Civil Society, shows:

(p16)“In 2011/12, the market grew to £202mn over 765 investment deals. At a gross level, over the lifetime of their finance period, the 765 investments resulted in the creation or safeguarding of 340 social ventures, 6,870 FTE jobs, and £58mn in annual GVA contribution to the UK economy. We expect this to be the lower bound of the total size of the market”.

These reports show that despite considerable Cabinet Office funding and publicity by Big Society Capital and Social Investment Financial Intermediaries, social investment is making only meagre progress.

Conclusion

In the light of all these ongoing difficulties, when we add together Cabinet Office funding programmes, Big Society Capital’s outlays, Big Lottery subsidies, the cost of tax relief and the rest, wouldn’t it be better if all these funds could be used to provide low cost loans, grants and other operating support for genuine social enterprises?

Huckfield reckons that if people realised that this was how unclaimed bank accounts were being spent, many would be alarmed.

Worst of all is the damage that all this is doing to the reputation and standing of genuine social enterprises. No wonder that the British Council’s What will Social Enterprise look like in Europe by 2020 (27) says on page 4:

“And as the funding pendulum swings away from grants towards loans and venture capital, priorities start to be assessed based on which social outcomes can be profitable, monetised or marketised. Social issues where it’s difficult to put a financial value on the outcomes will become much harder to fund”.

And concludes on page 7:

“There may well not be a recognisable ‘Social Enterprise sector’ by 2020. Certainly any attempts to confine social enterprise to specific legal structures or models of governance will have ceased”.

Though the UK Government, the British Council and their tame posse of social investment disciples are trying to give cheap public service delivery a veneer of respectability, this British Council paper gives the game away about their intended direction of travel.

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References

(1) Alternative Commission on Social Investment. Floyd. 2014. Social Spider, London http://socinvalternativecommission.org.uk/home/

(2)Johnson,Paul; Institute for Fiscal Studies Briefing on Autumn Statement 2014 Institute for Fiscal Studies Briefing on Autumn Statement 2014, 2014, 2014, Thursday 04 December 2014, Institute for Fiscal Studies;, London, http://www.ifs.org.uk/uploads/publications/budgets/as2014/as2014_johnson.pdf

(3) Onwurah, Chi “We intend to define what social enterprise means”. Third Sector. October 31 2014 Haymarket Press, London, http://www.thirdsector.co.uk/chi-onwurah-we-intend-define-social-enterprise-means/social-enterprise/article/1317860

(4)Department of Trade and Industry Social Enterprise: a Strategy for Success 2002, Department of Trade and Industry, London, July 2002

(5)Senscot Voluntary Code of Practice for Social Enterprise December 2014, Senscot. Edinburgh http://www.se-code.net/VoluntaryCodeofPractice.pdf

(6) Birkwood, Susannah “Labour would reverse recent changes to judicial review, says Lisa Nandy” December 10 2014 Third Sector Haymarket Press, London. http://www.thirdsector.co.uk/labour-reverse-recent-changes-judicial-review-says-lisa-nandy/policy-and-politics/article/1325987

(7) Meade, Aimee “General Election 2015: Labour’s Vision for the Charity Sector” December 10 2014 Guarian Press and Media Ltd London.

http://www.theguardian.com/voluntary-sector-network/2014/dec/10/general-election-2015-labour-vision-charity-voluntary-sector?CMP=share_btn_tw

(8) Cabinet Office. September 29 2014 Transposition of 2014 EU Procurement Directives. Cabinet Office GOV.UK London.https://www.gov.uk/government/consultations/transposing-the-2014-eu-procurement-directives

(9) Cabinet Office. October 2014 Public Procurement: The Public Contracts Regulations 2015 Cabinet Office GOV.UK London.https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/356494/Draft_Public_Contracts_Regulations_2015.pdf

(10) King’s Fund. Improving NHS Care by Engaging Staff and Devolving Decision Making: Report of the Review of Staff Engagement and Empowerment in the NHS. King’s Fund, 2014, 1-76, Kings Fund, London http://www.kingsfund.org.uk/sites/files/kf/field/field_publication_file/improving-nhs-care-by-engaging-staff-and-devolving-decision-making-jul14.pdf

(11) Cabinet Office. September 2014 Suppliers: Information and Contract Opportunities Cabinet Office GOV UK London. https://www.gov.uk/suppliers-information-and-contract-opportunities

(12) Cohen, Ronald. Social Investment Ten Years On. Final Report of the Social Investment Task Force April 2010 Social Investment Task Force London. http://www.socialinvestmenttaskforce.org/downloads/SITF_10_year_review.pdf

(13) Cabinet Office. Growing the Social Investment Market February 2011 Cabinet Office GOV UK London. https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/61185/404970_SocialInvestmentMarket_acc.pdf

(14) HM Government. National Lottery Act 2006 Chapter 23 Explanatory Notes. Legislation GOV.UK London.http://www.legislation.gov.uk/ukpga/2006/23/pdfs/ukpga_20060023_en.pdf

(15) Davison, Robbie “2014:Little has changed in Social Finance and now we have Profit With Purpose vehicles – Let’s hope 2015 turns out better in Can Cook – The Food Campaign January 5 2015 Can Cook, Liverpool. https://foodpoverty.wordpress.com/2015/01/05/2014-little-has-changed-in-social-finance-and-now-we-have-profit-with-purpose-vehicles-lets-hope-2015-turns-out-better/#more-1102

(16) Social Impact Investment Taskforce. Profit with Purpose Businesses: Subject Paper of the Mission Alignment Working Group. UnLtd. September 2014 https://unltd.org.uk/wp-content/uploads/2014/11/Mission-Alignment-Report.pdf

(17) Wood, Stephen.”‘Profit with purpose’: the dispute over doing well while doing good” December 18 2014 Third Sector Haymarket Press, London.http://www.thirdsector.co.uk/profit-purpose-dispute-doing-doing-good/social-enterprise/article/1326694

(18) UnLtd. ‘Eligibility and Criteria’ in Big Venture Challenge Application Form 2015 UnLtd. London. https://unltd.org.uk/bvc/apply/

(19) Floyd, David. “Purpose Unclear” in Beanbags and Bullshit January 5 2015 Social Spider London.http://beanbagsandbullsh1t.com/author/beanbagsandbullsh1t/

(20) O’Dononoe,Nick. “How social investment has developed in 2014″. Big Society Capital. Friday 12 December 2014 London.http://www.bigsocietycapital.com/blog/how-social-investment-has-developed-2014

(21)Brown,Adrian; Swersky,Adam; The First Billion : A Forecast of Social Investment Demand September 2012, Big Society Capital;Boston Consulting Group, London. https://www.bcg.com/documents/file115598.pdf

(22) Social Impact Investment TaskForce. Impact Investment: The Invisible Heart of the Markets. Social Impact Investment Taskforce. September 15 2014 http://www.socialimpactinvestment.org/reports/Impact%20Investment%20Report%20FINAL[3].pdf

(23) Big Society Capital First Annual Report: Annual Review and Accounts 2012 May 2013, Big Society Capital;, London.http://www.bigsocietycapital.com/sites/default/files/pdf/BSC_AR_AW_forwebsite.pdf

(24) Big Society Capital Social Investment: From Ambition to Action: Annual Review and Accounts 2013 May 2014, Big Society Capital;, London.http://www.bigsocietycapital.com/sites/default/files/BSC_AR_2013.pdf

(25) BMG Research. Growing the Social Investment Market: The Landscape and Economic Impact. July 2013 City of London, Big Lottery Fund, HN Government. https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/210408/Social-Investment-Report1.pdf

(26) HM Government. Growing the Social Investment Market. 2014 Progress Update. HM Government.London.https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/321483/2014_Social_Investment_Strategy.pdf

(27)Catherall,Richard J; Richardson,Mark. What will Social Enterprise look like in Europe by 2020? British Council, 2013, 1-12, British Council;, Manchester. https://uk2.live.solas.britishcouncil.net/sites/britishcouncil.uk2/files/social_enterprise_in_europe_2020.pdf

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Voting No next Thursday and Labour next May is not the answer

Background and Introduction

With less than a week before the Referendum Vote in Scotland, this is a detailed personal posting about voting Yes. I’m sorry it’s lengthy.

Though the Vote on Thursday 18 September is a Vote for Scotland rather than any political party, this is mainly written for those who normally support Labour. I stopped paying my Labour Party membership during the Iraq War, but before that I had more than 40 years membership in the Party. At school and university, I was an active member of the Campaign for Nuclear Disarmament and marched from Aldermaston from 1958 till 1963. I’ve been active in politics since then, including:

  • Labour Member of Parliament for Nuneaton and Bedworth in Warwickshire from 1967 to 1983 – representing Warwickshire miners and Coventry car workers.
  • Under Secretary of State at the Department of Industry from 1976 to 1979 – including helping to bring Clyde shipyards under public ownership – and Opposition Front Bench Industry Spokesperson from 1979 to 1982, supporting British Leyland and other shop stewards combines.
  • Member of the Labour Party National Executive Committee from 1978 till 1981, representing Socialist and Affiliated Organisations, including Cooperative Societies.
  • Member of the European Parliament for Merseyside East from 1984 to 1989 – a constituency including Liverpool Garston, Wigan, St Helens and Knowsley.
  • Throughout all this time I was sponsored by the Transport and General Workers’ Union, which is now Unite the Union. I’m still an active member of the Unite Edinburgh Not for Profit Branch.

Though the London Coalition Government’s Agenda under Cameron and Clegg is tailored for London and the South East and offers little for Scotland, many of us feel that New Labour fails to offer anything different. Many in the Better Together campaign sound as though they prefer working with the Tories in London rather than promoting social justice for a fairer Scotland.

The Referendum represents the greatest awakening of political thought and participation in my lifetime – a chance to vote for a fairer Scotland and against poverty and weapons of mass destruction. An independent Scotland provides an opportunity for the implementation of many principles and causes which I have supported all my active political life – especially policies and causes which the Labour Party once used to support.

Though this won’t happen overnight, it won’t happen at all as long as Scotland remains part of the UK.

Voting Yes on Thursday 18 September 2014 gives Scotland the chance to regain the Labour Party it once knew before the Blair and Miliband reforms took the Party away from its members and the trade unions. In an independent Scotland the Labour Party has the chance to start again – to reclaim the Party for its members and for people in Scotland. Already more than one third of Labour voters in Scotland have recognised this and will vote Yes. They are clearly ahead of their Party!

None of this will be easy, but, without independence and with its present policies, the Labour Party will become increasingly irrelevant in Scotland.

To Save Time reading this Detailed Posting

I’ve summarised my thoughts under the underlined headings below. If you click on any of them, you can go straight to that section.

Many policy areas not already devolved to a Scottish Government, and which will still not be devolved after May 2015 – including basic finance, austerity and welfare – are precisely those policy areas where Tory and New Labour policies hardly differ and will not change.

Those policy areas which are devolved to a Scottish Government but where a Westminster Tory or Labour Government will continue cutting public spending, will affect Scotland through reductions under the Barnett Formula, which has hardly changed since 1978.

Labour hides the McCrone Report. Scotland gets the Barnett Formula instead of an Oil Fund

The House of Commons Library Research Paper 01/108: The Barnett Formula (1) of November 30 2001 is still centrally relevant:

(p10) “Thereafter, if there are changes to the plans for English programmes that are ‘comparable’ to the Scottish and Welsh blocks, then a fixed proportion is added to – or in the case of cuts subtracted from – the block”.

In other words, further Coalition or New Labour public spending cuts may affect Scotland’s budget too, which affects those policies already devolved.

Though not in the Cabinet, I was a Minister in the Labour Government which introduced the Barnett Formula in 1978. Many of us recognised then that the Formula was Scotland’s consolation prize for not having an Oil Fund like Norway or Sovereign Wealth Fund like Middle East oil producers.

Professor Gavin McCrone’s Report to the Government on North Sea oil in 1974 (2) was concealed until 2005. Its conclusion is as relevant today as it was then:

(p16) “This paper has shown that the advent of North Sea oil has completely overturned the traditional economic arguments used against Scottish nationalism. An independent Scotland could now expect to have massive surpluses both on its budget and on its balance of payments and with proper husbanding of resources this situation could last for a long time into the future.

“…….”provided sensible policies are pursued, it is possible to see how this situation could be used to re-equip Scottish industry and renew outworn social capital, thereby providing the expansion necessary to absorb Scotland’s excess labour and the increase in productivity required to raise incomes.

“Thus, for the first time since the Act of Union was passed it can be credibly argued that for the first time since the Act of Union was passed, it can be credibly argued that Scotland’s economic advantage lies in its repeal.

“When this situation comes to be fully appreciated in the years ahead, it is likely to have a major impact on Scottish politics, since it is on social and political grounds alone that the case for retention of the Union will in future have to be based”.

New Labour nowadays doesn’t mention the McCrone Report. It shows that whether policy is controlled in London or even when devolved to Scotland for its administration, the only way that Scotland can be sure that it controls both the policies and their financing is through complete independence. Vague last minute promises of further devolution are not the answer.

New Labour Strategy Irrelevant for Scotland

This section shows the background to New Labour’s current thinking – based on what its leadership calls “responsible capitalism”. If you reckon you know where New Labour is coming from, please read this.

New Labour, Austerity and Welfare

If you thought that Welfare Reform and Universal Credit were Tory ideas, then please look at their New Labour origins

New Labour and the NHS

As the NHS Jarrow March to London showed last week, what is happening to NHS privatisation in England is frightening. Any further NHS public spending reductions in England mean that Scotland’s Budget is also reduced under the Barnett Formula.

New Labour, Students and Fees

New Labour introduced student fees. All current Tory policies for student fees of £9,000 a year and proposals for up to £16,000 a year have only been possible using New Labour legislation.

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The following represent the detailed policy areas to which links are made in the headings above.

New Labour Strategy Irrelevant for Scotland

New Labour’s “Responsible Capitalism”

During his time as a visiting scholar at Harvard’s Center of European Studies in Autumn 2002, Ed Miliband was influenced by Peter Hall, who with David Soskice at the London School of Economics wrote Varieties of Capitalism (3) in 2001. He returned to Harvard’s Government Department in 2003 and taught on a course called “What’s Left? The Politics of Social Justice” about “policy dilemmas confronting politicians seeking social justice amidst trends like globalization, economic insecurity and multiculturalism.”

From this and other influences the theoretical basis of New Labour policy is now “responsible capitalism”. These are some of its features:

  • The Bank of England remains independent of Government. (Since he comes from Canada with its history of referenda in Quebec, perhaps its current Governor, Mark Carney, needs reminding of this when he talks about an independent Scotland’s keeping the Pound Sterling?)
  • Basic acceptance of globalisation, markets and neoliberalism. This is why New Labour only talks of “safeguards” for the controversial Transatlantic Trade and Investment Partnership being negotiated between the European Commission and the US Government
  • Median income growth – helping the “squeezed middle” through an economy “built from the middle out”
  • Spending more on training, skills and the “supply side” of the economy
  • Policies such as “predistribution” – or trying to “soften” market outcomes. This was explained in 2013 The Politics of Predistribution (4) by Jacob Hacker of Yale University:

    “So predistribution provides a positive agenda, one that I think is attractive to the left right now, because it wouldn’t necessarily involve large amounts of new public spending. It is a positive agenda for trying to address both the squeeze of living standards in the middle and poverty at the bottom of society”.

    “..Progressives have to think seriously about how we construct new forms of countervailing power in the twenty-first century”.

    “I think that’s perhaps the most exciting conversation that could emerge out of an emphasis on predistribution. Countervailing power means both trying to empower new forms of work organisations and fostering new forms – or existing forms – of investor and consumer organisations. However, it also means trying to create new kinds of political organisations outside of the market; reinvigorating civil society.

New Labour’s Electoral Strategy for “Responsible Capitalism”

New Labour’s plan for delivering all this is sometimes known as the “35% or 40% strategy” – retaining Labour voters from 2010, and adding some LibDem defectors and others from the middle ground. This was set out in Political Strategy for a New Economy (5) by Graham Smith in Renewal in 2012:

“To succeed, an agenda for ‘responsible capitalism’ would need to be capable of forging alliances between established Labour voters and those less traditionally aligned with the party (especially voters in the South, older people and those in social class ABC1). Seeking to unite working and middle class Britain against the top one per cent is a good place to start – as well as avoiding Labour being attached exclusively to electoral enclaves, such as public sector workers, ethnic minorities, the metropolitan elite or those on benefits”

“That, in turn, means recognising that neither the state nor one political party alone has the sole ability to bring about change. In fact, steps towards a more ‘responsible capitalism’ are likely to be most effective and enduring when the broadest possible range of individuals, interests and institutions are engaged in bringing them about. That does not mean that the state – or the Labour Party – have no role to play. But any political strategy which invests all power and responsibility in these sources of agency will be unlikely to succeed”.

Readers in Scotland will see through all this for what it really is – Westminster New Labour policies and an electoral strategy for London and the South East, which are largely irrelevant to the people of Scotland.

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New Labour, Austerity and Welfare

New Labour will maintain Coalition Spending Cuts

Based on the strategy outlined above, speaking to Labour’s 2013 National Policy Forum in Birmingham on March 23 2013,(6) Ed Miliband made New Labour’s position on austerity very clear:

“If we win the election, we will come to power in tougher economic circumstances than we have seen in generations and that will have to shape the way that we govern”, Miliband said in a speech to his party’s National Policy Forum.

“Our starting point for 2015-16 will be that we cannot reverse any cut in day to day, current spending unless it is fully funded from cuts elsewhere or extra revenue – not from more borrowing.”

“It’s a hard reality. But people will only put their trust in us if we show we are credible”

“Miliband’s speech echoed comments of finance spokesman Ed Balls said earlier this month that he would have “iron discipline” on spending”.

Ann Black’s Report on the July 2014 Milton Keynes Policy Forum (7) showed that nothing had changed at Labour’s Policy Forum since 2013. In fact, things had got worse! George McManus bravely put forward this amendment on reversing austerity:

“We recognise that the cost of living crisis is inextricably linked to government’s self-deflating austerity agenda. That is why we will introduce an emergency budget in 2015 to reject Tory spending plans for 2015/16 and beyond and set out how we will pursue a policy of investment for jobs and growth.”

Other similar amendments had been withdrawn. The amendment was lost with only 14 votes in favour and 125 against. Labour’s Policy Forum, like its Annual Conference, has become a closed process – which is why Scotland needs to be independent to reclaim its own Labour Party so that members can once more voice their opinions on policy.

So no one in Scotland, especially Labour supporters, should be under any illusions that the election of a Labour Government at the next General Election in May 2015 means changing policies on spending and austerity. Coupled with Rachel Reeves’ proposals to deprive young job seekers of their benefits, they could be even worse.

Rachel Reeves: Labour will be tougher than Tories

Rachel Reeves, Labour’s Shadow Work and Pensions Secretary (8), speaking in October 2013, was even more succinct:

“Nobody should be under any illusions that they are going to be able to live a life on benefits under a Labour government,” she said. “If you can work you should be working, and under our compulsory jobs guarantee if you refuse that job you forgo your benefits, and that is really important”.

“It is not an either/or question. We would be tougher [than the Conservatives]. If they don’t take it [the offer of a job] they will forfeit their benefit. But there will also be the opportunities there under a Labour government”.

New Labour, the Work Programme and Universal Credit

But Rachel Reeves was simply building on foundations previously laid under the last Labour Government.

In December 2006, James Parnell, Secretary of State for Work and Pensions, asked Lord David Freud (now the Coalition Government’s Under Secretary in the same Department) to “review progress on the Welfare to Work programme since 1997”. In February 2007, Freud produced “Reducing Dependency, Increasing Opportunity: Options for the Future of Welfare to Work: An Independent Report to the Department for Work and Pensions (9), which recommended the basis for the current Work Programme:

(p61)“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, pro-viders will be incentivised to experiment and innovate to find effective solutions”

(p63) “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”.

Freud Recommendations for Universal Credit

David Freud’s Report (9) also proposed moves towards the Coalition Government’s Universal Credit programme:

(p105) “The proposals in this chapter are mainly about reforming out of work benefits. But there is also a case for much closer integration of the tax and benefits system as a whole and in particular for simplifying the way that benefits paid by Jobcentre Plus and those paid by local authorities (Housing Benefit and Council Tax Benefit) work together”.

Referring to a pilot “Service integration across benefit and transfer payment: the North Tyneside trial” the Freud Report (9) continued:

(p110) “DWP, HMRC and North Tyneside District Council have over recent months been developing and testing possible service improvements in a trial in the North Tyneside Local Authority district in the North East of England. This has focused on delivering improvements in the client experience during the transition into and out of work through closer working and service integration”.

The Report described the coordination of Job Seekers Allowance, HMRC Tax Credits, Housing Benefit and Council Tax Benefit. These proposals went even further than those currently pursued by Ian Duncan Smith MP, Secretary of State for Work and Pensions.

Though New Labour postponed Freud’s Universal Credit recommendations based on the North Tyneside pilot, in December 2008, Secretary of State James Parnell’s White Paper “Raising Expectations and Increasing Support: Reforming Welfare for the Future (10) laid the foundations for the Work Programme:

(p46) “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 re-warded 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”.

From October 2009 this would “offer choice with more than one provider in particular area – so that competition could be offered between local providers”. New Labour had opened the door to large private sector providers and current Coalition Government policies.

These remain Westminster policies and powers and will not be devolved to Scotland in the event of a No Vote.

So Rachel Reeves isn’t suddenly being tougher on welfare. Much of this was already in place by 2009, when New Labour had already ushered in what is now the Work Programme.

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New Labour and the NHS

Andrew Lansley’s Health and Social Care Act 2012 used foundations laid by New Labour almost 10 years earlier. As shown below, New Labour’s 2006 Health and Social Care White Paper, its “Right to Right to Request” and “Transforming Communities” programmes, closely followed by the Coalition’s “Right to Provide” and Public Service Mutuals, chart an unbroken chain of stepping stones towards out-sourcing public service delivery to the private sector.

Though Shadow Health Secretary Andy Burnham MP has now promised to repeal the Coalition’s 2012 Health and Social Care Act, this won’t mean much by the next UK General Election in May 2015 for those areas where a majority of non acute NHS delivery may be delivered by private contractors. New Labour in England is not committed to restoring delivery of these services to the NHS.

All this demonstrates that New Labour plans nearly 10 years ago to shift healthcare delivery away from the NHS are nearing completion under the UK Coalition Government.

New Labour Begins Dismantling the NHS

Sir Nigel Crisp’s 2005 Report Creating a Patient Led NHS: Delivering the NHS Improvement Plan (11) recommended that Primary Care Trusts (PCTs) should move away from NHS direct delivery. Crisp was both Chief Executive of the NHS and the Permanent Secretary at the Department of Health.

(p21)“Ultimately patients will be able to choose any provider that can meet NHS standards at the NHS tariff. This will include providers who are currently part of the NHS; established independent suppliers such as GPs and their teams, pharmacies and independent hospitals; other parts of the statutory sector; the voluntary sector; and new entrants from the independent, statutory or voluntary sectors”.

Secretary of State Patricia Hewitt’s January 2006 White Paper Our Health, Our Care, Our Say: a new Direction for Community Services (12) echoed this theme, expanded NHS outsourcing and extended NHS delivery based on payment by results.

Many were slow to recognise New Labour’s real motives. In April 2006, the Kings Fund in Social Enterprise and Community Based Care: Is there a future for mutually owned organisations in community and primary care? (13) warned:

(p21) “Meanwhile, the for-profit sector is ready and able to act quickly, and there is a distinct danger that for-profit providers will sweep into primary and community care unchallenged. If too much time passes before staff-led and patient-led organisations take shape, when they finally do enter the marketplace there may be little left for them”.

An Amicus Union briefing in 2008 on Social Enterprises and the NHS (14) summarised New Labour’s intended competition:

  • “between providers to win contracts
  • patient choice between providers
  • payment by results – payment only when services performed”
  •  
    “This is a fundamental change in the delivery of healthcare, with the NHS becoming a brand rather than a national, public service”.

    New Labour introduced the “Right to Request” in June 2008 and “Transforming Community Services” in July 2008. The National Audit Office June 2011 Report summarised these developments in Establishing Social Enterprises under the Right to Request Programme (15):

    (p5)“It (Transforming Communities) required that PCTs should no longer deliver services and should separate their delivery arm from their commissioning function with delivery being provided under contract to the PCT by other bodies such as Social Enterprises or Foundation Trusts”

    (p27)“… for the first time, that the health sector will be subject to competition law under planned changes in the legislation. The role of Monitor, which currently regulates Foundation Trusts, will change and it will become the regulator of the NHS, including having responsibility for applying competition law and acting against anti-competitive behaviour by providers or commissioners”.

    With the abolition of Primary Care Trusts under the 2012 Health and Social Care Act, these commissioning powers are now transferred to GPs’ Clinical Commissioning Groups. All this means that in England the NHS is becoming simply a brand name and a commissioning mechanism – as shown in this example below.

    NHS Sandwell and West Birmingham Clinical Commissioning Group

    In Birmingham, NHS Sandwell and West Birmingham Clinical Commissioning Group is seeking tenders for setting up a Social Impact Bond for End of Life Care Coordination Hub (16), whereby interest and dividend payment to investors and the external contractor will be measured against an increase in the number of patients dying in their usual place of residence, rather than in hospital. In other words, there is a financial incentive and possible dividend to investors from people dying at home. This is from the initial tender notice:

    “Outcomes and payment metrics:

    The key outcomes that the services will be measured against are:

      a) an increase in the number of patient dying in usual place of residence;

      b) fewer emergency hospital admissions.

    Payments to the investor will be determined by performance against these outcomes”.

    This is privatisation gone mad! Using public money to encourage private investors to profit from people dying at home goes far beyond what we’ve seen in NHS privatisation so far.

    NHS Sandwell and West Birmingham’s proposal is typical of dozens of new structures like NHS ‘Mutuals’ and ‘Social Enterprises’ which are being set up – many without staff consultation – as an interim step to full blown NHS privatisation. Usually headed by hand picked cronies, this is the emerging shape of the NHS in England.

    Scotland suffers too. Though the Scottish Government controls administration of the NHS, it doesn’t control the finances. As Sandwell and West Birmingham’s approach is followed by many others, all this reduces public spending on the NHS. This means that, under the Barnett Formula, public money for Scotland is also reduced

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    New Labour, Students and Fees

    New Labour introduces Student Fees

    One of the first actions of the first Blair Government in 1998 in the Teaching and Higher Education Act (17) was the introduction of student tuition fees of £1,000 to start in the 1998-1999 academic year.

    Worse was to come. On Wednesday 28 January 2004, under the Higher Education Act,(18) the second Blair Government voted to increase tuition fees from £1,000 to £3,000 with a majority of 5 in the House of Commons. Actual payment of HE fees by students was introduced in 2006, with a fees cap of £3,000 annually. By academic year 2005-2006, the Student Loan Company was already providing £2.79bn in loans. Most providers charged the full amount.

    The 2004 Act also introduced the Office for Fair Access and other apparatus now used by the Coalition Government to justify fees of £9,000 in England.

    In November 2009 the New Labour Government asked Lord Browne, formerly Chief Executive of British Petroleum, to conduct a further review. In October 2010, his Report “Securing a Sustainable Future for Higher Education (19) concluded that students should freely exercise their choice of university with an uncapped free market in fees.

    Following the Browne Report, in November 2010, though its overall approach to HE competition was more cautious than Browne, the Coalition Government introduced proposals for universities to charge up to £9,000 annually. Accompanied by student demonstrations across London, approval for this was given in the House of Commons on Thursday 09 December 2010, with a Coalition majority of 21.

    To implement this decision, the Department of Business, Innovation and Skills published its White Paper Students at the Heart of the System (20) on Tuesday 28 June 2011. The White Paper began the transition from a centrally planned delivery model, where each university had a quota of student places, towards an open market where student choice and fee levels will ultimately determine supply and demand for places.

    All this now includes private for profit universities, where following significant increases in their access to the Student Loan Company, the Public Accounts Committee has asked for investigation by the National Audit Office (21).

    There is now widespread talk in England of fees of £16,000 by Oxford, Cambridge and other universities (22).

    For all its Higher Education reforms in England, including increased student fees and giving private colleges and universities access to the Student Loan Company, the Coalition Government has used New Labour’s Higher Education Act 2004 and previous New Labour legislation. Though the former Higher Education Minister, David Willetts MP, would have preferred a new Higher Education Bill, this was not necessary.

    Because of the way in which repayments under the Student Loan system are structured, New Labour’s current pledge in England to reduce the cap on Student Fees to £6,000 will make little difference to many students.

    Once again, further Westminster public spending reductions, through increasing fees and shifting Higher Education spending from the taxpayer to students, may be passed on to Scotland through the Barnett formula.

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    Conclusion – Scotland Deserves Better than This

    Finally, this has been a long read and I apologise for its length.

    I hope that all this has enlightened readers on the origins of recent Better Together pronouncements and showed where New Labour comes from and is heading. Above all, it shows that New Labour’s record and policies on overall economic policy, austerity and welfare, the NHS and Student Fees – and there are many more policy areas – really do not offer much for Scotland.

    Above all, these New Labour policy areas show beyond doubt that Scotland not only deserves better but can do better with its own Government.

    After a Yes Vote and independence, not only does an independent Scotland have an opportunity to reclaim and refashion a Labour Party which 20 or 30 years ago might still have represented its hope and aspirations, but it also offers the chance to align with socialists in Scandinavia and throughout the rest of Europe.

    The European United Left/Nordic Green Left Group (23) in the European Parliament includes parties which have secured large votes in recent European elections – Syriza in Greece, Podemos in Spain and Die Linke in Germany. They are all anti-austerity and this is part of their platform:

    “The European Union is not the victim of the current economic, financial, environmental and global food crisis but one of its motors.

    “We are fighting for more and better jobs and educational opportunities, for social security and social solidarity, for a respectful way to deal with our earth and its resources, for cultural exchange and diversity, for sustainable economic development and for a consistent and strong peace policy.

    “We want more direct democracy and active participation by citizens. The European Union must become a project of its people and cannot remain a project of the elites. We want equal rights for women and men, civil rights and liberties and the enforcement of human rights.”

    That seems a manifesto more attuned to the needs of Scotland than the one offered by Better Together and New Labour’s “responsible capitalism” in London.

    So reclaiming the Labour Party for Scotland is only the beginning

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    References

    (1)Edwards,Timothy Edmonds; 2001; The Barnett Formula; Research Paper 01/108 House of Commons Library Research Section, House of Commons, London

    (2)McCrone, Gavin; 1974; “The Economics of Nationalism Re-examined”. Report to HM Government – not published.

    (3)Hall,Peter A; Soskice,David 2001: “An Introduction to Varieties of Capitalism”: Harvard University. http://www.cerium.ca/IMG/pdf/HALL-_A_Peter_and_SOSKICE_David-_An_introduction_to_varieties_of_capitalism-2.pdf

    (4)Hacker,Jacob;Jackson,Ben;O’Neill,Martin: 2013 “Interview: the Politics of Predistribution” Renewal: A Journal of Social Democracy Vol 21 No2/3 2013; Renewal Limited in association with Lawrence and Wishart

    (5)Cooke, Graham: 2012: “Political Strategy for a New Economy”: Renewal: A Journal of Social Democracy Vol 20 No 1 2012 Renewal Limited in association with Lawrence and Wishart

    (6)Noble,Phil June 22 2013 “Labour says would not borrow to reverse cuts”. Reuters, London. http://uk.reuters.com/article/2013/06/22/uk-britain-labour-spending-idUKBRE95L06X20130622

    (7)Black,Ann “Ann Black Reports on Labour’s National Policy Forum” Left Futures. Labour Left Network, London. http://www.leftfutures.org/2014/07/ann-black-reports-on-labours-national-policy-forum/

    (8)Helm,Toby “Labour will be tougher than Tories on benefits, promises new welfare chief” Guardian October 12 2013. Guardian Media, London http://www.theguardian.com/politics/2013/oct/12/labour-benefits-tories-labour-rachel-reeves-welfare

    (9)Freud,David; 2007; “Reducing Dependency, Increasing Opportunity: Options for the Future of Welfare to Work. An Independent Report to the Department for Work and Pensions”; Department of Work and Pensions, London

    (10)Parnell,James 2008 “Raising Expectations and Increasing Support: Reforming Welfare for the Future”. Department of Work and Pensions, London

    (11)Crisp,Nigel 2005; “Creating a Patient-led NHS. Delivering the NHS Improvement Plan”. Gateway Reference: 4699, Department of Health, London

    (12)Department of Health 2006 “Our Health, Our Care, Our Say: a New Direction for Community Services, Practice Based Commissioning”, Department of Health, London

    (13)Lewis,Richard;Hunt,Peter;Carson,David. 2006 “Social Enterprise and Community Based Care: Is there a Future for Mutually Owned Organisations in Community and Primary Care?” Kings Fund, London.

    (14)Amicus the Union; 2008. Social Enterprises and the NHS”. London: Amicus the Union.

    (15) National Audit Office: “Department of Health: Establishing Social Enterprises under the Right to Request Programme” HC 1088. Session 2010-2012;National Audit Office, London, June 24 2011

    (16)Sandwell and West Birmingham Clinical Commissioning Group: “End of Life Care Coordination Hub and Urgent Response Team services through Social Investment” June 30 2014. https://www.oppex.com/notice/SELL2WALES_bc74f95b27dd942e620ecb3005f4ec94

    (17)Department of Education and Employment 1998. Teaching and Higher Education Act, London

    (18)Department of Education and Skills 2004. Higher Education Act, London

    (19)Browne,Lord John; October 2010 “Securing a Sustainable Future for Higher Education: An Independent Review of Higher Education Funding and Student Finance”;Lord Browne of Madingley, London

    (20)Department for Business, Innovation and Skills “Students at the Heart of the System” June 2011, London

    (21)Morgan, John. May 22 2014. Watchdog called in on private college use of student loans. Times Higher Education, London.http://www.timeshighereducation.co.uk/news/watchdog-called-in-on-private-college-use-of-student-loans/2013526.article

    (22)Nicholl,Richard; August 04 2014. “Oxbridge tuition fees could rise to £16,000″. Varsity, Cambridge.http://www.varsity.co.uk/news/7394

    (23)GUE/NGL European United Left/Nordic Green Left European Parliament Group “Another Europe is Possible” Accessed September 07 2014.http://www.guengl.eu/group/about

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    Builder Capital – It’s Time to Get Real on Social Investment

    Bringing Social Investment Down to Earth

    In their two hour presentation on The Investible Social Entrepreneur : Introducing Builder Capital (1) at Mazars, near Tower Bridge in London, on Thursday afternoon, July 10 2014, Helen Heap and Robbie Davison brought the whole UK Social Investment community, Cabinet Office included, down to earth. Most significant of all – as shown below – they gave a realistic estimate of the size of the UK Social Investment market, which wasn’t questioned by anyone attending.

    Builder Capital is described in various ways throughout this excellent publication. Perhaps page 9 says it best. The Builder Capital Model describes:

    “how an investment of the right sort of money at the early stages of a Social Enterprise’s development is crucial in enabling it to deliver social impact from the outset while working towards sustainability and the ability to deliver financial returns to investors”.

    In other words, given the right kind of investment, social returns start early and financial returns come later. This involves continuing trust and contact between the investor and investee organisation throughout the whole period, which is usually longer than loans or grants.

    On the size of the UK Social Investment market, one paragraph on page 54 says it all:

    “Taking the UK as a whole that probably means the Builder Capital market is worth around £50-£60mn per annum, appromimately 25% of the current market size for social finance.

    “We expect those who are successful in persuading investors to back them will secure Builder Capital amounts of somewhere between £250,000 and £2mn each”.

    This projection of a total market size of £200mn to £240mn was a long overdue and refreshing change from some of the wilder previous forecasts of the UK total market for Social Investment, ‘Social Enterprises’ funded by Social Investment, Social Impact Bonds and private funding of up £3bn or even £5bn.

    It was significant that during the launch meeting on Thursday 10 July 2014 nobody disagreed with this projection. No wonder that Danyal Sattar from Big Society Capital went even further and actually apologised for his delivery at last July’s similar event!

    Some previous forecasts of the total UK Social Investment market are examined below.

    Social Investment Market Forecast in December 2010

    An early academic forecast was made in The Landscape of Social Investment in the UK (2) by Alex Nicholls of the Said Business School at the University of Oxford for the Third Sector Research Centre in December 2010:

    (p8)“However, a rough calculation can be made based on the following: social equity investment (ie. share issues in UK social enterprises) (£50.1mn); the assets of cooperatives (£8.5bn); the annual turnover of social enterprises (£27bn); the annual turnover of cooperatives (£27.4bn); the assets held by venture funds aiming at social impact (£32mn); the assets held by social enterprise venture funds (£15.5mn); the assets held by venture philanthropy funds (£10mn); government procurement contracts to charities (£23bn); the ethical consumption market (£29.3bn); UK government funds committed to social investment (£572mn). This gives a total figure of approximately £116bn.

    “Two further sources of capital may also be taken into account. The proposed establishment of a social investment wholesale bank capitalised by the dormant, unclaimed, assets held by UK banks would provide an additional source of social investment capital that is estimated to be worth in excess of £400mn. Finally, it could also be argued that it is appropriate to include ‘core’ SRI assets under management in the UK as part of the social investment market. If so, this would more than triple the figure above by adding in an additional £500bn”.

    This generous forecast is significant since it gives the clue to some of the more misleading projections which follow. These often confuse the UK’s overall total capital requirement for all socially motivated and social purpose organisations with the small percentage of that total which might be filled by Social Investment.

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    Realism and Extent of Government Support – February 2011

    Growing Social Ventures: The Role of Intermediaries and Investors: Who they are, What they do, and What they could Become (3), published by the Young Foundation and NESTA in February 2011, attempted to put Social Investment into a more realistic perspective:

    (p7) “Social finance remains relatively small, with £192mn social investment compared with around £55bn of small business lending or £13.1bn of individual giving.”

    Growing Social Ventures also outlined the previous extent of Government support for Social Investment:

    (p31) “At least £350mn of public money has gone into social entrepreneurship funds, with the creation of UnLtd in 2001 (£100mn), the launch of CDFIs in 2003 (£42mn), the launch of Futurebuilders in 2004 (£125mn), and the Department of Health Social Enterprise Innovation Fund in 2009 (£100mn). More millions have come from other sources”.

    Further perspective on the size of Social Investment was added in The UK Social Investment Market: The Current Landscape and a Framework for Investor Decision Making (4) by Cambridge Associates in November 2012:

    (p3) “To date, demand for capital by social entrepreneurs/social enterprises exceeds the supply, as a limited number of impact investors are active in the market. In 2011 £190mn was committed to social finance investments”

    (p5) “To give a sense of the relatively small scale of commitment by foundations, U.K. foundations have invested approximately £50mn in impact investments, while total foundation assets in the United Kingdom have been estimated at £78bn in 2010″.

    These initial reports show that, despite significant public funding support under New Labour and the Coalition Government, progress in establishing and growing the Social Investment market was slow. Despite this, as shown below, more extravagant forecasts continued to emerge.

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    Despite this Realism, a £650mn Social Investment Forecast in November 2011

    Lighting the Touchpaper : Growing the Market for Social Investment in England (5) in November 2011 by the Boston Consulting Group and the Young Foundation, initially offered some realism:

    (p7)“Our survey found that total social investment stands at around £165m. Given the noise and excitement around the social investment market this is a surprisingly small number”.

    “When compared with other sources of finance available to social ventures, £165mn looks very small indeed. For example, voluntary organisations alone had an income of £35.5bn in 2007/2008 on assets of nearly £100bn”

    Despite this, Lighting the Touchpaper continued:

    (p17)“Growth expectations in the market are high. 75% of respondents said they would expand current activities over the next three years and 44% said they would develop new activities. The average growth anticipated in funds under management was 35% p.a. with range 5%-160% p.a. This represents a £650mn capital requirement over the period”.

    “If this vision is to be realised social investment will need move beyond a niche activity by creating new, high-quality investment opportunities; attracting more diverse sources of capital; and addressing some of the structural challenges in the market.

    As before, this Report typifies the confusion between the real Social Investment market and more extravagant projections of a wider capital demand from all organisations with a social orientation.

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    Continuing Extravagant Forecasts in 2012 and the Reality of Big Society Capital’s 2013 Annual Report

    The First Billion: A Forecast of Social Investment Demand (6), published in April 2012, by Boston Consulting Group and Big Society Capital, continued in extravagant mode:

    (p8)“We found market participants to be bullish about the future. From around £165mn of social investment deals made in 2011, our study shows that demand for social investment could rise to £286mn in 2012, and then to £750mn in 2015, finally reaching around £1bn by 2016 if trends continue as forecast.

    “This pace of growth, equivalent to 38% annually, is not for the faint of heart. Yet even at £1bn, demand for social investment will only be equivalent to the amount that charities borrow annually today from commercial lenders (by our calculations), or just over 1% of the market for small business loans.It is also a small fraction of the market for public service contracts. And it will amount to just one third of the £3bn that Big Society Capital hopes to ultimately inject into the market by leveraging its own £600mn reserves, though this is a cumulative figure”.

    A further Report in July 2012 – only three months’ later – continued with these extravagant forecasts, despite its own massive survey evidence to the contrary.

    Investment Readiness in the UK (7) published in July 2012 by ClearlySo, New Philanthropy Capital and the Big Lottery Fund, continued this same £3bn projection.

    (p3)“With the establishment of Big Society Capital, combined with increasing interest from public bodies, grantmakers and philanthropists, there is a real prospect of an emerging marketplace for those who want to invest in social as well as financial returns. The loan portfolios of social lenders alone in the UK are now worth more than £500m and lending in general to the VCSE sector is in excess of £3bn”.

    This conclusion was reached despite evidence from an extensive survey in the Investment Readiness in the UK Report, which represents one of the biggest surveys of the Voluntary, Community and Social Enterprise community undertaken:

    (p12) “sent out to 7,420 UK voluntary and community organisations and social enterprises drawn from databases held by the Big Lottery Fund and ClearlySo….1,255 organisations completed the survey, which equates to a response rate of 17%….The response rate to the survey was very good, comparing favourably with response rates of other online surveys. This means that we can be more confident that it is representative of our survey sample”.

    From its own survey Investment Readiness in the UK revealed in detail the difficulties ahead for building a Social Investment market in the UK:

    (p9)“Conversion rates among social investors, (not including government-backed soft loan and grant funds) appear to sit between 5% and 15%21. At one extreme, Community Builders had 4000 enquiries leading to 200 applications and 37 investees – equivalent to less than a 1% conversion rate and thus a significant mismatch of perceptions between investors and applicants”.

    (p32 )Just under half of those surveyed are not interested in investment. Those in this category are largely strongly against taking on finance that needs to be repaid to support their plans — only 8% agree that they would consider it. Three quarters feel that charitable money should be spent on delivery, not on repaying loans. The majority of organisations in this category are charities (over 80%) themselves. However, 70% of this group are interested in new ways of doing things and new ways of financing them but 63% agree that they are not able to generate the surpluses required to take on repayable finance. This suggests the majority are correctly placed into our category of organisations for which investment is not applicable.

    The harsh reality and confirmation of the survey findings of the Investment Readiness in the UK report was shown in May 2014 with the publication of Big Society Capital’s Social Investment: From Ambition to Action: Annual Review, Report and Accounts 2013 (8) :

    (p41)“In principle commitments of £92.5mn have been made during 2013. Since launching, Big Society Capital has made total commitments of £149.1mn. During 2013, one investment for £0.2mn has been sold, resulting in Big Society Capital having total commitments of £148.9mn for 30 investments at 31 December 2013. Of this total, 19 investments with a value of £47.9mn have been signed and £13.1mn has been drawn down. Big Society Capital’s expectation is that the average investment will typically take between 3 and 6 years to fully draw down. Alongside the signed investments made by Big Society Capital, £55.5mn has been committed by co-investors, taking the total value of capital available to the market to £103.4mn.”

    Even allowing for any qualifications of a meagre £13.1mn drawing down of funds from Big Society Capital in 2013, the size difference between this – which shows drawing down of funds to intermediaries not to end beneficiaries – and the £3bn projection above of the total market is astronomical.

    But, as shown below, Big Society Capital knew that it was heading for a hard landing.

    Advance Warning of Big Society Capital’s Hard Landing

    Big Society Capital’s Social Investment Compendium: Portfolio of Research and Intelligence on the Social Investment Market (9) presented in October 2013, as part of a very comprehensive overview on Social Investment, showed more down to earth estimates of its size made elsewhere:

    • £146mn in 2011 from CDFIs (JUST Finance, CDFA (2012))
    • £165mn in 2011 (Lighting the Touchpaper, BCG (2011))
    • £190mn in 2010 by UK Cabinet Office (Making Good on Social Impact Investment, Cabinet Office (2012))
    • £202mn in 2012 (Growing the Social Investment Market, GHK (2013))

    This Social Investment Compendium of October 2013, presented by Big Society Capital, represents one of the most comprehensive descriptions of various aspects of capital market demands by socially-oriented organisations. Surely Big Society Capital must have noticed that other forecasts of Social Investment demand were much more pessimistic than its own?

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    Forecast Optimism Continues

    Despite the harsh reality above, and Big Society Capital’s increasing revelations of its own difficulties, some optimistic forecasts continue, though lately these have been scaled back from earlier £3bn projections.

    Marketing Social Investments – An Outline of the UK Financial Promotion Regime (10) by City of London Research Department in June 2014 is the latest:

    (p7)“The Financial Promotion Regime is particularly relevant to the UK social investment market. Though 90% of lending to this market was in the form of secured loans in 2011/124, social enterprises are increasingly in need of unsecured debt capital. Projections by Boston Consulting Group suggest that by 2015, demand for investment into the market will reach £750mn, 58% of which will be in the form of unsecured debt and 15% in equity-like capital”

    This City of London Research optimism is remarkable, especially in view of the caution expressed a year previously in its own Report.

    In its July 2013 Report, Growing the Social Investment Market: The Landscape and Economic Impact (11) City of London Economic Research Department shows both the limitations and limited penetration for Social Investment. Though the Report showed that in 2011/2012 the UK Social Investment Market grew by almost a quarter to £202mn per annum through 765 deals, it also shows their high level of concentration:

    “The development of the Social Investment Market is sparse and highly concentrated. The three largest organisations accounted for 81% of total investment (by value) in 2011/12, and seven organisations accounted for 91% of investment”

    As a proportion of all Social Investment, this Report continued to show that 90% was for secured loans, mostly through social banks, and only 1% for Social Impact Bonds. All these Reports also show that despite considerable Cabinet Office funding and continuing publicity by Big Society Capital and Social Investment Financial Intermediaries, the concept of Social Investment is making slow progress.

    Continuing Government Support

    As might be expected, despite the limitations and slow growth of the UK Social Investment market, the Government itself continues in ever optimistic mode.

    Growing the Social investment Market: 2014 Progress Update (12), published by the Cabinet Office and Minister for Civil Society, shows:

    (p16)“In 2011/12, the market grew to £202mn over 765 investment deals. At a gross level, over the lifetime of their finance period, the 765 investments resulted in the creation or safeguarding of 340 social ventures, 6,870 FTE jobs, and £58mn in annual GVA contribution to the UK economy. We expect this to be the lower bound of the total size of the market”.

    To encourage all of this, there is an ever increasing range of ongoing Government and Big Lottery support programmes, including the Investment and Contract Readiness Fund. Finally, the Government has also published a Social Investment Roadmap 2014 , which includes Social Investment Tax Relief. Additionally, there are further subsidies and support from Big Lottery and the Cabinet Office with Commissioning Better Outcomes and the Social Outcomes Fund. But none of this will generate or support the Social Investment market expansion in the extravagant projections made above.

    Conclusion

    Well done, Helen and Robbie. Though acceptance of the concept of Builder Capital make take another Government or two to gain understanding, in the meantime your biggest contribution has been bringing Social Investment down to earth.

    As you said in your presentation, that’s how long Big Society Capital took to get up and running. Now we must surely argue for shifting their resources to deliver better results?

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    References

    (1) Heap,Helen; Davison,Robbie The Investible Social Entrepreneur: Introducing Building Capital, July 2014, Seebohm Hill; Liverpool

    (2) Nicholls,Alex The Social Enterprise Investment Fund (SEIF) Evaluation: The Landscape of Social Investment in the UK, December 2010, Third Sector Research Centre and Health Service Management Centre, University of Birmingham, Birmingham.

    (3) Shanmugalingam,Cynthia; Graham,Jack; Tucker,Simon; Mulgan,Geoff Growing Social Ventures:The role of intermediaries and investors: who they are, what they do, and what they could become, February 2011, Nesta and Young Foundation, London

    (4) Laing,Noelle; Long,Coleman; Marcandalli,Annachiara; Matthews,Jessica; Grahovac,Ana; Featherby,Joshua The U.K. Social Investment Market: The Current Landscape and a Framework for Investor Decision Making November 2012, Cambridge Associates, Cambridge

    (5) Brown,Adrian; Norman,Will Lighting the Touchpaper: Growing the Market for Social Investment in England 2011, Boston Consulting Group;Young Foundation; London

    (6) Brown,Adrian; Swersky,Adam; The First Billion : A Forecast of Social Investment Demand September 2012, Big Society Capital;Boston Consulting Group, London.

    (7) Gregory,Dan; Hill,Katie; Joy,Iona; Keen,Sarah; ClearlySo; New Philanthropy Capital; Big Lottery Fund Investment Readiness in the UK July 2012, Big Lottery Fund, London

    (8) Big Society Capital Social Investment: From Ambition to Action: Annual Review and Accounts 2013, May 2014, Big Society Capital, London

    (9) Big Society Capital Social Investment Compendium: Portfolio of research and intelligence on the Social Investment Market October 2013
    Accessed July 15 2014, http://www.bigsocietycapital.com/sites/default/files/pdf/Social%20Investment%20Market%20Compendium

    (10) City of London Corporation Marketing Social Investments – An Outline of the UK Financial Promotion Regime June 2014, June, City of London Corporation, London

    (11)ICF GHK; BMG Research Growing the Social Investment Market: The Landscape and Economic Impact July 2013, City of London Economic Research, London,

    (12) Cabinet Office Growing the Social Investment Market: 2014 Progress Update.
    2014, June, Cabinet Office and Minister for Civil Society, London

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    Social Enterprise – a mouthpiece for Britain’s New Colonialism

    How to Deliver Public Services ‘on the cheap’ – Britain’s Export to the World

    This piece is mainly intended for readers outside the UK, especially for trade unions, and those now facing outsourcing and external contracting pressures, especially from ‘Social Enterprises’ funded by Social Investment, Social Impact Bonds and private funding.

    Britain is now the world leader in exporting mechanisms, techniques and templates to fund and deliver public services ‘on the cheap’ – using private money and external contractors – with a babble of Social Enterprises and other organisations tripping round the world as global ambassadors in poverty and misery, with expenses paid by the UK Coalition Government and British Council

    Social Investment and Social Impact Bonds
    • Social Investment is the provision and use of public or private repayable finance to generate social as well as financial returns. Social Investment takes a variety of forms such as loans, equity and bonds, including Social Impact Bonds. Social investors may not be able to get their money back in future with a return on their investment. Grants, donations and funds which will not be repaid by definition are not Social Investment.
    • A Social Impact Bond (SIB) means a multi-year contract in which central or local government or the commissioning agent agrees to pay a proportion of savings resulting from a positive social outcome from various private investments through ‘social sector’ organisations, including private companies. If the SIB programme is successful and delivers positive social outcomes, the demand for these services will drop and a proportion of the cost or “cashable” savings made may be paid to SIB investors. The best example is the UK Government’s Peterborough Social Impact Bond pilot, started by New Labour in 2010 for reducing reoffending. If a SIB is unsuccessful, the investor gets nothing back.
    • Private For Profit Delivery. A major feature of most Social Investment, Social Impact Bonds and Social Investment Financial Intermediary organisations is that most make no distinction between genuinely “social” structures and private for profit companies which distribute dividends to shareholders. So ‘Social Enterprises’ may be democratically constructed local groups or profit making companies.

    All this means less certainty that public services will get funded or delivered. Inevitably it means that service quality usually deteriorates. But for central and local government, all this saves public money.

    Rather than the UK Government fighting austerity and poverty, it has turned these techniques into a major export opportunity!

    Outsourcing, Minimum Wage and Zero Hours Contracts

    UK public services are being outsourced at a rapid rate. In her Public Services Industry Review 2008 (1) Deanne Julius (previously a Director of Serco) wrote:

    “The PSI (Public Services Industry) in the UK is the most developed in the world and is second in size only to that of the US. In 2007/8 its revenues totalled £79bn, gen-erating £45bn in value added and employing over 1.2mn people.” …In terms of value added the PSI is significantly larger than ‘Food, beverages and tobacco’ (£23bn in 2006), ‘Communication’ (£28bn), ‘Electricity, gas and water supply’ (£32bn) and ‘Hotels and restaurants’ (£36bn)”.

    In Open Access: Delivering Quality and Value in our Public Services (2) for the Confederation of British Industry in September 2012, Oxford Economics wrote:

    “..not just in the un-open proportion of the markets researched but in the unopened proportion of the estimated £278bn of public services spending which could practicably be more opened up to independent provision”.

    Added together, these projections mean that 60% of total UK public revenue expenditure may be outsourced, mostly to the private sector.

    Once public service delivery is outsourced to the private and ‘third sector’ contractors, payment of the National Minimum Wage (3) of £6.31 ($10.73) an hour and Zero Hours Contracts (4) – so that 1.4mn UK employees have no guaranteed working hours – become the norm.

    Huckfield is an active member of the Unite the Union Edinburgh Not for Profit Branch. Every branch meeting is dominated by members’ and their representatives’ ongoing battles to ensure that at least the Minimum Wage is paid and that terms and conditions of employment are maintained when services are contracted out.

    Every UK major trade union is involved in countless struggles with these same issues following contracting out by central and local government, the National Health Service and private deliverers of public services.

    This is the UK Government’s example to the world of how public services can be delivered on the cheap and bypassing trade unions. Sadly, as shown below, paid for by the British Government, many Social Enterprise and Third Sector organisations are lending support to all of this.

    Neoliberalism is a Deliberate Construct

    This is not the place to extend the academic or philosophical discourse on the meaning of neoliberalism. Suffice it to say here that neoliberalism is not the dismantling of the state. It is a deliberate construction of the state. In the Socio Economic Review 2011, Volume 9, Issue 1, Bruno Amable on Morals and Politics in the Ideology of Neoliberalism (5) writes:

    (page 23) “This theme of social assistance in exchange for something from the individual has been revisited by the so-called “modern left” and led to a critique of the “passive welfare state” as well as an attempt to “justify” a certain degree of inequality in society. The “Third Way” critique of the social democratic conception of welfare policy by the various strands of the “modern left” (Anthony Giddens in Beyond Left and Right: The Future of Radical Politics (6) in 1994) is not substantially different from the standard neoliberal critique and insists on the moral content of the “active” welfare state”

    Laying the foundations for neoliberalism began in the United States. In the UK, New Labour and the Cameron Government have built on these foundations.

    President Ronald Reagan in October 1981 set up a Taskforce on Private Sector Intiatives (7) to report on:

    “Methods of developing, supporting and promoting private sector leadership and responsibility for meeting public needs”

    His call to “demand more of ourselves” connected logically to the politics of limited government – requiring a strong civil society. President George Bush’s Inauguration Speech (8) on Friday 20 January 1989 continued in the same vein:

    “I have spoken of a Thousand Points of Light, of all the community organizations that are spread like stars throughout the Nation, doing good. We will work hand in hand, encouraging, sometimes leading, sometimes being led, rewarding. We will work on this in the White House, in the Cabinet agencies. I will go to the people and the programs that are the brighter points of light, and I’ll ask every member of my government to become involved”.

    From 1997 till 2010, Tony Blair’s and Gordon Brown’s New Labour Governments laid down more neoliberal foundations when they moved the delivery of public service away from the public sector. After less than a year in Office, influenced by Anthony Giddens’ “Third Way” (9) Tony Blair’s Fabian pamphlet New Politics for the New Century (10) in September 1998 set the seal on all of this:

    “Whether in education, health, social work, crime prevention or the care of children, “enabling” government strengthens civil society rather than weakening it, and helps families and communities improve their own performance … the state, voluntary sector and individuals working together. New Labour’s task is to strengthen the range and quality of such partnerships”

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    New Labour and the Cameron Government Develop Social Investment

    Gordon Brown moved stealthily towards private funding of externally contracted delivery of public services when in April 2000 he set up the Enterprising Communities: Wealth Beyond Welfare: the Social Investment Task Force (11) under venture capitalist Sir Ronald Cohen, with this remit:

    “To set out how entrepreneurial practices can be applied to obtain higher social and financial returns from social investment, to harness new talents and skills to address economic regeneration and to unleash new sources of private and institutional investment. In addition, the Task Force should explore innovative roles that the voluntary sector, businesses and Government could play as partners in this area.”

    New Labour and the current Cameron Government’s legitimation of philanthropic and private lending and equity investment in private and Third Sector public service delivery is based on the April 2010 Final Report to Gordon Brown as Prime Minister of Sir Ronald Cohen’s Social Investment Task Force: Social Investment: Ten Years On (12) Chapter Five says:

    “If 5% of the £86.1bn estimated to be invested in ISAs (Individual Savings Accounts) were also directed to Social Investment, this would generate a flow of an additional £4.3bn. Taken together, these four sources – philanthropic foundations, institutionally managed assets, grant funding and individual savings accounts – could generate £14.2bn for Social Investment”

    Pages 18 and 19 of the Social Investment: Ten Years On Final Report includes a glowing recommendation for Social Impact Bonds:

    “The SIB involves a multi-year contract according to which government agrees to pay a proportion of the saving resulting from a positive social outcome of private investment through social sector organisations (for example if there is a drop in the re-offending rate). On the strength of this contract, funds are raised from a range of social investors. …. If the programmes are successful and deliver positive social outcomes, the demand for acute services will drop and a proportion of the cost savings made will be paid out to SIB investors

    “By providing an aligned social and financial return, there is potential for the SIB to unlock an unprecedented flow of social investment for preventative intervention… Ultimately, SIBs could become a new social asset class in their own right, comparable to microfinance, enabling a flow of investment from the capital markets to resolve social issues across the world”

    The Cameron Government’s White Paper, February 2011 Growing the Social Investment Market (13) in Chapter Two simply echoes Sir Ronald Cohen’s Social Investment: Ten Years On (12) Final Report to New Labour in April 2010.

    “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”

    Funded by the Government, there is also a Social Stock Exchange in London, which promotes Social Investment and Social Impact Bonds.

    “Points of Light” presaged President Bush’s constructing neoliberalism in the United States. Based on these and New Labour’s further foundations in Social Investment: Ten Years On, Prime Minister Cameron is promoting Social Investment, including Social Impact Bonds, as a major British export

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    Voluntary and Community Organisations, Social Enterprise and the Third Sector

    Many Voluntary and Community Organisations, Social Enterprises and the wider Third Sector have been recruited by New Labour and the Cameron Governments to assist in spreading these messages about financing, outsourcing and external contracting for delivery. As shown below, they effortlessly promote Government sponsored initiatives for Social Investment and Social Impact Bonds for funding delivery of public services by non government organisations and private for profit companies.

    In his excellent book Rediscovering Voluntary Action: The Beat of a Different Drum, (14) Colin Rochester accurately describes how in England the National Council for Voluntary Organisations and other national Third Sector organisations were quickly converted to the New Labour Government’s cause following the recommendation of the Deakin Commission on the Future of the Voluntary Sector for a Compact with central government in 1996. They signed up to what the New Labour Government wanted – as long as the Government picked up the tab.

    (p52)“The invention of the voluntary sector has indeed created a policy field as well as developing a policy sub-elite made up of those who lead the intermediary bodies and those who act for government at central and local level, together with some ‘useful’ fellow-travelling intellectuals. Their achievement has been to gain widespread acceptance of one narrative about the role and function of voluntary organisations in public and social policy and one view of organisational effectiveness and efficiency”.

    (page 127)“Other players have included the chief executives of individual agencies and their representative body; researchers, organisational consultants and trainers; and those who have crossed the boundary from the voluntary sector to work in national or local government. Individually and in combination they have been shaped by and helped to shape the forces that have moulded the voluntary sector as it appears today”.

    This accurately describes the process whereby Social Enterprise UK, UK Third Sector infrastructure organisations and Social Investment Financial Intermediary Organisations have been captured for the cause of Social Investment and Social Impact Bonds under New Labour and the Cameron Government.

    All this shows how in the UK, Voluntary and Community Organisations, followed by national Social Enterprise bodies, have forfeited any independence through their recruitment in the Government’s cause of ‘cheap’ public service delivery

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    Social Enterprise rolls out Britain’s New Colonialism

    Funded by the Cabinet Office and other Government Departments, Social Enterprise and Third Sector Organisations are now helping to deliver this UK Government cost cutting agenda round the world.

    The Downing Street Policy Unit, the Cabinet Office and the British Council – with their tame retinue of national Third Sector Infrastructure Organisations, Social Investment Financial Intermediaries and others on their payroll – have taken Social Investment – Britain’s New Colonialism – on a global tour. On Social Enterprise, the British Council (15) says:

    “Social Enterprises employ business approaches to address social and environmental problems and enhance their communities. They combine the entrepreneurial approaches and trading methods of the private sector with the social mission and public values of the voluntary and public sector.

    “Launched in 2009 and rolled out in 14 countries, our Global Social Enterprise programme provides social entrepreneurs, NGO practitioners, and community leaders with skills training and access to UK expertise.”

    The British Council Social Enterprise programme is running in China, Croatia, Georgia, Indonesia, Japan, Malaysia, Myanmar, Philippines, Serbia, South Korea, Thailand, Turkey, Ukraine and Vietnam – all countries with undeveloped welfare systems. Through Social Enterprise, Social Investment and Social Impact Bonds, the British Council offers these countries a low cost route without trade unions for public service delivery.

    These British Council Indonesia UK Social Enterprise Study Tour Notes May 27-30 2014 (16) represent a good example of how it all works in practice. Though labelled a Study Tour, it becomes obvious from the composition of the delegation that it is promoting Social Investment and the British Government’s cost-cutting agenda for public service delivery.

    UnLtd, a Social Investment Financial Intermediary, and one of the British Council’s Indonesia delegation, now presses for ‘Social Enterprise’ to include private for profit companies which distribute dividends to their shareholders. UnLtd calls them “Trust Engines”. This is from Who do you Trust in Social Enterprise? (17) by UnLtd’s Head of Ventures in the Guardian newspaper on Friday 26 April 2014:

    “This year’s Big Venture Challenge – UnLtd’s programme for the most ambitious, growth-oriented early stage ventures – saw 48% of all applications (and 63% of all shortlisted candidates) coming from organisations registered as private companies limited by share (CLS)” (18)

    “But also, as a support provider for social entrepreneurs, we need to understand how all the organisations we work with can access finance, markets and additional support in order to achieve their social missions. Without the goodwill of other stakeholders in the sector, the progress of these privately owned, profit-distributing, social purpose organisations could be hampered.

    Alongside all this, British Council’s Social Investment Platform (19) offers:

    “Prizes include equity investment, bond investment, interest free or low interest loans and funding for social franchising, as well as mentoring and capacity building”

    The British Council says “We support the development of Social Enterprise and Social Investment in the UK and around the world to help build a more inclusive, sustainable and prosperous future for all”. In reality this means shifting public service delivery away from central and local government to Third and private sector providers, where there are few trade unions, a posse of volunteers and a growing band of multinationals’ being persuaded this is part of their Corporate Social Responsibility.

    So, for countries without a developed welfare system, a combination of Social Enterprises paying the Minimum Wage, the Corporate Social Responsibility of private corporations and volunteers can fill the gaps in public services. Huckfield sympathises with the recipients of these services.

    For any unbelievers, this is Starbucks working with the British Council in the Phillipines: (20)

    “As a brand we are very choosy about our partners. We chose the British Council because it is an international organisation that shares our values, particularly around inclusivity.” (Zarah Perez, Head of Global Responsibility, Starbucks Philippines)

    The British Council and the Future of Social Enterprise

    Readers outside the UK should know that the Chair of British Council, Sir Vernon Ellis, is also Chair of OneMedical Care (21), which proclaims:

    “Our dedicated team of experienced professionals work with commissioners, local GP practices, community groups and patients to design and deliver services which are accessible and make a positive impact on the health and wellbeing of communities”.

    This is not at all suggesting any impropriety or irregularity. But it is interesting that UK Government Secretaries for Health Andrew Lansley and Jeremy Hunt have used similar terms during the processs of their dismantling the NHS. No wonder that the British Council in What will Social Enterprise look like in Europe by 2020 (22) says on page 4:

    “And as the funding pendulum swings away from grants towards loans and venture capital, priorities start to be assessed based on which social outcomes can be profitable, monetised or marketised. Social issues where it’s difficult to put a financial value on the outcomes will become much harder to fund”.

    And concludes on page 7:

    “There may well not be a recognisable ‘Social Enterprise sector’ by 2020. Certainly any attempts to confine social enterprise to specific legal structures or models of governance will have ceased”.

    Though the UK Government, the British Council and their tame posse of Social Enterprise and Third Sector disciples are trying to provide cheap public service delivery with a veneer of respectability, this British Council paper gives the game away about the direction of travel.

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    Growing American Doubts

    As shown above, Social Investment and Social Impact Bonds are mechanisms under which cheap public services can be funded through private funding – all part of Britain’s big export package. Despite Prime Minister Cameron’s G8 Social Impact Investment Forum (23) at Lough Earne, Northern Ireland in June 2013 and the launch of the Social Investment Taskforce in Washington DC (24) in October 2013, various North American organisations are resisting Britain’s New Colonialism.

    The Center for Law and Social Policy (CLASP) on Friday 07 March 2014 produced Social Impact Bonds: Overview and Considerations (25) with a very detailed review of Social Impact Bonds concludes:

    (page 20)“Given the additional costs involved in a SIB compared with direct contracting (whether fee-for-service or outcome-based), the case has not been made for taking funding away from existing programs. In addition, SIBs should expand services to individuals who are not already being served, rather than replacing existing services. This is important because intermediaries may stop providing services if they are not going to be able to achieve the performance targets. This is only acceptable if the program is serving people who would not otherwise have received services”.

    The American Federation of State, County and Municipal Employees (AFSCME) is a major trade union in the United States. It represents approximately 1.5mn workers and in June 2014 published Race to the Bottom:How Outsourcing Public Services Rewards Corporations and Punishes the Middle Class (26) which said:

    (page 4)“Unfortunately, when these services are outsourced to private companies, the subsequent contracted positions offer lower wages, reduced benefits, and little or no retirement security. Too many times, these positions turn into poverty-level jobs because companies pay workers low wages and provide little or no benefits in an effort to reduce their own operating costs. These jobs that provide vital public services are paid for with taxpayer dollars, yet the men and women working for contractors are provided with wages that do not allow them to support their families”.

    McKinsey’s From Potential to Action: Bringing Social Impact Bonds to the US (27) also concluded in May 2012:

    (p10)This highlights a crucial point: SIBs are an expensive way to finance the scaling up of preventive programs. A SIB’s “premium” is justified if conventional options aren’t working, or if the SIB helps government, philanthropy, and other social sector actors align their priorities and play their roles more effectively and efficiently.

    (page 57)“As we have observed throughout this report, SIBs are a comparatively expensive way to scale a program, and for that reason not every proven program should necessarily be scaled through a SIB. This means SIBs must be carefully deployed to serve a bigger purpose”

    These various reports across the United States show growing doubts about Social Investment and the Social Impact Bond process.

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    US Senate Budget Committee Hearings

    On Thursday 01 May 2014, resistance to UK Government propaganda reached a high point during US Senate Budget Committee hearings. Huckfield has previously testified before similar hearings and can verify that Hearings in the House and US Senate are not tame affairs.

    On Thursday 01 May 2014, the US Senate Budget Committee Government Performance Task Force Hearing: Investing in What Works: Exploring Social Impact Bonds (28) began its investigations into Social Impact Bonds. Non Profit Quarterly on Wednesday 07 May 2014 commented Social Impact Bonds Not Well Received at Senate Budget Hearing: (29)

    “For a hearing that was undoubtedly intended to highlight the Social Impact Bond phenomenon, it didn’t quite turn out that way. It would seem that the promoters of SIBs have to do a better job of getting past their own promotional rhetoric and explain the substance to answer the challenges posed by Senators King and Whitehouse, not to mention McKay, the analyst who conducted the Maryland analysis”

    Independent Senator Angus King from Maine commented:

    “I think this is an admission that government can’t do what it’s supposed to do…. This just strikes me as…it’s a fancy way of contracting out. And as I say, I don’t believe government contracts very well…and the government is always going to be outfoxed on the contracts, in my experience.”

    Evaluating Social Impact Bonds as a New Reentry Financing Mechanism: A Case Study on Reentry Programming in Maryland (30) January 2013 by the Department of Legislative Services Office of Policy Analysis

    “A reentry program financed using a SIB would not produce sufficient benefits to justify the operational costs or risks of engaging in this form of high-stakes contracting”.

    “The Department of Public Safety and Correctional Services (DPSCS) should continue to directly finance and operate reentry programs while pursuing other organizational and policy changes likely to have greater impact while posing less risk than a SIB financed program”

    Based on this, Mark Fisher, from the Maryland House of Delegates, concluded at the Hearing in a paper on Social Impact Bonds Maryland HB 517 (28):

    “In conclusion, SIBs are well-intended, but they unnecessarily bloat bureaucracies. Moreover, they have the potential of leading to Crony Capitalism, and as the Maryland Department of Legislative Services concluded, they do not save money”.

    Kyle McKay, Analyst from the Texas Legislative Budget Board, told the same Hearing in a Statement on Social Impact Bonds: (31)

    (page 6)“In short, it is my personal opinion that Social Impact Bonds are expensive and risky. They may also distract governments from a more comprehensive, sustainable approach to improving public policy. Across a variety of policy areas, we have learned that measuring outcomes and using monetary payments to incentivise behavior change is difficult and often produces mixed results. There is no evidence to suggest that simply throwing investors into the fray will resolve the ongoing limitations and problems. Instead, they may very well exacerbate the challenges

    The publication of the US Senate Committee Report from these hearings is awaited. But in the meantime this Hearing certainly casts doubts on Britain’s big export. Once more it shows increasing North American resistance to Britain’s New Colonialism

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    UK Government Tactical Retreat and a New Subsidy called “Blended Capital”

    Though the UK Government, the Cabinet Office, Big Society Capital and various Social Investment supporters are aware of these various criticisms, they are still not deterred. On Wednesday 14 May 2014, Third Sector carried a story “Social Investment’ is not a silver bullet for the sector” (32)

    “Harvey McGrath, Chair of Big Society Capital, tells parliamentary meeting that the sector should instead embrace ‘blended capital’, a combination of grant funding and Social Investment”

    “Harvey McGrath, chair of the Social Investment wholesaler Big Society Capital, has said that Social Investment is not a “silver bullet” for the voluntary sector because it is not a form of funding that all sector organisations will be able to access”.

    “McGrath warned that Social Investment was still in an early stage of its development. “While it’s growing quite rapidly, it’s still relatively small in terms of the numbers,” he said.

    “McGrath said that it would be a significant move for the sector to embrace blended capital – this uses a combination of grant funding and social investment – and agreed that the two sources of funding had been looked at too separately by the sector up to now”.

    What this really means is that in the face of increasing criticisms and opposition to Social Investment and Social Impact Bonds both in the UK and abroad, the Cabinet Office, Big Society Capital and Britain’s Big Lottery are now seriously subsidising the Social Impact Bond process.

    Examples from the guidance below show that their aim is to de risk the Social Impact Bond process through Big Lottery’s up front part funding returns to investors.

    Social Investment gets a Subsidy from the UK National Lottery

    The National Lottery Act 2006 (33) formed what is now called Britain’s Big Lottery and updated the terms on which Lottery funding could be used. As Politics Today (34) explained:

    “The National Lottery Distributors have agreed a common interpretation on additionality and to report annually on additionality”.

    But the National Lottery Act 2006 doesn’t include the Lottery’s funding returns to private investors

    To illustrate the Government’s Social Impact Bond subsidy the Coalition’s programmes now feature Big Lottery and Cabinet Office funding side by side. The Big Lottery guidance in Questions and Answers – Commissioning Better Outcomes and the Social Outcomes Fund (35) gives the game away:

    • “In exceptional circumstances, you may be able to make a case for development funding over and above this £150k limit. In these cases any application will require our prior approval.
    • “Development grants can be used to purchase technical support including, but not limited to: identifying savings (to the commissioner and other organisations) and their value; estimating cashability of savings and identifying ways of realising them; defining the cohort and referral pathway; refining and pricing of outcomes; developing metrics; and developing the structure of the SIB”
    • We will only contribute a minority proportion of outcomes payments, and expect the average contribution to be around 20% of the total outcomes payments”

    Though the timing may only coincide with the US Senate Budget Committee Hearings on Social Impact Bonds above, faced with increasing criticism and implementation difficulties, the Cabinet Office and Big Lottery have decided to subsidise and de-risk Social Impact Bonds.

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    The Strange Death of the Peterborough Social Impact Bond

    The Peterborough Social Impact Bond, (36) started under New Labour in 2010, is the UK Government’s global showcase.

    But this national flagship Social Impact Bond has now suddenly been cancelled.

    The Phase 2 Report from the Payment by Results Social Impact Bond Pilot at HMP Peterborough (37) by Emma Disley and Jennifer Rubin at RAND Europe in May 2014 is comprehensive about the relative security and consistency of funding provided to those delivering the Peterborough SIB:

    (page 5) “SIB funding was perceived to be more flexible than traditional sources. Interviewees reported that decisions about spending SIB funds could be made quickly and with fewer restrictions than traditional funding for similar interventions. There are, for example, fewer procurement restrictions and no requirements for SIB funds to be spent within a specified time frame (such as a financial year).

    (page 8) “Service providers are not normally paid by results and do not bear risk in a SIB. Under a SIB, several providers can deliver services which aim to improve outcomes.”

    Alongside all of this, readers outside the UK should know that the UK Government is rushing through a reducing reoffending national Payment by Results Social Investment programme called Transforming Rehabilitation – which requires those who bid for a contract to take the risk and provide their own cash up front – which may lead to cutting corners, or an incentive to “cherry pick”.

    Many of the confirmed “30 Potential Bidding Entities” are already private sector Work Programme Prime Contractors – the Department of Work and Pensions’ big employability scheme, which is not a brilliant success!

    Transforming Rehabilitation will operate on a similar basis to the Work Programme, with problems of cash flow, risks of ‘cherry picking’ and smaller providers’ being used as “bid candy”. As an indication of funding complexity, the consultancy Rocket Science has produced a “Transforming Rehabilitation Contract Cruncher(38) to enable calculations for how much they might receive:

    “Rocket Science and ACEVO, with funding from Cabinet Office, have produced a free to use tool, the TR Contract Cruncher, designed to help potential Transforming Rehabilitation tier two and tier three subcontractors assess offers from Tier one bidders, and plan for the future, by assessing cashflow projections and risk, and comparing different payment and performance offers from potential Tier one providers.

    “The tool will help you to work out unit costs, assess and compare different performance and payment offers, alongside provisional client volumes. This will enable you to consider annual expenditure and income, annual profit and loss and cumulative cashflow”.

    It is difficult to avoid the conclusion that the Peterborough Social Impact Bond flagship, despite its proclaimed successes, looks very expensive and subsidised alongside the much cheaper and riskier Transforming Rehabilitation programme. .

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    Conclusion

    So the Cameron Government will continue with Social Impact Bonds and Social Investment – aided and abetted by national Third Sector Organisations on its payroll. Despite gathering criticism in the United States and elsewhere, the British Council will continue spreading its gospel round the world on how to deliver low cost public services.

    And in these postings Huckfield will continue telling readers in the UK and abroad what’s going on. Neoliberalism likes to proceed by stealth. If they proceed further, and don’t suffer the same fate as the Peterborough flagship, Social Investment and Social Impact Bonds will only proceed noisily.

    AND FINALLY, HUCKFIELD APOLOGISES THAT THIS HAS BEEN A LONG READ.

    References

    (1) JULIUS, D., 2008. Public Services Industry Review. PUB 8742/0.2k/07/08/NP. URN 08/1074. London u: Department for Business Innovation and Skills.

    (2) OXFORD ECONOMICS, 2012. Open Access: Delivering Quality and Value in our Public Ser-vices. London: Confederation of British Industry.

    (3) GOV UK 2014. “One million set to benefit from National Minimum Wage rise to £6.50″ https://www.gov.uk/government/news/one-million-set-to-benefit-from-national-minimum-wage-rise-to-650

    (4) OFFICE FOR NATIONAL STATISTICS. April 20 2014. “Analysis of Employee Contracts that do not Guarantee a Minimum Number of Hours” http://www.ons.gov.uk/ons/dcp171776_361578.pdf

    (5) AMABLE, BRUNO 2011 Morals and Politics in the ideology of Neoliberalism. Socio-Economic Review, 2011 Volume 9, Issue 1, pp 3-30

    (6) GIDDENS, ANTHONY 1994 Beyond Left and Right: The Future of Radical Politics. Stanford University Press

    (7) REAGAN, RONALD 1981. Executive Order 12329 – President’s Task Force on Private Sector Initiatives October 14, 1981. http://www.presidency.ucsb.edu/ws/?pid=44377

    (8) BUSH GEORGE 1989 Inaugural Address January 20 1989 The American Presidency Project http://www.presidency.ucsb.edu/ws/?pid=16610

    (9) GIDDENS, ANTHONY 1998 The Third Way: The Renewal of Social Democracy. Polity Press, Cambridge.

    (10) BLAIR, T., 1998. The Third Way: New Politics for the New Century. 1998. London: Fabian Society.

    (11) COHEN, R. and SOCIAL INVESTMENT TASK FORCE, 2000. Enterprising Communities: Wealth Beyond Welfare: Report to the Chancellor of the Exchequer from the Social Investment Task Force. London: Social Investment Task Force.

    (12) COHEN, R. and SOCIAL INVESTMENT TASK FORCE, 2010. Social Investment Ten Years On: Final Report of the Social Investment Task Force. London: Social Investment Task Force.

    (13) CABINET OFFICE, 2011. Growing the Social Investment Market: A Vision and Strategy. Introduction and Executive Summary. London: Cabinet Office February 2011.

    (14) ROCHESTER, COLIN 2013 Rediscovering Voluntary Action: The Beat of a Different Drum. Palgrave MacMillan Basingstoke

    (15) BRITISH COUNCIL 2014 Social Enterprise http://www.britishcouncil.org/society/social-enterprise

    (16) I-GENIUS 2014 British Council Indonesia UK Social Enterprise Study Tour May 27-20 2014 http://www.i-genius.org/images/British-Council-Indonesia-UK-Social-Enterprise-Study-Tour-Notes.pdf

    (17) LEHNER, DAN Guardian Friday 26 April 2014. “Who do you Trust in Social Enterprise? http://www.theguardian.com/social-enterprise-network/2013/apr/26/trust-social-enterprise

    (18) UNLTD, 2013. Big Venture Challenge. London: Big Venture Challenge. https://unltd.org.uk/bvc/

    (19) BRITISH COUNCIL 2014 Social Investment Platform. China http://www.britishcouncil.cn/en/programmes/society/social-investment-platform

    (20) BRITISH COUNCIL 2014 Starbucks Philippines. http://www.britishcouncil.ph/partnerships/success-stories/starbucks

    (21) ONE MEDICAL CARE http://www.onemedicare.co.uk/our-team.php

    (22) INGRAM-HILL, S., WOODMAN, P. and BENIANS, S., 2013. What will Social Enterprise look like in Europe by 2020? Manchester: British Council.

    (23) GOV UK Social Impact Investment Taskforce June 2013 https://www.gov.uk/government/groups/social-impact-investment-taskforce

    (24) GOV UK First meeting for Social Impact Investment Taskforce October 2 2013 https://www.gov.uk/government/news/first-meeting-for-social-impact-investment-taskforce

    (25) CENTER FOR LAW AND SOCIAL POLICY (CLASP) Social Impact Bonds: Overview and Considerations March 07 2014 http://www.clasp.org/resources-and-publications/publication-1/CLASP-Social-Impact-Bonds-SIBs-March-2014.pdf

    (26) AMERICAN FEDERATION OF STATE, COUNTY AND MUNICIPAL EMPLOYEES (AFSCME) Race to the Bottom: How Outsourcing Public Services Rewards Corporations and Punishes the Middle Class http://www.inthepublicinterest.org/sites/default/files/Race-to-the-bottom.pdf

    (27) MCKINSEY and COMPANY From Potential to Action: Bringing Social Impact Bonds to the US http://mckinseyonsociety.com/downloads/reports/Social-Innovation/McKinsey_Social_Impact_Bonds_Report.pdf

    (28) US SENATE BUDGET COMMITTEE. Government Performance Task Force Hearing: Investing in What Works: Exploring Social Impact Bonds

    http://www.budget.senate.gov/democratic/public/index.cfm/2014/5/performance-task-force-hearing-investing-in-what-works-exploring-social-impact-bonds

    (29) NON PROFIT QUARTERLY 2014 Social Impact Bonds not well received at Senate Budget Hearint May 07 2014 https://nonprofitquarterly.org/policysocial-context/24149-social-impact-bonds-not-well-received-at-senate-budget-hearing.html

    (30) FISHER, MARK 2014 Social Impact Bonds – Maryland HB 517 Government Performance Task Force U.S. Senate Committee on the Budget May 1, 2014

    http://www.budget.senate.gov/democratic/public/index.cfm/2014/5/performance-task-force-hearing-investing-in-what-works-exploring-social-impact-bonds

    (31) MCKAY, KYLE. 2014 Statement on Social Impact Bonds: Government Performance Task Force U.S. Senate Committee on the Budget May 1, 2014

    http://www.budget.senate.gov/democratic/public/_cache/files/10228f1c-dfc8-4bb2-b848-38e387da762e/mckay-social-impact-bond-testimony.pdf

    (32) BIRKWOOD, SUSANNAH 2014 ‘Social investment ‘is not a silver bullet for the sector’ Third Sector Online. Wednesday 14 May 2014 http://www.thirdsector.co.uk/Finance/article/1294363/social-investment-is-not-silver-bullet-sector/

    (33) NATIONAL LOTTERY ACT 2006. Legislation.Gov.UK http://www.legislation.gov.uk/ukpga/2006/23/contents

    (34) POLITICS TODAY 2006 The National Lottery Act Monday 11 July 2006 http://www.politics.co.uk/opinion-formers/big-lottery-fund/the-national-lottery-act-2006

    (35) BIG LOTTERY. 2014. Questions and Answers – Commissioning Better Outcomes and the Social Outcomes Fund http://www.biglotteryfund.org.uk/sioutcomesfunds

    (36) DISLEY, EMMA, RUBIN, JENNIFER ET AL 2011 Lessons learned from the planning and early implementation of the Social Impact Bond at HMP Peterborough RAND Europe May 2011 https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/217375/social-impact-bond-hmp-peterborough.pdf

    (37) DISLEY, EMMA, RUBIN, JENNIFER ET AL 2014 Phase 2 report from the payment by results Social Impact Bond pilot at HMP Peterborough May 2014 https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/305802/peterborough-phase-2-pilot-report.pdf

    (38) ROCKET SCIENCE 2014 Tranforming Rehabilitation Contract Cruncher http://www.rocketsciencelab.co.uk/tools/rehabilitation-contract-cruncher/

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    We can’t leave Coops and Mutuals to the Coop

    Background

    Huckfield attended the Coops Way Forward 2 Conference in Manchester on Friday 16 May. On Saturday 17 May a Cooperative Group Special General Meeting supported the direction of Paul Myners’ very detailed and well researched The Cooperative Group : Report of the Independent Governance Review (1), published on Wednesday 07 May 2014.

    At times the Friday Conference sounded like a ‘Requiem for the Coop’s Great Imperial Past’. One speaker, Phil Frampton from FC United, a community owned football club, said that it was like “rearranging the deckchairs on the Bismark“. Phil’s analogy was to the battleship’s often proclaimed invincibility. The Bismarck lasted five years before it was sunk. The Coop Group may not have that long!

    Some contributors in Manchester sounded as though the Coop Group still retained its 1950s’ retail share, clinging to an era described by Myners on page 41 his Report (1):

    “It seemed to be holding its own against the multiple retailers, who held a roughly similar share of food retailing (23 to 25%), which had not changed much in 20 years. Superficially, the Movement looked in good health. It had annual sales of nearly £1bn, equivalent, adjusted for inflation, to sales of £20bn (in £2014). It had a membership of 12mn; it owned over 30,000 shops, 250 factories, and the largest wholesaling organisation in the country.

    (page 44) “…ie. roughly twice the current combined value of Sainsbury’s and Morrison’s, and broadly comparable with Tesco’s, market capitalisation. Even on a far more conservative price/sales valuation of, say £5bn to £7bn, this is nevertheless a measure, however uncomfortable, of the (Coop) Movement’s colossal failure of capital management and financial discipline over the subsequent decades”.

    Retail Problems for the Coop

    For Easter 2014, leading market researcher Kantar UK Insights (2) compared the 12 weeks to Sunday 30 March 2014 with the 12 weeks to Sunday 31 March 2013 in UK Grocery Share:

    • Tesco had slipped from 29.7 to 28.6%
    • Asda had slipped from 17.6 to 17.4%
    • Sainsbury had slipped from 16.9 to 16.5%
    • Morrison had slipped from 11.6 to 11.1%
    • The Coop (as a whole) had slipped from 6.2 to 6.1%

    Meanwhile, for the same periods:

    • Aldi had risen from 3.4 to 4.6%
    • Lidl had risen from 2.9 to 3.4%

    Further detailed evidence of the Coop’s difficulties in retail were echoed in Nick Fletcher’s authoritative ‘Market Forces Live Blog’ in the Guardian of Wednesday 02 April 2014 Tesco and Morrisons Slip after Gloomy HSBC Note on Supermarket Sector (3), based on information from HSBC Investor Relations (3):

    “The UK food retail industry is undergoing the biggest structural change in decades, the enormity of which should not be under-estimated. The quoted sector is losing market share and profits are declining at an accelerating rate, with no end in sight. Tesco, Asda and Morrisons are all pledging major price investments and the space race continues with around 4% capacity additions per annum. (BHS is the latest entrant).

    “How bad can the industry get? 30 plus years ago, the Co-op was the market leader, with a peak share of over 25%. It was bigger than Tesco and Sainsbury combined. Around 20 years ago, Kwik Save was a FTSE 100 company with around 10% market share. K-Mart used to be around 100 times the size of Wal-Mart.

    “We believe that from the current change, a new structure will emerge and that the industry will look very different in 5-10 years. Not all are likely to survive. Tesco have the resources to influence this change to its own benefit but it requires significant and decisive action”.

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    House of Commons Treasury Committee and Kelly Report on Coop Bank

    The combined effect of the Reverend Paul Flowers’ appearance before the House of Commons Treasury Select Committee on Wednesday 06 November 2013 (4) and Sir Christopher Kelly’s Report on Failings in Management and Governance at the Cooperative Bank on Wednesday 30 April 2014 (5) presents an unyielding litany of incompetence and incapacity.

    House of Commons Treasury Select Committee

    While Huckfield may agree with many Coop colleagues who reckon that Paul Flowers’ drug taking was a distraction from the troubled affairs of the Coop Bank and Coop Group, his appearance before the House of Commons’ Treasury Select Committee on Project Verde (4) on Wednesday 06 November 2013 was not. This transcript of the hearing shows the irreparable damage done by this one Committee appearance:

    Q684 Andrew Tyrie MP, Chair: … Give me, and everybody listening to this, an idea of the size of the Co-operative Bank. Roughly, what is your total asset value?

    Reverend Flowers: Valued at just over £3bn.

    Q689 Andrew Tyrie MP, Chair: Your total assets in June 2013 are listed at about £47bn, just to give you an idea. You were offering me £3bn, and I am telling you that your annual accounts show it at £47bn.

    Reverend Flowers: Indeed they did, forgive me.

    Q690 Andrew Tyrie MP, Chair: Your loan book is about £32bn. These are very basic numbers for a chairman of a bank. What expertise did you have in banking before you became chairman?

    Q691 Andrew Tyrie MP, Chair: You just used a phrase, “the needs of contemporary banking”. Was there anything in your background that prepared you or would have prepared you to chair a sizeable bank with assets on the balance sheet of £47bn?

    ‘Failings in Management and Governance: Report of the Independent Review into the Events Leading to the Cooperative Bank’s Capital Shortfall’

    Sections of the Failings in Management and Governance (5) Report of the Independent Review into the Events Leading to the Co-operative Bank’s Capital Shortfall by Sir Christopher Kelly on Wednesday 30 April 2014, such as those on pages 12 to 14 are worrying to existing customers and potential lenders. They show the Coop Bank trying to takeover the Britannia Building Society more than twice its size, when it was knee deep in its own problems:

    “At the time of the merger the Co-operative Bank was a small, full-service bank with a high cost/income ratio, leading to modest profits. It had a balance sheet of about £15bn. It operated through 90 branches and served 500,000 retail customers”

    “Britannia before the merger was the second largest building society in the UK. It had assets of about £35bn, 254 branches and 2.8mn customers. On most dimensions it was, therefore, substantially bigger than the Co-operative Bank”.

    Kelly reports that alongside difficulties with the Bank’s Risk Governance and Control Framework, Accounting Judgements, Capital Requirements and Group and Bank Governance, coinciding with Britannia, the Bank was involved in:

    • IT Replatforming – causing a “near £300mn addition to the Bank’s capital shortfall” and “the full cost of the programme up to the point of cancellation (£349mn)” (pages 63 and 64)
    • Misselling Payment Protection Insurance (PPI) – for which the Bank made initial provision in 2010 of £4mn, which was raised to £347mn by 2013. (page 40) The Coop Bank’s share of PPI misselling was assessed by the Prudential Regulation Authority as £1.5bn (page 103)
    • Project Unity – integration of staff and systems – with total benefits claimed of £125mn against projected cost and revenue benefits of £190mn to £415mn by 2015 (page 72)
    • Project Verde – trying to take over 632 Lloyds Bank branches, with reported transaction costs of £73mn in 2012 and 2013 (page 80)
    • Deteriorating relationship with the Prudential Regulation Authority and Financial Conduct Authority – resulting from which there are now further inquiries by the Financial Conduct Authority and Chancellor of the Exchequer (page 82 onwards and elsewhere)

    The Kelly Report (5) on pages 22 and 23 casts doubts on those involved in the Britannia takeover:

    “KPMG’s Phase 1 due diligence report was broadly neutral, though it did warn about Britannia’s high risk profile and large exposure to sub-prime and specialist lending and arrears in its asset backed securities. Its high-level analysis of Britannia’s commercial loan portfolio identified no substantial arrears or impairment. At the time, Britannia executives described the commercial loan portfolio to KPMG as high quality”.

    “The Co-operative Bank’s own Corporate Credit Risk team did have some access to Britannia’s commercial book before the signing of the merger agreement. The Review has faced considerable difficulty in establishing how extensive this was in practice.

    “As far as it has been possible to ascertain, three members of a Co-operative Bank team including the Head of Banking Risk, Kevin Blake, reviewed about 30 of the largest commercial loans over a two-day period in early January 2009 (about two weeks before signing the sale and purchase agreement).26 In the time available it cannot have looked at them in any great detail.

    “The Bank Board minutes record JP Morgan Cazenove as telling the Board that the due diligence undertaken by KPMG “exceeded that normally undertaken for listed companies”.

    The Kelly Report (5) on page 103 describes the Coop Bank’s misselling of Payment Protection Insurance:

    “Financial Policy Committee Capital Assessment
    “The results, published in June 2013, suggested an aggregate capital deficiency on this basis of £27.1bn for the 8 firms combined. The Co-operative Bank’s share was assessed by the PRA (Prudential Regulation Authority) as £1.5bn. This figure amounted to approximately 88% of the Bank’s capital resources at 31 December 2012, significantly larger than the equivalent figure for any of the other seven. Following the Bank’s £709mn reported loss before tax in its interim 2013 accounts, this proportion increased further. For comparison, on the same basis the deficit faced by RBS, proportionally the second largest, amounted to 37% of its capital resources”.

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    Paul Myners’ Warnings

    Seven days later, on Wednesday 07 May 2014, Paul Myners’ Report published an equally stern warning that time was running out fast.

    In his Concluding Reflections on page 97 (1) Lord Myners stressed that by November 01 2014, the new Day 1 Group Board, National Membership Committee and Steering Group should be installed. The Nominations Committee should “begin process to identify and propose Group Board for Members’ Election at the 2015 AGM”:

    “A further point that I feel obliged to make to members is this: because of the losses exposed last year and their severe impact on the Group’s balance sheet, the high level of debt now carried by the Group has made it inevitable that the bank syndicates providing this funding will, for quite obvious reasons, continue to take the closest interest in the Group making rapid progress to strengthen its governance.

    “Among the top ten grocers, for example, there is likely to be no organisation more challenged by the price war now developing in food retailing unless the Group can swiftly put a strong, well-informed Board in place.

    “Without decisive commitment to rapid reform, the banks may well have their own view on the appropriate timetable for transition to a new governance structure.In those circumstances, my concern is that that the Board’s and Executive’s discretion may become increasingly more constrained, with portfolio decisions progressively forced on the Group by its creditors.

    “Nevertheless, it is only right that I offer a brief comment on the situation that would arise if, looking ahead, elected members do not show the appetite or discipline to govern the businesses that they own far more responsibly than at present.

    “If the Group cannot govern its businesses to the same standard as those with whom it competes, it would make more sense to put these businesses into the ownership of others who could more effectively create value than it is able itself to achieve”

    “All we need is a bit more time”

    Despite all these stern warnings above, some senior figures around the Coop movement still seem to be saying that the Group only needs a bit longer to sort things out!

    Sir Graham Melmoth presented a masterly historical tour de force to the Manchester Conference on Friday 16 May 2014. He finished his stint as Chief Executive of the Coop Group in January 2002. At that time, the Coop had 1100 retail outlets and 50,000 employees. The Cooperative Wholesale Society had merged with Cooperative Retail Services as a single entity. So his descriptive historical tour of events leading to the present Coop Crisis (6) was both significant and an accurate portrayal of past events.

    Despite his overwhelming expertise and longstanding experience he still thought there was time after Lord Myners’ fundamental criticisms for another round of meetings:

    “I have argued the case with Lord Myners for a small group of Cooperative Group members to be commissioned by the Board to review these reform proposals, reflect upon them, receive submissions, hold 3 or 4 public meetings around the UK and produce a blueprint for final approval by Board and Membership in the shortest possible time. Paul Myners has suggested that the time constraints impost by the stringent financial straitjacket we are in would simply preclude giving members such a chance to reflect some more on what has been put before them and to propose sensible change to what is on offer”

    But two documents below, circulated in time for the Way Forward Conference on Friday 16 May and the Special General Meeting on Saturday 17 May, show the difficulties which will be encountered if an extended “Myners Road Show” goes on tour:

    • Myners Plus.
      On Wednesday 07 May 2014, in Cooperatives UK’s New Insight 14 “Myners Plus” (7) Helen Barber, Johnston Birchall and Ed Mayo, as distinguished individual members of Coops UK, responded to Myners:

      “The solution to this is simple and it is one that is found in long established and succcessful large cooperatives overseas. This is that the Nominations Committee is a subcommittee not of the Board but of the National Membership Council – naturally with members from the Board on it and a close liaison in its work as otherwise set out in its review”

    • Myners Minus.
      In at anonymous reply to “Myners Plus” circulated at the Conference ““Not Myners Plus but Myners Minus”(8), this was criticised since

      “.. it would seriously impair the chances of putting in place the Board and the Group so very urgently needs. It would at a single stroke undercut the attraction of the Group Board to potential highly talented and qualified individuals”

    Huckfield is a fan of down to earth Brummie, Jonathan Guthrie of the Financial Times Lombard column. Writing immediately after the Special General Meeting, he wrote Cooperative by Name, Cooperative by Nature (9) in the FT’s Retail and Consumer section on Saturday 17 May 2014:

    “The alternative would be for the lossmaking Co-op to fall into the hands of the City investors, robbing proprietary capitalism of useful mutual competition. That fate has only receded a little today. The heavy lifting of turning round a retailer regarded as a joke by big supermarkets has yet to come”.

    Huckfield also believes that the problems of the Coop Bank and Coop Group are of such severity that they cannot be remedied or eased by slight changes to and by more discussion on Lord Myners’ Report’s recommendations. This “heavy lifting” needs to start immediately.

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    A Fire Sale to Chinese Buyers?

    The required “heavy lifting” will not be easy. All big supermarkets now face declining shares. The combined effect of Paul Myners’ (1) and Christopher Kelly’s (5) Reports shows that there will be resistance and reluctance to lend money to the Coop Group.

    A fire sale of funeral services, pharmacies and farms – all sectors where the principles of local accountability, cooperation and mutuality ought to confer a natural advantage upon the Coop Group – will barely scratch the surface of the Coop Group’s £2.5bn debt. In Coop’s £140mn Farms Sale Aimed at Chinese Buyers (10), in the Observer of Sunday 03 May 2014, Tracey McVeigh wrote:

    “The beleaguered Co-operative Group has insisted that it wants a single major corporate buyer for its portfolio of British farms, and will not consider community buyouts. …. It means swathes of British farmland will probably be snapped up by a Chinese investor or hedge fund speculator. .. Critics of the sale say it will end more than 100 years of ethical farming by the Co-op in its farms and at three packhouses across England and Scotland that process cereals, fruit, vegetables and honey”.

    “The Farmers’ Weekly newspaper estimated that the sale of the land alone, without any added value from equipment or buildings, could bring in around £140mn. This, critics say, will make barely a dent in the Co-op Group’s £2.5bn losses in the year to April 2014″.

    An enforced fire sale would leave the Coop Group with an aging collection of retail assets with which to compete against Tesco’s, Asda, Sainsbury’s, Morrison’s and the rest – most of which have big budget revamping and upgrading programmes for their estates.

    And if anyone thinks that Aldi and Lidl are just for low income customers in socially excluded areas, next time just look at the Mercedes and BMWs in the carpark!

    So any proposed fire sale will barely scratch the surface of the Coop Group’s financial difficulties. More alternatives will be examined in future postings.

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    Midcounties Cooperative

    For Huckfield – from close familiarity with MidCounties’ West Midlands area coverage – one of the more meaningful and heartfelt contributions at the Way Forward 2 Conference in Manchester on Friday 16 May 2014 came from Patrick Gray, President of MidCounties (11). He concluded:

    “And if it is felt that the new Group will still be too large to be entrusted to a Board that includes a few carefully chosen lay members, then perhaps Group should consider allowing some of its regions to hive off and become independent societies, within a federal framework – with their own members’ capital, and taking their share of the remaining debt with them. Better three or four genuinely democratic co-operatives, than one behemoth with only a fig leaf of member control”.

    Patrick Gray’s emphasis on a Cooperative Society well rooted in its local communities may point a way forward for the future. His Society broadens the scope of its donations beyond the Cooperative Group. Other organisations in the MidCounties area may make applications to its Community Grants Fund. The next round of Midcounties’ Community Grants (12) will open shortly, funding projects for:

    • Supporting Communities
    • Defending the Environment
    • Developing Young People
    • Developing Coops

    Time to Move On from Retail

    Patrick Gray’s suggestion of more regionally based coops, well integrated into their local communities, may form a way forward in some areas. But beyond this, it is time for the Coop Group to move into new areas.

    On Friday 02 May 2014, Coops UK Reported that public trust and confidence is slipping (13):

    “A Resilient Brand – Public Trust in Co-operatives Slips But Still Positive Overall
    “The overall level of trust in co-operatives amongst UK adults has taken a knock, falling from a relatively high level in last year’s opinion poll, taken by YouGov on behalf of Co-operatives UK. In late 2013, 46% of those who expressed a view associated co-operative businesses with the word ’trusted’. This has now fallen to 40%.”

    “While overall, co-operatives have very positive associations; being seen as local (42%), ethical (46%) and democratic (36%); there is now an increase in the minority of people who see downsides, including old-fashioned (31%, up from 26% in 2013), inefficient (9%, up from 6%) and unprofessional (5%, up from 3%).”

    And these survey results appeared before the more recent and wide open bigger Coop ‘Have Your Say’ Survey now being concluded by YouGov.

    In one of the sessions of the Way Forward 2 Conference, following David Boyle, Huckfield suggested that it was time for the principles of cooperation and mutuality to move from retail to community energy, asset transfer and land ownership. Scotland is already leading the way. Highlands and Islands Enterprise (14) shows a collection of Community Projects on its site. With pressure for more community land ownership and asset transfer, Development Trusts Association Scotland (15) now has 206 members and 42 associate members.

    The Report on Friday 23 May 2014 by the Land Reform Group in Scotland The Land of Scotland and the Common Good (16) shows the way forward.

    Though much more slowly, things are moving in England too. The Department of Energy and Climate Change has a Community Energy Strategy (17), published in January 2014, supported by a £10mn Community Energy Fund.

    Not all of these emerging structures in community energy, land ownership and asset transfer are Industrial and Provident Societies but many embody principles of local community ownership allied to cooperation and mutuality.

    Conclusion

    So time is short – both for the Coop Group and to preserve and expand the principles of cooperation and mutuality. As shown above, the Coop’s grocery share slippage needs to be tackled urgently. Its projected asset sale may not leave the Coop Group in a good position to compete.

    Huckfield’s recent posting “It’s not Paul Myners who’s killing the Coop Idea” included details about Coops UK’s taking Cabinet Office funding for promoting Public Service Mutuals – which trade unions fear are destroying jobs and worsening pay and conditions. It’s time for the Coop Group and Coops UK to move on before time runs out. It’s also time for others outside the “Coop Group family” to ensure that the principles fashioned by the Rochdale Society of Equitable Pioneers 170 years ago maintain and expand their relevance and meaning.

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    References

    (1) 2014. Myners,Paul. The Cooperative Group: Report of the Independent Governance Review. May 07 2014. London.

    (2) 2014 Easter. Kantar UK Insights. http://uk.kantar.com/consumer/ Accessed May 23 2014. Kantar UK. London

    (3) 2014. Fletcher,Nick. Guardian Market Forces Live Blog Wednesday 02 April 2014, from HSBC Investor Relations http://www.hsbc.com/investor-relations. Accessed May 23 2014. Guardian News and Media. London.

    (4) 2013. House of Commons Treasury Select Committee. Uncorrected Transcript of Oral Evidence taken before Treasury Committee on Project Verde. Wednesday 06 November. Questions 672-978. Parliament, London

    (5) 2014. Kelly,Christopher. Failings in Management and Governance: Report of the Independent Review into the Events Leading to the Cooperative Bank’s Capital Shortfall. April 30 2014. London.

    (6) 2014. Melmoth,Graham. Speech at Way Forward 2 Conference, Manchester May 16 2014 Cooperative Business Consultants, Manchester.

    (7) 2014. Barber,Helen;Johnston,Birchall;May,Ed. Myners Plus. How to Make a Success of Governance Proposals developed by the Myners Review for the The Cooperative Group. Cooperatives UK: New Insight 14. Manchester.

    (8) 2014. Anonymous. Myners Minus. May 15 for Way Forward 2 Conference, Manchester May 16 2014

    (9) 2014. Guthrie,Jonathan. Cooperative by Name, Cooperative by Nature. FT.Retail and Consumer. Saturday 17 May 2014. The Financial Times Ltd 2014. London

    (10) 2014. McVeigh,Tracey. Coop’s £140mn Farms Sale Aimed at Chinese Buyers. Observer Saturday 03 May 2014. http://www.theguardian.com/business/2014/may/03/co-op-farms-sale-chinese-buyers. Accessed May 23 2014. Guardian News and Media. London.

    (11) 2014. Gray,Patrick. Speech at Way Forward 2 Conference, Manchester May 16 2014. Cooperative Business Consultants, Manchester.

    (12) 2014. The Midcounties Cooperative Community Fund. Grant Guidelines. https://www.midcounties.coop/PageFiles/242/mccf-criteria-form.pdf Accessed May 23 2014 Midcounties Cooperative. Warwick.

    (13) 2014. Cooperatives UK. A Resilient Brand – Public Trust in Cooperatives Slips but Still Positive Overall. http://www.uk.coop/blog/mcken/2014-05-02/resilient-brand-%E2%80%93-public-trust-co-operatives-slips-still-positive-overall Accessed May 23 2014 Cooperatives UK. Manchester.

    (14) 2014. Highlands and Islands Enterprise. Community Support. Ambitious for Growth. http://www.hie.co.uk/community-support/community-projects/default.htmlAccessed May 23 2014 Highlands and Islands Enterprise. Inverness.

    (15) 2014. Development Trusts Association Scotland. About DTA Scotland. DTA Scotland. http://www.dtascot.org.uk/content/about-dta-scotland. Accessed May 23 2014. Edinburgh.

    (16) 2014. Scottish Government Land Reform Group. The Land of Scotland and the Common Good. Scottish Government http://www.scotland.gov.uk/Resource/0045/00451087.pdf. Accessed May 23 2014. Edinburgh.

    (17) 2014. Department of Energy and Climate Change. Community Energy Strategy: DECC. https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/275169/20140126Community_Energy_Strategy.pdf Accessed May 23 2014. London.

    It’s not Paul Myners who’s killing the Coop Idea

    History Repeats Itself

    During the 1970s to 1990s, as social enterprises, most cooperatives and mutuals were registered under Industrial and Provident Society and Industrial Common Ownership rules. Yet between 1998 and 2002, the wider cooperative and mutual movement almost allowed these structures to be swept aside.

    As shown below, with Public Service Mutuals, this is now happening all over again – and Paul Myners is definitely not to blame.

    Rory Ridley Duff and Cliff Southcombe show in The Social Enterprise Mark: A Critical Review of its Conceptual Dimensions Appendix A (November 2011), (1) that almost all the Founders and Initial Directors of Social Enterprise London on Monday 26 January 1998 had a cooperative background. As they write:

    “In this statement of objects, the influence of the co-operative movement and New Labour are evident. Terminology remains characteristic of socialisation (e.g. participatory democracy, co-operatives, co-operative solutions) and this reflects the orientation of the co-operative development agencies and worker co-operatives that collaborated in its creation”

    Three years later, cooperatives and mutuals were still in the headlines. In January 2001, in “The Cooperative Advantage: The Report of the Cooperative Commission(2) with an introduction by Tony Blair and chaired by John Monks, TUC General Secretary said:

    “The Commission is recommending that a ‘Social Enterprise Summit’ should be held in 2001, hosted by The Co-operative Bank with the support of the Co-operative Union and the UKCC. The Summit should bring together social enterprise partners and representatives from the retail sector from around the UK, the Labour Party and the Trade Union Movement to discuss in depth how to pursue further co-operation between all sections of the Co-operative Movement in the UK”.

    Despite this national significance and prominence of those with cooperative and mutual backgrounds, Jim Brown, in a presentation ‘Defining Social Enterprise’ to a Small Business and Entrepreneur Development Conference at the University of Surrey in 2003, (3) explained how by the time the Department of Trade and Industry set up a Social Enterprise Unit in October 2001, its initial definition of social enterprise “challenged the cooperative movement’s right to be included under the social enterprise umbrella”:

    “We should not rule out a business because it has part share holders [sic], providing its primary purpose is not simply to deliver share holder value, nor include a business just because it is run as a co-operative”

    For coops and mutuals, there was worse to come. When in July 2002 the Department of Trade and Industry issued “Social Enterprise: A Strategy for Success” (4), its first ‘official’ definition said:

    “A social enterprise is a business with primarily social objectives whose surpluses are principally reinvested for that purpose in the business or in the community, rather than being driven by the need to maximise profit for shareholders and owners.

    “There is no single legal model for social enterprise. They include companies limited by guarantee, industrial and provident societies, and companies limited by shares. Some organisations are unincorporated and others are registered charities.”

    ‘Social Enterprise’ loses its Meaning

    In other words, the insertion of “principally” was the best that the lobbying efforts of the wider coop movement could achieve. From then on, as shown below, ‘social enterprise’ as a definition gradually lost its meaning for coops and mutuals and deteriorated in public recognition.

    Fast forward to 2008 and Emma Carmel and Jenny Harlock in “Instituting the Third Sector as Governable Terrain” (5) were writing:

    “…For the central state, procurement means that the same process is adopted for contracting-out service provision for all providers, irrespective of whether they are private sector (known as ‘mainstream’) or Third Sector providers. ….. Not only does the definition of the Third Sector specifically extend to include Social Enterprises, but Social Enterprise has explicitly been adopted as a generic name for Third Sector organisations working in partnerships”.

    By May 2013, in a BMG Research Report for the Cabinet Office “Social Enterprise Market Trends” (6), produced for the Lough Earne June 2013 G8 Summit focus on Social Investment, the Cabinet Office had become even more ingenious:

    “For this reason, this report will focus on both those enterprises who consider themselves a very good fit to the social enterprise classification, and also those enterprises who consider themselves a ‘good fit’ to the social enterprise classification (which includes both those enterprises who think that are a ‘very good fit’ and ‘quite a good fit’, to the social enterprise definition)”.

    In other words, call yourself a “Social Enterprise” if you feel like it. According to the Cabinet Office Report, this produced no less than 688,200 “good fit” SME Social Enterprises, including 508,700 with no employees.

    No wonder that in the British Council’s “What will Social Enterprise look like in Europe by 2020(7), published in December 2013 on page 7:

    “There may well not be a recognisable ‘social enterprise sector’ by 2020. Certainly any attempts to confine social enterprise to specific legal structures or models of governance will have ceased”.

    There’s no need to wait till 2020. Already, except in Scotland – where a different and definite Social Enterprise Code continues – most people no longer know what a social enterprise really is. As the section below shows, with pressure for Public Service Mutuals, coops and mutuals are going the same way.

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    Public Service Mutuals

    Driven by Coalition Government policy of outsourcing services to secure cheaper delivery, the concept of Public Service Mutuals is already undermining the meaning and public acceptability of cooperatives and mutuals. Many now openly deride them as “pretend mutuals”. The following represents an abbreviated list of organisations and initiatives, funded by the Cabinet Office, with its Mutuals Information Service and Mutuals Taskforce, whose members include Social Enterprise UK and Coops UK, including a £10mn Mutuals Support Programme, with contracts awarded till March 2014

    Though Coops UK has jointly with the TUC belatedly published guidance on “Public Services, Cooperatives and Mutuals”, its Chief Executive Ed Mayo, with Ruth Lea from the far right Institute of Directors in 2002 wrote “The Mutual Health Service: How to Decentralise the NHS” (8) which proposed a significant expansion of the principles underlying Foundation Trusts:

    “The autonomy of financial management, within a regulatory framework, is a basic guarantee of the ability of NHS mutuals to achieve their results in the way they feel is best. (p24)”

    “There should be a Health Regulator supervising the NHS. One of us (Ruth Lea) has already proposed that the role of the NHS as such should be to become the regulator and funder”. (p25)

    Parts of this could have been written by Andrew Lansley as a forward to his Health and Social Care Act 2012, which under Jeremy Hunt is now dismantling the NHS.

    With friends like these, no wonder that Cabinet Office Minister Francis Maude in his Robert Oakeshott Memorial Lecture on Tuesday 25 March 2014 (9) was able to boast:

    “4 years after the last general election, the number of mutuals has increased tenfold to nearly 100. Between them they employ over 35,000 people, delivering around £1.5 billion worth of services. They’re in sectors ranging from libraries and elderly social care to mental health services and school support. They range in size from a handful of staff to upwards of 2000 staff”.

    Royal Bank of Scotland SE100 Quarterly Data Report March 2014 (10) reported that Health and Social Care spinouts are growing rapidly:

    “The health and social care sector is big and it’s growing fast: 15.8% of SE100 members state that this is their primary business market, making it the single largest business market on the Index according to the number of organisations; the sector’s mean growth is 121%, compared with 42% for the whole Index.

    “…What’s particularly interesting about this sector is that it’s not at all reliant on grants or fundraising – 97% of the income for organisations in this sector comes from local authority or health service contracts, compared with 36% for the Index as a whole.

    “One of the most significant types of organisation in this sector is the public sector spin-out – created by entrepreneurially-minded local authority or health service employees leaving to set up their own independent social enterprises which then deliver the same public services under contract with the local authority or health service commissioner”.

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    Reports on Public Service Mutuals

    The UK Government has secured amendments to the new EU Procurement Directive, which came into force on Thursday 14 April 2014 and which initially allows the reserving of contracts for Public Service Mutuals – though these will later be retendered in open competition.

    Huckfield supports trade unions in their resistance to this whole process, which is widely seen as a Government and local council response to austerity through outsourcing, cutting jobs and deteriorating pay and conditions.

    Reports which follow include some from those closely involved in implementing the policy of Public Service Mutuals.

    University of Northampton and London South Bank University

    One of the most significant pieces of research on spinouts is Public Service Spinouts 2014: Needs and Wants (11) published by the Transition Institute, University of Northampton and Collaborate (London South Bank University). This detailed Report, based on 66 organisations from 201 (a 33% response rate) shows that under Right to Provide, Right to Request and the Mutuals Support Programme, considerable funding has been made available to form what are now generically known as Public Service Mutuals:

    “Nonetheless, the aforementioned marketisation of the public sector means that spin-outs must compete with private and third sector organisations for contracts to deliver services”.(p12)

    The Report defines a Public Service Mutual:

    “An organisation that has transitioned out of a public sector body to become an independent public service provider. Spin-outs tend to prioritise the maximisation of social value within their services and usually take the structure of a co-operative, mutual or social enterprise”.(p18)

    47% were in the Health and Care sector and 32% were in Leisure (p19)

    “The results …identify that the main triggers for spinning-out were budget cuts, a decision made by the parent authority and/or a service management decision. The need to restructure a service, the existence of policy frameworks and local political support also all scored highly”.(p21)

    “During the decision to spin-out the parent authority and the service management were the most involved stakeholder groups.”(p22)

    “Though 38.5% were Companies Limited by Guarantee, 50.8% were either Community Interest Companies or Companies Limited by Shares (p24)

    “Beneficiaries and to a lesser extent service staff are less involved (or excluded) in the decision to spin-out, but once this decision is made they are increasingly involved in strategic decision-making. This offers support to prior research that identified the importance of engaging service staff but suggests that this need (and de facto engagement) may be in flux” (p35)

    Page 41 of this detailed Report concludes:

    “Indeed, the participants in this research identified a number of serious concerns relating to the future sustainability of the sector and felt that action was needed to remedy them.”

    The same page identifies:

    “A lack of perceived political support for spin-outs”

    Lack of consultation and the emerging structures in this detailed Report on Public Service Mutuals do not represent a resounding tribute to the principles of cooperation and mutuality!

    Pioneers Post

    Pioneers Post is normally an avid supporter of all these developments but on Wednesday 07 May 2014 Simon Denny from the University of Northampton painted “a picture of sustainable growth with serious challenges”:

    “This is not the march of the mutuals
    “I believe that this report brings into focus a key issue at the heart of spin-outs: what are they supposed to do? If the UK wants successful new businesses driven by the desire to serve the public, spin-outs seem to be capable of fitting the bill. However, if we we’re expecting these organisations to be mutuals, or new worker-managed organisations with extensive and formalised community engagement, then we may not get them”

    National Audit Office and Articles in peer-reviewed Academic Journals

    National Audit Office Report on Establishing Social Enterprises under the Right to Request Programme June 2011: (12)

    (p18) “While the options set out by the Department were not intended to be exhaustive or prescriptive the guidance did, in effect, steer some PCTs towards using a Social enterprise model. The Department told us Right to Request proposals took precedence over other models to provide protection for staff groups that may otherwise have been ignored.”

    In “Jumped or Pushed: What Motivates NHS Staff to set up a Social Enterprise”, Kelly Hall and colleagues describe New Labour’s “Transforming Communities” and the “Right to Request”: (Hall et al., 2012) (13)

    (p56) “This is evidence of a top-down led venture, with a limited amount of choice being exercised by these respondents as changes within health policy “pushed” some them into forming social enterprises. As one respondent expressed it, … there wasn’t anywhere else to go”.

    In a further review – “New Development: Spin-outs and Social Enterprise: the ‘Right to Request’ Programme for Health and Social Care Services” – Robin Millar and colleagues concluded: (Miller et al., 2012): (14)

    (p 236) “However, as a minimum, the Right to Request scheme provides an example of a process through which Governments can spin out public sector services in the face of po-tential large-scale opposition from unions and existing healthcare institutions and professionals”.

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    Conclusion

    Like Paul Myners, Huckfield was brought up in a household dependent on the Coop.

    Genuine coops, mutuals and social enterprises – democratically set up and controlled by their members rather than prompted by Cabinet Office funding and local council responses to austerity – deserve support.

    But Public Service Mutuals, like Social Enterprise, are becoming a term of public derision, killing off what’s left of the cooperative and mutual idea.

    REFERENCES

    (1) Ridley-Duff,Rory; Southcombe,Cliff: “The Social Enterprise Mark:A critical review of its conceptual dimensions” Institute for Small Business and Entrepreneurship Conference, Sheffield November 2011

    (2)“The Cooperative Advantage:the Report of the Cooperative Commission”. Chaired by John Monks, TUC General Secretary. January 2001

    (3) Brown,Jim “Defining Social Enterprise”, Small Business and Entrepreneur Development Conference, University of Surrey 2003

    (4)“Social Enterprise: A Strategy for Success” July 2002. Department of Trade and Industry

    (5)“Instituting the ‘Third Sector’ as a Governable Terrain: Partnership, Procurement and Performance in the UK”: Carmel, Emma; Harlock, Jenny. Policy & Politics, Volume 36, Number 2, April 2008, pp. 155-171(17)

    (6)BMG Research: “Social Enterprise:Market Trends” 2013, Cabinet Office, May 2013

    (7)Ingram-Hill,Simon; Woodman,Paula; Benians,Stephen: “What will Social Enterprise look like in Europe by 2020?” 2013, British Council, Manchester

    (8)“The Mutual Health Service: How to Decentralise the NHS” 2002 Ruth Lea and Ed Mayo. Institute of Directors and New Economics Foundation.

    (9)Maude,Francis: 2014 Robert Oakeshott Memorial Lecture on Employee Ownership and the Future of Public Services Tuesday 25 March 2014.

    (10)Royal Bank of Scotland “SE100 Quarterly Data Report March 2014″, Royal Bank of Scotland, London

    (11)“Public Service Spin Outs 2014: Needs and Wants” May 2014 Richard Hazenberg for the Transition Institute, University of Northampton and Collaborate (South Bank University)

    (12)National Audit Office 2011. Department of Health: Establishing Social Enterprises under the Right to Request Programme In: Comptroller and Auditor General (ed.) National Audit Office June 24 2011 ed. London National Audit Office

    (13)Kelly Hall, Robin Miller, Ross Millar, (2012) “Jumped or pushed: what motivates NHS staff to set up a social enterprise?”, Social Enterprise Journal, Vol. 8 Iss: 1, pp.49 – 62

    (14)“New Development: Spin-outs and Social Enterprise: the ‘Right to Request’ Programme for Health and Social Care Services. 2012. Robin Miller, Ross Miller and Kelly Hall. Public Money and Management, Volume 32 (3) pp 233-236

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    My Tribute to Jeff


    What follows is a bit more personal than my usual postings on this site.

    Jeff Place, who was my Election and Constituency Agent when I was Member of Parliament for Nuneaton and Bedworth between 1967 and 1983, and a loyal friend since then, very sadly passed away at University Hospital, Coventry, in the early hours of Thursday 20 March 2014. This is the Tribute to Jeff which I delivered at a very emotional funeral service at St Nicholas Parish Church, Nuneaton on Friday 04 April:

    First of all, I believe that everybody here this morning will want to offer their deepest deepest sympathies to Sheila, Janine, Annette, Yvonne, Paul and all their families. I didn’t expect to be here this morning and that lovely picture of Jeff on the back of the Service Sheet brought it all back.

    Jeff was my best mate.

    He was a family man, trade unionist, Labour Party member, Councillor and County Councillor. This is the passing of an era, because it’s possible nowadays to become a Councillor or even MP without any of that kind of political background at all

    Apart from all this, Jeff was also my Election Agent – a rough old trade in those days since the Agent carried the can while the MP was in London. And it was no bed of roses at the London end. An MP when I started was paid £3,250 with no free postage or free phonecalls to your constituency. Nowadays you can follow the Nuneaton News and Coventry Telegraph on Twitter to find out what’s going on in the constituency. In those days I have heard it said that some MPs gave boxes of chocolates to the girls upstairs on the switchboard to keep in touch with their constituency.

    Jeff carried out the same role for Bill (Bill Olner, Nuneaton’s Labour MP from 1992 till 2010) – perhaps a bit remarkable since Bill and I came from very different union backgrounds. But our unions were merged in 2007.

    Bill and I both agreed when we spoke earlier this week that we both chose the best person for the job. No one knew “the patch” better. Even when I came down to see Jeff on Monday 10 March – the last time I saw him – as we drove round he could identify the streets which were good for Labour and the doors you didn’t knock up.

    He was also a Christian and we both attended Communion together – not here but at All Saints in Coton.

    Family Man

    I used to visit Jeff, Sheila and the family often. Nowadays, we have elegant phrases like ‘Work/Life Balance’ and ‘Family-Friendly Employment’. But life at Acacia Road and then Kingswood Road was just like being on a big revolving stage in a play with no intervals. Bringing up four kids, working at Sterling Metals, being on the Council and being my Agent – as soon as one part of the family went out, another came in. But I’ve never come across a more caring and sharing family. No one was found wanting. Jeff and Sheila would have been married 52 years this week and all four children have each been married for 20 years. Two have been at University. There’s not many families that can say that.

    Welfare Officer

    Jeff became a Welfare Officer at Jaguar from 1978. He was a man of compassion. Harry Adey, who did Industrial Relations, used to say to me “No worries – I’ll get Jeff on the case”.

    You could see how people felt when with Jeff and Sheila as Mayor and Mayoress I toured round the street parties for the Wedding of Charles and Diana in July 1981. You could see the absolutely genuine warmth of feeling that people showed as we went round.

    He rose to become Chair of Mercia Health Benefits – then one of Britain’s last Health and Care Mutuals – with a very different background from those who have been trying to take over the George Eliot Hospital. In 1995 he came with his Chief Executive to my Office in the Albert Dock in Liverpool.

    The Passing of an Era

    As I said, this is the disappearance of those who knew their politics. Jeff was active politically in the days when you either had principles or had to pretend that you did.

    Jeff didn’t need to pretend.

    He discussed and debated the issues and then took a stand. He didn’t need a Focus Group or Opinion Polls. Whether it was the Common Market Referendum in June 1975, the siting of Nuneaton Mosque in Frank Street in 1976 or opencast at Bermuda in 1980, Jeff made up his mind and stuck to his guns. That often wasn’t easy and you don’t find that so often nowadays.

    Life was Not Easy

    In his earlier years especially, life was not easy for Jeff and Sheila. When he worked at Sterling Metals, he wasn’t in the Office. He worked in the foundry. As an MP I used to get weekly complaints from Nuneaton Fume, Smoke and Noise Abatement Society about what came out of Sterling. So you can imagine what it was like inside.

    But he never forgot where he came from or who put him there

    Jeff, mate – many thanks for your encouragement, and all you’ve done.

    I hope we can find a more permanent way to remember Jeff – not just today but for the future.

    I want people to say to their children “I hope you’ll grow up to be a bit like Jeff Place”

    Interment followed at Bucks Hill Cemetary in Nuneaton and friends and family gathered afterwards at the Stockingford Allotments Association Pavilion (“The Piv”)

    Though this was an impressive family occasion – just like working people and their communities used to come together years ago – everybody said that it would have been nicer on a happier day. But it was good to see many old friends and I hope we can keep in touch.

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    If you work in a School or College, Beware Social Investment

    Since this posting seeks to reach a wider readership, new readers please start here:

    • Huckfield main points and conclusions are in this colour.
    • Links or documents are highlighted in this colour.

    Huckfield recognises that there is already growing private sector provision in Schools and Colleges but is sad to see a substantial Social Investment in Education Report advocating greater private sector expansion in the guise of Social Investment.

    As a Board Member of the Social Entrepreneurs’ Network Scotland, which operates its own Code of Practice for Social Enterprises, Huckfield supports Social Enterprises which:

    • are genuinely democratically set up and controlled, with appropriate structures for their governance
    • do not distribute any surpluses
    • include a “lock” on their assets to protect them from external takeovers and buyouts

    However, in postings on this site Huckfield frequently warns that in the eyes of the Coalition Government, Social Enterprises include a much wider range of organisations, which don’t even resemble these Senscot Code requirements. As shown below in What is a Social Enterprise? below, a Social Enterprise may be a private company paying dividends to its shareholders. Many of these will welcome this Social Investment in Education Report since it opens the door for them to access mainstream funding in Schools and Colleges.

    Background and Outline

    Social Investment in Education is presented in a way which initially may look innocuous. But it threatens jobs and undermine standards, especially in Schools and Colleges.

    Social Investment seeks to harness and promote the delivery of public services through philanthropy, private and charitable sources, including private equity investment and lending. As shown below, these investors expect a return on their investment from cheaper delivery of these public services.

    Social Investment in Schools and Colleges

    Big Hitters in Social Investment

    Social Investment in Education was published on Thursday 27 June 2013 by the Young Foundation, Big Society Capital and the Private Equity Foundation. These are among the big hitters of Social Investment.

    Private Equity Foundation, a London-based Charity backed by private equity groups including KKR, Apax and Terra Firma, focuses on disadvantaged young people, and is merging with Impetus Trust, which promotes and delivers venture philanthropy with charities and Social Enterprises.

    While Huckfield does not doubt their sincerity, their Report opens the door more widely to greater private sector involvement in Schools and Colleges with an attendant threat to the terms and conditions and jobs of those currently employed.

    The Report’s Main Areas of Focus

    Social Investment in Education on page 9 outlines its main focus areas:

    • Post 16 Vocational Education. The Report says on page 9:

    “The rise in the school leaving age to 18 creates demand for 50,000 to 100,000 new school and college places. Subject to regulatory approval, this market is fairly open, with charitable and commercial providers able to set up, and be paid in arrears according to pupil numbers”.

    “Unlike the other markets we are examining, this is mainstream provision. It therefore has structurally higher visibility that the ancillary services considered below. The one-off rise in demand provides a window of opportunity for the setting up or expansion of innovative providers in this area”.

    As the Guardian Report on Thursday 27 June by Nicholas Watt and Patrick Wintour warned:

    “They were looking for £2bn cuts (close to 10% cuts on the Treasury baseline). There was a paper circulating from the Treasury that wanted all (Further Education) provision put on to a loan basis.”

    Page 27 on The Post Vocational Market continues:

    “This market is open to a number of providers, including charities, commercial companies and Social Enterprises. The easiest funding route is known as the Zero Funded Contract, and subject to regulatory approval, allows the operator to open its doors and be paid for the pupils it signs up.”

    For further details on this, please see Education Department Opens the Door with Zero Funded Contracts below.

    Page 27 of the Social Investment in Education Report continues:

    “Over the medium term this should be a fairly stable market. An established provider offering recognised qualifications and training is unlikely to be disrupted by abrupt changes in political direction; the leaving age is unlikely to be lowered again, and Colleges can adapt as qualification requirements change. Of course investments in new start-ups or expansion remain as risky as in any other business sector, but no more so.”

    In the Chancellor’s Spending Review on Wednesday 26 June 2013 Further and Higher Education are shown on page 39. Further Education funding will be reduced by a further £260mn in 2015/16. FE faces a bigger reduction than HE. And this comes after the disappearance of Educational Maintenance Allowance the the Future Jobs Fund. These are areas where Social Investment will make inroads, for which Social Investment in Education offers timely advice to new providers.

    Social Investment in Education on page 9 continues its main focus areas:

  • Central Government, through Social Impact Bonds and other Payment by Results contracts
  • Though page 9 does not give details of specifics, the following represents the starting point:

    “The £30m DWP Innovation Fund is the largest example of this sort of funding in the world at the moment, and focuses on a range of primarily educational outcomes. If SIBs (Social Impact Bonds) can generate enough of a saving to pay for themselves, they could be a very large market. The Government continues to invest considerable sums in developing this market, and education is and will be a key focus”

    Social Impact Bonds now have a significant presence on Government websites:

    “Social Impact Bonds (SIBs) are designed to help reform public service delivery. SIBs improve the social outcomes of publicly funded services by making funding conditional on achieving results. Investors pay for the project at the start, and then receive payments based on the results achieved by the project.”

    In Social Impact Bonds: Planting for Future Growth May 2013, KPMG shows in more detail how Social Impact Bonds might work in Local Government.

    All this leads to private investors providing funding, taking equity stakes in those delivering public services and receiving a financial return on their investment based on a payment by results or outcomes basis if these results or savings are achieved.

    Social Investment in Education on page 9 continues its main focus areas:

  • Services provided directly to schools, with a focus on the Pupil Premium.
    The Report says on page 9:

    “The greatest opportunity is probably to change teaching practice in a substantial and long-lasting way, although specific targeted help to high-need pupils is also very valuable.

    “Up-to-date data suggests that this group is very much open to the possibility of investment. There are some concerns in the investor community about their capability to put together a credible plan to repay the investment, due to a lack of skills. However there is a considerable amount of money going into the sector to improve investment readiness, and we would expect this to bear fruit in the coming years.

    Based on the Sutton Trust Education Endowment Foundation Teaching and Learning Toolkit, the Report in Figure 3 on page 19 shows “The most effective modes of intervention, by months of acceleration”. It also shows the relative cost of each programme.

    Page 24 on Does the evidence base impact on practice? says:

    “There is now a credible and accessible synthesis of the research base (in the form of the EEF toolkit), extra funding to implement it in the shape of the Pupil Premium, pressure from Ofsted to spend it well, and monitor how it is being spent. This suggests to us that the use of the evidenced techniques outlined above will rise over the next few years.”

    This is really saying that the Pupil Premium might be better spent on external providers. Those in education unfamiliar with the language of Social Impact Bonds may not be accustomed to measuring everything in money terms.

    Page 15 of Social Investment in Education says:

    “Research by York University estimates an average lifetime public finance cost of £56,301 for a young person who is NEET aged 16 to 18. 11 The resulting estimated aggregate public finance costs of 16-18 year old NEETs range from £12bn to £32bn. The costs to the public purse of the failure to master basic literacy have been estimated at up to £2.5bn annually.There is a considerable financial gain to be harvested by improving outcomes for this group, providing potential opportunities for payment by result investment structures”.

    Page 16 of Social Investment in Education outlines how all this might be sold at the School Gate:

    “Given the pressure on local authority budgets, local government is – and will remain – a very difficult market into which to sell services. Instead, individual schools, via head teachers, are increasingly the key market for Social Enterprises.”

    So new providers will approach Head Teachers directly.

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    What is a Social Enterprise?

    Social Investment in Education frequently refers to ‘Social Sector Organisations’. Some readers may believe that Social Enterprises in this Report are non profit organisations, including Companies Limited by Guarantee and registered Charities. But all that has changed.

    “Good Fit” Social Enterprises

    In Social Enterprise Market Trends May 2013, the Cabinet Office introduced a new definition for Social Enterprise, which really means “You can call yourself a Social Enterprise if you want to”. Page 8 says:

  • The Classification of a Social Enterprise
    In the Small Business Survey (SBS) 2012, 24% of SME employers thought of themselves as Social Enterprises (defined as a business that has mainly social or environmental aims)”
  • “Whether a business answers ‘very good fit’ or ‘quite good fit’ is perhaps a judgemental matter, dependent on how a particular individual chooses to express themselves… For this reason, Report will focus on both those enterprises who consider themselves a ‘very good fit’ to the Social Enterprise classification, and also those enterprises who consider themselves a ‘good fit’ to the Social Enterprise classification (which includes both those enterprises who think that are a ‘very good fit’ and ‘quite a good fit’, to the social enterprise definition).”
  •  
    Previously Social Enterprise UK on page 8 of State of Social Enterprise Survey 2009 and on the acknowledgements page of Social Enterprise UK Fightback Britain 2011 reckoned that there are 62,000 Social Enterprises contributing £24bn to UK Gross National Product. In Social Enterprise Market Trends May 2013 the following represents what the Government would like us to accept as the ‘new normal’ for Social Enterprise – more than 10 times that number:

  • Total Estimated Number of UK SME Social Enterprises 2012. Page 11 Table 3.3 shows, using the ‘good fit’ definition, 688,200 Social Enterprises in 2012. But only 179,500 were employers.
  • Gross Value Added by Social Enterprises. Page 14, Table 3.9 shows £55bn Gross Value Added by all ‘good fit’ Social Enterprises and £41bn by those who were employers”.
  • Legal Status. Page 20, Table 4.5 shows that nearly 40% of ‘good fit’ Social Enterprise were Private Limited Companies. This has fallen from over 50% in 2010.
  • So the Government now believes that, if they believe they are a “good fit”, anyone who is self employed and private companies which distribute dividends to their shareholders can call themselves Social Enterprises.

    So, if you feel that way inclined, why not call yourself a Social Enterprise?

    And Don’t Forget the Shareholders

    In October 2012 Social Enterprise UK published its own Why Social Enterprise? A Guide for Charities. On page 11 under Structure/Options, the Guide lists:

    • “Limited Liability Company (limited by Guarantee or Shares)”.

    Big Society Capital’s Definition of Social Sector Organisations includes for profit companies. The requirements for funding ‘For Profit Social Sector Organisations (SSO)’ are described in Big Society Capital’s Governance Agreement:

    “1.1 A for-profit SSO will:

    1.1.1 have objects set out in its constitutional documents which are primarily concerned with the provision of benefits to society (see addendum detailing Social Objects);

    “1.1.2 have a policy in relation to the distribution of profit after tax that ensures surpluses are principally used to achieve social objectives. Practically this means that the payout of
    cumulative profit after tax to shareholders will be capped at 50% over time, and therefore
    ensures that any surpluses generated over time will be mainly:

    • reinvested in the business;
    • applied in advancement of its Social Objects; or
    • distributed or donated to other social sector organisations.

    “1.1.3 have a constitutional or contractual lock on its Social Objects, dividend and surplus
    distribution policy”

    What all this means is that a Social Enterprise may be a private company which pays dividends to its shareholders but reckons that it is a “good fit”. Microscopes and micrometers may be used!

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    Keys to the Door

    Chosing the Easiest Way to Make a Return

    In its Conclusions and Recommendations on page 41, Social Investment in Education is open about why The Report’s Main Areas of Focus above have been selected:

    “We have suggested that three areas could form the cornerstone of a portfolio in this area, combining social and financial returns:

  • 1. Finance new post-16 Education and Training Institutions that reach those groups who have been failed previously and supply basic skills and contact with employers in new and engaging ways.
  • 2. Funding the best-evidenced interventions through an SIB/PbR (Social Impact Bonds/Payment by Results), with the additional benefit of demonstrating that this is a viable asset class.
  • 3. Scale Social Enterprises that help schools use the pupil premium wisely, in light of the evidence (carefully selecting those that understand the challenge of selling in this market).
  •  
    “We have specifically selected opportunities which we think will succeed against the existing policy environment and would not require dramatic structural changes to the system. Indeed, the core opportunity for Social Enterprise has occurred because Central Government has stepped back from directive management of the education Sector. It has given institutions more autonomy over their budgets, and is holding them to account for outcomes, rather than specifying solutions. It supports outcome-based structures such as SIBs (Social Impact Bonds), and welcomes a range of innovative new entrants, such as in the post-16 market. The greatest policy requirement is that the Government continues to operate in this way.”

    Since New Labour ushered in the whole concept of Social Investment after Sir Ronald Cohen’s Final Report of the Social Investment Task Force April 2010, there is little indication so far that a change of Government on Thursday 07 May 2015 might result in a change of policy.

    Education Department Opens the Door with Zero Funded Contracts

    Page 44 of Social Investment in Education under Standard Route shows how student funding will be delivered directly to Academies, Colleges and other providers. The role of Local Authorities becomes ever more limited.

    “The standard funding route in the new system is directly from the EFA from 2013 on a per student basis. This is approximately £4,000 per full time student (600 hours). Academies, colleges, and providers will get their funding in this way, though the system is still lagged (funding is based on data from the previous year) and is calculated through data returned in census for schools/academies or Individualised Learner Record (ILR) for colleges and other further education providers.

    Page 46 of Social Investment in Education on Zero Funded Contracts

  • “Zero-funded contracts are a new funding route to allow commercial and charitable
    institutions to enter the 16 to 19 education market. It joins the other market entry options offered by the EFA (Education Funding Agency) – Free Schools, University Technical Colleges, Studio Schools, and responding to open procurements run by the EFA.
  • “Under a Zero-Funded Contract institutions will receive £0 per student for the first year of operation – funding then starts from the second year of delivery, subject to compliance with the contract. Students at zero-funded institutions will still be eligible for bursaries.”
  •  
    On Tuesday 26 March 2013, the Department for Education announced Zero Funded Contracts Gateway Opens

    Huckfield and others have few doubts that other doors will open for more Zero Funded Contracts!

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    Higher Education?

    The incursion of For Profit Universities into Higher Education is already highly controversial. Almost politically unnoticed, BIS Alternative Providers Draft Guidance in April 2013 permits For Profit HE providers’ access to the English Student Loan System. They will also remain outside HEFCE Controls on Student Numbers in England until 2014/15.

    As shown above, Big Society Capital and its Social Investment Financial Intermediaries prefer not to distinguish between Charities, Companies Limited by Guarantee and private companies paying dividends to their shareholders. All this will increase fears that in an already highly politically charged arena, further For Profit and private equity intervention in English Higher Education could follow the Social Investment route.

    And, Finally

    In the Introduction to Social Investment in Education, Objectives and Scope on page 12 says “We understand a ‘good opportunity’ for social investment to have three qualities”:

  • “It must have efficacy, in other words there must be a good reason to believe that it will improve the educational outcomes.
  • “It must be marketable, in that there must be someone who will buy the service or product.
  • “Finally, it must be investible. There must be a need for social investment, investees with skills and capabilities to generate a positive return on the investment, and a proportionate level of risk”.
  • While few will doubt or question efficacy, many will ponder and struggle over how marketable or investible might describe initiatives helping or supporting disadvantaged young people.

    Many trade unions have long viewed Social Enterprises as code language for an ultimate private sector threat to their jobs. As a strong supporter of real Social Enterprises Huckfield is sad to see a Report openly advocating this.

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    Can Social Finance Meet Social Need? Debate Starting 13 Years Late.

    Social Enterprises and Third Sector Organisations should be grateful to Robbie Davison and Helen Heap for their excellent Report Can Social Finance Meet Social Need? Hopefully, this will begin a genuine debate on the relevance of Social Investment which should have begun at least 13 years ago.

    The Democratic Deficit of Social Investment

    After his appointment in April 2000, Ronald Cohen submitted a First Report from his Social Investment Task Force Enterprising Communities: Wealth Beyond Welfare to Gordon Brown MP as Chancellor of the Executive in October 2000. Between then and the submission of his Final Report Social Investment: Ten Years On in April 2010, there was little real discussion about the Social Investment concept it proposed.

    The House of Commons Library Briefing on Big Society Bank Wednesday 26 October 2011 describes the evolution of the Social Investment concept. Despite various Government Statements and Consultation Documents, real debate and discussion on its relevance and appropriateness were minimal.

    In May 2007, the Treasury issued a Consultation Document on an Unclaimed Assets Distribution Mechanism. On August 8 2007, Social Enterprise London’s Response to the Consultation did not question its fundamentals.

    The Dormant Bank and Building Society Accounts Act received Royal Assent on November 26 2008. Its Explanatory Memorandum shows:

      “The Big Lottery Fund will be required to distribute money for social or environmental purposes, with more detailed spending areas being identified by each country for its apportioned share of the money available. For England, the spending areas relate to youth services, financial inclusion, financial capability and Social Investment”

    The Act made no mention of a Social Investment Bank.

    There was a consultation on a possible Social Investment Wholesale Bank in 2009. The Social Enterprise Coalition’s Consultation Response in October 2009 did not question its fundamentals.

    There was a Backbench Business Committee Debate on the Big Society on Monday 28 February 2011. A Big Society Bank was not discussed.

    The Parliamentary Administration Select Committee’s Report on the Big Society, December 14 2011, represents the only real Parliamentary discussion about Big Society Capital. Its conclusion on the Big Society Bank on page 30, paragraph 88 says:

      “12. Big Society Capital is a genuinely imaginative social innovation, which has enormous potential in the long term. The concept is as yet unproven, and large scale effects will take a decade or more to bear fruit. Furthermore, Big Society Capital will not provide the solution to the ‘funding gap’ for many small, local charities who do not wish to take out loans. The Government must acknowledge that in the short term Big Society Capital is unlikely to resolve the current ‘funding gap’.

    The only other Parliamentary airing was a Written Ministerial Statement by Nick Hurd MP on Tuesday 17 April 2012, two weeks after Big Society Capital had already opened:

      “The big society bank formally opened its doors to the public on 4 April as Big Society Capital. The new institution has been capitalised with the first tranche of dormant bank accounts and Merlin bank money, and we will thus have met a Coalition priority”

    All this shows that from 2000 onwards during the gestation period for the concept of Social Investment and Big Society Capital, there was little examination or discussion of what these might entail, whether they were needed or whether there was any demand for them.

    Robbie Davison and Helen Heap’s Can Social Finance Meet Social Need? in June 2013 represents the first real attempt to ask the fundamental questions.

    With 98 weeks before the next General Election, especially with a long tail of Social Investment Financial Intermediaries (SIFIs) as stake holders in the existing process, Huckfield hopes that this will stimulate further effort to change the direction of the Social Investment concept which has been developing since April 2000.

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    The Discussion which Didn’t Take Place

    In April 2011, New Philanthropy Capital and NESTA published Understanding the Demand for and Supply of Social Finance with a cautious approach, which encompassed Community Development Finance Institutions, Credit Unions and Housing Associations. Part 2 Summary of Findings on page 6 says:

    • “1. The absolute amounts needed from a funder like the BSB (Big Society Bank) total hundreds of millions rather than billions of pounds.
    • 2. By far the majority of demand for capital is for soft capital – patient, semi-commercial capital and grants. The BSB should not expect to achieve commercial returns on many of its investments (although there are opportunities for this, set out below). By patient, we mean capital which takes many years to return the principal.
    • “4. Building the market is essential, which requires grants or very patient capital. Both markets are ‘underdeveloped’ in many respects; both require investments to help them become more efficient and sustainable.
    • “5. The BSB may have to make a trade-off between building the market and maintaining its capital.
    • “6. There seems little appetite for a new intermediary entrant offering direct products and services competing with existing intermediaries.

    This essentially cautious approach was maintained by Dan Corry, as Chief Executive of New Philanthropy Capital, when interviewed for Big Society Fund Launches with £600mn to Invest on Radio 4′s Today Programme on Wednesday 04 April 2012:

      “It will mask the real problem: Voluntary Organisations who really do need grants and won’t be able to cope with risk capital.”

    Mr Corry said that although there were many Social Enterprises that would benefit from the scheme, many charities would not, because they had no revenue stream that could be used to repay the funding.

      “A lot of charities who are helping homeless people, for example, they don’t get any revenue from that,” he said. “For most of them, this is really quite irrelevant.”

    It’s a great pity that New Philanthropy Capital and others shown below did not continue their analysis of difficulties posed, especially when, with ClearlySo and Big Lottery Fund, it published Investment Readiness in the UK in July 2012, which showed in great detail potential recipient organisations’ unpreparedness for Social Investment.

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    The Government’s Big Policy is Outsourcing

    Despite the hype of Growing the Social Investment Market, the Government’s February 2011 White Paper, and the inclusion of Big Society Bank on page 29 of the Government’s Coalition Agreement May 2010, Social Investment is not the Government’s main policy. The Government’s main policy is outsourcing.

    The Seymour Pierce (now Cantor Fitzgerald Europe) estimate of £100mn outsourcing is on page 8 of Can Social Finance Meet Social Need? But Oxford Economics in its Open Access Report for the CBI in September 2012, says on page 7:

      “..given the size of the potential prize if similar levels of savings achieved across the areas of public services expenditure which could conceivably be opened up to further independent provision, which the CBI estimates could be up to £278bn. This change will not happen by default. The Government must lead the agenda”.

    Cantor Fitzgerald Europe says on Government Spending Plans on page 44 of its Support Services Annual Review January 2013:

      “There was a sharp acceleration in public sector spending in the first decade of this century, with TME reaching an all time high of £707.1bn in 2010-2011. This is expected to decline by 4.4% to £676.2bn in 2017-2018.”

    Though these are based on different projections, this means that the CBI believes that around 40% of the public spending could be “opened up further to independent provision”.

    No wonder that page 52 of Cantor Fitzgerald Europe’s Support Services Annual Review January 2013 mentions:

      “In October 2012, we attended a meeting hosted at the Cabinet Office by Francis Maude (Minister for the Cabinet Office) and Stephen Kelly (Chief Operating Officer for the Government). We heard how the Government was now open for business and how it will be looking at becoming a smarter customer. We were told that more services would be open to competitors, that the Government would be more innovative in its approach, more and and more digital when dealing with the private sector”

    A Subordinate Role for Social Enterprise?

    How Money is Spent To Meet Social Need on page 10 and Figure 1 – What the Money Pays For on page 11 of Can Social Finance Meet Social Need? acknowledge that most ‘bulk provision’ will be delivered by private for profit operators and larger charities. Since much of this will be delivered by private Prime Contractors and under Payment by Results, this means a lesser role for Social Enterprise and Third Sector Organisations. Recognising the difficulties in providing services for “unmet need, market dysfunction and innovation spend”, the Report continues on page 12:

      “This does not have to be the case, there should also be an important role for smaller, community-focused Social Enterprises and CVS providers who can develop new models of service delivery that are suited to the new landscape, but it will require a period of experimentation, research and development before these are of sufficient stability and scale to have real impact”.

    But this means a subordinate role for Social Enterprise and Third Sector Organisations.

    Huckfield recognises the Social Enterprise description on page 16 under 4. What makes a Social Enterprise social in economic terms? and the process description on page 17 in 5. Analysing Social and Financial Value Creation. On page 18, Figure 2 – Social and Financial Value Creation Stages of Company Development – Social and Financial Value Creation seeks to show stages of product development and funding needed.

    However, Huckfield believes that for many Social Enterprises, these initial Builder and Finance Grant stages are not easily structured or subdivided and are really one ongoing and evolving stage while moving towards Product Maturity. So for many Social Enterprises, any distinction between Builder and Social Expansion Finance may not be clear cut.

    But any amendment or revision of the Figure 2 – Social and Financial Value Creation diagram is not a major issue and does not undermine the case which Can Social Finance Meet Social Need? seeks to make.

    Against a background of headlong outsourcing to large prime contractors and payment by results, Huckfield believes that more attention in Can Social Finance Meet Social Need? should be given to:

    • an examination of the roles which Social Enterprises might play as private contractors and large charities deliver most provision
    • more examination of funding needed by the larger majority of Social Enterprises and Third Sector Organisations which earn income but which do not engage in commissioning and contracting.

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    Widening “Social Sector Organisation” Boundaries since Little Demand for Social Finance

    Big Society Capital Gets Carried Away!

    BBC News headlines for Radio 4′s Today Programme on Wednesday 04 April 2012 included Big Society Fund Launches with £600mn to Invest. The story continued:

    • “The Fund has already agreed investments worth £3.6mn in five separate schemes..”

    From the outset Big Society Capital seems borne aloft by its own rhetoric. The First Billion: A Forecast of Social Investment Demand in September 2012 shows:

    • Demand Growth Forecast on page 8
      “From around £165mn of Social Investment deals made in 2011, our study shows that demand for Social Investment could rise to £286mn in 2012, then to £750mn in 2015, finally reaching around £1bn by 2016 if trends continue as forecast. This pace of growth, equivalent to 38% annually, is not for the faint of heart”

    Despite this excess of optimism, 12 months later the First Annual Report of Big Society Capital 2012 published in April 2013, in Review of the Business on page 38 shows:

      “During 2012, £119.4mn of equity capital has been received, £71.7mn from the dormant bank accounts via the Reclaim Fund Limited and £47.7mn from the shareholder banks. In principle commitments of £56.6mn have been made for 20 investments. Of this total, £5.4mn has been drawn down.

    For a concept 13 years in the making, this is very slow progress indeed. How much of this £5.4mn funding was for a SIFI rather than final beneficiaries?

    Little Demand for Social Investment

    Closer to reality, in a detailed, well researched article in Social Enterprise Journal Vol 8 No 2 2012, Peter Sunley and Steven Pinch at the Department of Geography at University of Southampton in Financing Social Enterprise: Social Bricolage or Evolutionary Entrepreneurialism show a minimal demand for Social Investment:

      “There was even less interest in equity-type investment and only two of the Social Enterprise had received equity investments, neither of which were from orthodox venture capital investors. Most interviewees were not aware of any social-equity schemes or quasi-equity schemes and dismissed the relevance of equity to their slow growth, small surplus and social value strategies.

      “The aversion to loans was not confined to those Social Enterprises who were most dependent upon grant income (although it was most intense in this group) – unstable markets whether from the public or the private sector were also crucial in determining attitudes towards borrowing. Thus, the aversion to borrowing was to be found amongst enterprises of varying size and age.”

    What Sort of Intermediaries?

    Big Society Capital seems to have ignored much which was said and written about the role of SIFIs.

    Growing Social Ventures: The Role of Intermediaries and Investors: Who they are, What they do, and What they Could Become, by NESTA and the Young Foundation in February 2011 poses major questions for intermediaries on page 7:

      “Too few intermediaries understand social impact well enough. When asked about their own skills, intermediaries rated themselves least strongly on their understanding of social issues – and rated social ventures most strongly on their understanding of social issues”.

      “Pumping more finance into the sector is unlikely in itself to realise growth in the sector, without careful thought on how it is structured. A decade ago it was widely expected that greater supply of capital would increase demand from strong ventures. Instead, despite the relative growth of social finance, many social investors struggle to find investible ventures”.

    Financing Social Enterprises in the UK by the Social Investment Consultancy in March 2011 says on pages 3 and 4:

      “Across the vast array of social investors, there are only a handful of funding organisations focused on investments between the £50,000 and £200,000 mark. Individual investors often do not have the risk appetite to write cheques at this level, while institutional investors often see this range as being too costly given the necessary due diligence and transaction cost at an average of £5,000.

      “Pumping more capital into the sector is unlikely by itself to generate growth, without careful planning on how the investment could be best used”.

    Survey Evidence for Scottish Community Bank

    Much of this is echoed from a large survey being conducted by Social Entrepreneurs’ Network Scotland, of which Huckfield is a Director, for its proposed Scottish Community Bank. This shows that Social Enterprises and Third Sector Organisations experience most difficulty in finding soft loans without being able to offer recognised guarantees and security. Long repayment profiles, including repayment holidays, possible percentage repayments and “due diligence plus” are needed from lenders.

    Most current Third Sector lenders require acceptable security and do not have resources or scope for the local due diligence, mentoring and ‘handholding’ involved. Additional resource is needed for existing intermediaries familiar with Third Sector Governance and structures.

    Figure 5 – Capital Shift required to fully develop the Social Investment Market on page 27 of Can Social Finance Meet Social Need? seeks to show structural shifts needed by Big Society Capital and others. But this also means that different roles and different kinds of SIFIs are needed, for which many current SIFIs may not be equipped or suited.

    Instead of examining whether its SIFIs sufficiently understand their market or might assist the wide range of Social Enterprise and Third Sector Organisations which believe that Social Investment is inappropriate, Big Society Capital has instead chosen an easier way forward by widening the definition of eligible Social Sector Organisations which might be ultimate beneficiaries.

    Wider Definition – Social Sector Organisations

    Big Society Capital has encouraged a wider range of organisations as potential investees. The following examples show the consequences of this shift:

    For its Big Venture Challenge, UnLtd is bold in proclaiming:

      “When selecting who we work with, we are agnostic on legal structure, and open-minded on the use of profits. In each individual case we care passionately and work relentlessly to find the most appropriate revenue model and investment strategy to maximise social impact.”

    Rodney Schwartz, ClearlySo’s Chief Executive in Social investment is a Large Tent that is Broadly Defined on Tuesday 09 April 2013 was equally bold:

      “However, I believe there is also a practical risk if anyone tries to proscribe and thereby limit what is included. From our perspective at ClearlySo, the biggest problem for Social Investment is not the precision of the definition of the term, or its deviation from some ideal, but rather the small size of the market. Put simply, we need more investment in social everything”.

    Big Society Capital itself in its For Profit Social Sector Organisations Governance Agreement offers:

      “The Company exists:

    • (a) primarily to provide affordable credit and other financial services to
      individuals and organisations which are excluded from or are underserved by
      mainstream credit and financial services markets; and
    • (b) as an equal or subsidiary object, to generate value for shareholders.”

    Alongside these proclamations favouring a wider spectrum of Social Sector Organisations, a long tail of SIFIs, especially the 27 for the Investment and Contract Readiness Fund, have been recruited, some with little experience of Third Sector or Charitable Organisations. These are listed on this site under Who will Speak Out against the Financialisation of Social Enterprise? on this site.

    Because SIFIs are still being recruited, if the proposals on page 31 of Can Social Finance Meet Social Need? are to be pursued, it should be recognised that some SIFIs don’t really understand their market and are not properly funded to respond to the needs of Social Enterprises and Third Sector Organisations.

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    Technical Assistance

    The remit and structure of Big Society Capital are not adequate to fund a wider range of Social Investment and other Intermediaries. Page 24 of Can Social Finance Meet Social Need? highlights the problem, quoting from Big Society Capital: Vision, Mission and Activities:

      “Any equity, quasi equity, risk/working capital or debt investment by BSC must be shown under rigorous stress testing to generate over time a financial and social return commensurate with the underlying risk assumed. This means that BSC will need to balance the overall levels of financial risk it takes in pursuit of social impact with the need to generate sufficient financial returns to remain operationally viable.”

    Though further “Technical Assistance” support comes from the Cabinet Office, much of this resembles a scattergun approach, advancing £10mn “here or there” through these funds and others:

  • Investment and Contract Readiness Fund – £20mn
  • Social Action Fund – £20mn
  • Social Incubator Fund – £10mn
  • Social Outcomes Fund – £20mn
  • Centre for Social Action – £40mn
  • No wonder that Daniela Barone Soares as Chief Executive of Impetus Trust on Pioneer Post TV on Monday 25 February 2013 advocated that the Investment and Contract Readiness should be ten times its current size!

    Page 29 of Can Social Finance Meet Social Need? suggests the Big Lottery as a source of additional support funding. Additional support already provided by the Cabinet Office’ ad hoc approach is shown above.

    But even with additional funding from the Big Lottery and Cabinet Office, as shown in The Report’s Recommendations below, Huckfield still doubts whether Big Society Capital and its SIFIs are appropriate vehicles to meet the funding needs of most Social Enterprise and Third Sector Organisations.

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    Impact Measurement

    Another omission from Can Social Finance Meet Social Need? is that any move towards Social Investment means the need for closer and more detailed Impact Measurement. This can mean the measurement of impacts which lenders and investors understand rather than those which are important to deliverers.

    Initial studies on the results of Impact Measurement are beginning to appear. The following is taken from a recent Australian description of process towards Results Based Accounting in Organisation Sdueies, Volume 33 (1) pp 97-120 by Keevers, L., Treleaven, L., Sykes, C., and Darcy, M. (2012). “Made to Measure: Taming Practices with Results-based Accountability”:

      “A feature of government public policy has been an attempt to manage the community sector (other terms are also used to describe this sector such as ‘third’, ‘charitable’, ‘not-for-profit’, ‘voluntary’ and ‘civil society’) through the introduction of these new planning and accountability approaches linked to economic models for managing funding….”

      “In this boundary cut that measures service provision, RBA (Results Based Accountability) excludes from mattering all the practices that cannot be constituted as ‘a service’. Yet, at Southern Youth these practices are identified as crucial in contributing to people’s struggles over recognition, belonging and ‘just’ living”

    Many more examples will show the distorting effects of Impact Measurement for Lenders and Investors.

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    The Report’s Recommendations

    On page 31, Can Social Finance Meet Social Need? recommends a reallocation of Big Society Capital’s resources:

    • 25% to fund bulk provision of service providing minimum acceptable outputs and preventative spend.

      Some of this might be provided through existing SIFIs or may not need additional support
    • 50% to fund innovation spend and support community based Social Enterprise development, looking also to lever in philanthropy investment.

      This will need intermediaries familiar with Social Enterprise and Third Sector structures and governance and would be more effectively funded outside Big Society Capital’s current structure. Non repayable Technical Assistance for other organisations would be more appropriate.
    • 15% for the provision of unmet need by charities via trading activities

      It is doubtful whether under Big Society Capital’s remit and structure, many SIFIs with their current Boards and structures will be those appropriate for this. These will also need funding from non repayable Technical Assistance funding. It would be more appropriate if this support was provided through a reallocation of Big Society Capital’s funds to other organisatons not under its remit.
    • 10% by The Big Society Foundation to fund grants for charities serving unmet need purely from charitable activities.

      Different structures not under the auspices of Big Society Capital would be more appropriate or effective in this role

    And, Finally

    Huckfield in Big Society Capital’s £600mn – An Alternative Strategy for Supporting Social Enterprises recently advocated the reallocation of Big Society Capital funds to intermediaries not primarily promoting Social Investment.

    Once more, Huckfield proposes that some funding allocated to Big Society Capital and its SIFIs should be reallocated to regional and local Social Enterprise Networks for their decision on spending priorities under some of the very worthwhile recommendations in this Report

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    Social Impact Investment Forum (the Complete Irrelevance of)

    For starters, just think how many Social Enterprises, Voluntary and Community Organisations might be rescued or saved with the money spent on this irrelevant London Bubble Bankers’ Beano! In times of harsh austerity, Huckfield and many others reckon that the day long free binge for Social Investment Financial Intermediaries on Thursday 06 June was insulting.

    The People in the Bigger Houses

    Like many readers, while at school Huckfield did a rural paper round on a bike. The bigger houses took The Times or the Telegraph and were usually out on Saturdays when you rang the doorbell to collect the money. Since this was rural Worcestershire, the bigger houses also had a car and mains electricity. To see the Queen’s Coronation on June 02 1953, you had to find somebody with a black and white TV and ask if they’d let you watch.

    The great majority of Social Enterprises and Third Sector Organisations must surely have felt they were looking at people in the big country houses when they saw the Social Impact Investment Forum on Thursday 06 June 2013, hailed widely in the London Bubble as Britain’s “leading the world” contribution to the G8 Summit. The Forum launched:

    • A Social Stock Exchange, which, as one might expect, lists Social Enterprise UK as one of its ‘friends’! To keep them company, solicitors Bates, Wells and Braithwaite provide both a Board Member and the Company Secretary. It’s the usual London Bubble suspects. Like many others, Huckfield struggles hard to equate supporting hard pressed Social Enterprises with any of this.
    • A Global Learning Exchange on Impact Investment. This sounds like code language for public funding to send representatives of various Social Investment Financial Intermediaries on round the world trips. Again one struggles to think how any hard pressed Social Enterprises here will benefit.
    • Consultation Draft on Development Impact Bonds. This sounds like the International Department for Social Impact Bonds. Presumably this will attract another £10mn “technical assistance” support from the Cabinet or Foreign Office for more trips abroad?

    A full week later, the rest of us are still asking what relevance has any of this for the great majority of Social Enterprises and Third Sector Organisations outside London and their often precarious existence? If those in the London Bubble want to hold an irrelevant media extravaganza like this, why don’t they approach some bankers to fund it?

    Support from Investors

    At the Social Impact Investment Forum , there was the customary open letter of congratulations from the “industry” – Investors Support G8 Efforts to Catalyse Impact Investing, which included:

      “We applaud Prime Minister Cameron and officials from G8 countries for their proactive step to embrace the promise of impact investing as an important complement to existing efforts by the public and non-profit sectors.”

    Since some of these are either existing or wannabe Social Investment Financial Intermediaries (SIFIs) perhaps they should also have declared their financial interest in hoping to benefit from all of this?

    There were also some interesting figures for the Investment and Contract Readiness Fund:

      “The ICR Fund has approved 27 applications to date, committing up to £2.7mn of grant support to a range of ventures across different sectors, and is on target to meet the full £4.5mn budgeted for 2012 to 2013″.

    One wonders how much of this is going to the 27 Investment and Contract Readiness Intermediaries, listed in Who will Speak Out against the Financialisation of Social Enterprise? on this site and how much to ultimate Social Enterprise beneficiaries?

    Typically, like many Social Investment events in the London Bubble, at the Social Impact Investment Forum how many attendees were other SIFIs wondering how they might jump on the bandwagon?

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    Growing the Social Investment Market Update

    To support the Social Impact Investment Forum, there was also a rushed Growing the Social Investment Market: 2013 Progress Update. It is difficult to find anything new in its 25 pages, but on page 21 there is the most intriguing statement:

      “Support Investment Readiness
      “4.7 To make it easier for social ventures to locate the investment-readiness support that they need, we are working with the market to create a ‘what works’ evidence base for what types of support are most effective. We are also working with the Design Council to map sources of funding for investment readiness support and communicate this to frontline ventures.

    Since its resuscitation as a drowning Quango, is this an example of the Government’s “Nudge Unit” Behavioural Insights Team dreaming up funding to keep the Design Council alive? Or is this just hurried proof-reading?

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    Social Enterprise Numbers – Call Yourself a Social Enterprise if you Want

    Social Enterprise Market Trends, published by the Cabinet Office for the Social Impact Investment Forum, included a new “good fit” concept and some astonishing Social Enterprise numbers.

    “Good Fit” Social Enterprises

    The Cabinet Office has introduced a new definition, which really means “You can call yourself a Social Enterprise if you want to”. Page 8 says:

    • The Classification of a Social Enterprise
      In the Small Business Survey (SBS) 2012, 24% of SME employers thought of themselves as Social Enterprises (defined as a business that has mainly social or environmental aims)”
    • “Whether a business answers ‘very good fit’ or ‘quite good fit’ is perhaps a judgemental matter, dependent on how a particular individual chooses to express themselves… For this reason, Report will focus on both those enterprises who consider themselves a ‘very good fit’ to the Social Enterprise classification, and also those enterprises who consider themselves a ‘good fit’ to the Social Enterprise classification (which includes both those enterprises who think that are a ‘very good fit’ and ‘quite a good fit’, to the social enterprise definition). The ‘good fit’ classification is closer to that employed by Social Enterprise UK.”

    Using this “good fit” definition, page 10 onwards then goes well beyond the hype of Social Enterprise UK on page 8 of State of Social Enterprise Survey 2009 and on the acknowledgements page of Social Enterprise UK Fightback Britain 2011, both of which reckon that there are 62,000 Social Enterprises contributing £24bn to UK Gross National Product. The following is a small sample of what the Government would like us to accept as the ‘new normal’:

    • Total Estimated Number of UK SME Social Enterprises 2012. Page 11 Table 3.3 shows, using the ‘good fit’ definition, 688,200 Social Enterprises in 2012. But only 179,500 were employers.
    • Gross Value Added by Social Enterprises. Page 14, Table 3.9 shows £55bn Gross Value Added by all ‘good fit’ Social Enterprises and £41bn by those who were employers”.
    • Legal Status. Page 20, Table 4.5 shows that nearly 40% of ‘good fit’ Social Enterprise were Private Limited Companies. This has fallen from over 50% in 2010.
    • Regional Trends. Page 25, Table 4.10 shows ‘good fit’ Social Enterprises ranging from 4.6% in the North East to 17.5% in the Southwest.
    • Index of Multiple Deprivation. Page 26, Table 4.11 shows that nearly 28% in the Most Deprived Areas were ‘good fit’ Social Enterprises, compared with only 15% in the Least Deprived. This is clearly important for public policy, service delivery and employment in socially excluded areas.

    An excellent article, Methodological Critique of the Social Enterprise Growth Myth, by Simon Teasdale, Fergus Lyon and Rob Baldock in the Journal of Social Entrepreneurship March 2013, is probably more accurate. On page 15:

      “The reinterpretation of these elements allowed private businesses to be classified as Social Enterprises such that almost 90% of the mythical 62,000 Social Enterprises are organisations which would not have been considered Social Enterprises under the original interpretation of the definition. The most recent NSTSO (National Survey of Third Sector Organisations) allows an approximation as to how many Social Enterprises there are in the UK, meeting the 2004 interpretation of the definition. Our analysis suggests around 16,000 TSOs (Third Sector Organisations) would be considered Social Enterprises using this approach”.

    Huckfield and many others others reckon that the 16,000 Social Enterprises figure is more accurate.

    Social Impact Investment Forum Hoist with its Own Petard

    Social Enterprise Market Trends, published by the Cabinet Office for the Social Impact Investment Forum, continues with further analysis which does not look encouraging for wannabe Social Investment Financial Intermediaries:

    • Income Received from Grants and Donations. Page 39, Table 5.7 shows none for 85% of ‘good fit’ and 83% of ‘very good fit’ Social Enterprises.
    • Whether Sought Finance in last 12 months. Page 46, Table 7.1 shows 28% for ‘good fit’ Social Enterprises.
    • Main Reasons for Applying for Finance. Page 47, Table 7.2 shows 57% ‘good fit’ Social Enterprises seeking finance for working capital/cash flow.
    • Types of Finance Sought. Page 48, Table 7.3 shows 82% ‘good fit’ Social Enterprise seeking loans/overdrafts and only 13% seeking Grants. The same table shows only 2.6% ‘good fit’ Social Enterprises seeking Asset Finance.

    Tables 7.2 and 7.3 above cannot be good news for SIFIs (Social Investment Financial Intermediaries) seeking investment opportunities!

    Huckfield will in future provide more analysis of Social Enterprises’ funding needs. But in the meantime, for London Bubble SIFIs, these figures are not encouraging.

    Alongside this, further difficulties for SIFIs are shown in the BIS Business Support for Social Enterprises: Findings from a Longitudinal Study, October 2011, based on research by the University of Durham.

    • “Finance Related Issues” on page 33. “Issues are also reported around equity funding. …Despite this in November 2010, Triodos closed their Social Enterprise [equity investment] Fund – targeted at those SEs which were ‘commercial in their approach’ with the potential for a return. Triodos only made one investment from 500 enquiries over an 18-month period”.
    • “6.4.1 Levels of demand and levels of success” on page 97. “Survey data shows evidence of unmet demand for external finance from institutional funders. Access to finance was the single largest barrier reported by respondents to State of Social Enterprise 2011 . 44% indicated that availability and affordability of finance was an obstacle”.
    • “Access to external (non-grant) finance is one of the main barriers to growth among Social Enterprises. Awareness of finance products among our sample organisations was varied, ranging from a comprehensive grasp among larger organisations and a minority of the smaller Social Enterprises, to relatively poor levels of knowledge – particularly of non-bank products – among many of the smaller organisations”.

    The last two bullet points above are taken from Social Enterprise UK’s Fightback Britain: State of Social Enterprise 2011.

    All this shows that these three publications offered for the Social Impact Investment ForumCabinet Office Social Enterprise Market Trends 2013 , BIS Business Support for Social Enterprises: Findings from a Longitudinal Study, October 2011, and Social Enterprise UK Fightback Britain 2011 – offer no real evidence of any significant demand for Social Investment.

    Huckfield and many others wonder how much longer the Government, supported by London Bubble SIFIs and Social Enterprise UK, can continue to claim that Social Investment is Britain’s world leading initiative?

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    Hard Pressed Charities don’t need Social Enterprise Hooray Henries

    Eric Pickles’ Mechanism for Passing the Buck

    As Secretary of State for Local Government and Communities, Eric Pickles has been long enough in politics to know that his agreement last week with the Chancellor on further cuts to his Departmental Budget for 2015-2016 is the easiest part. Deciding how further cuts will fall on and within Local Councils’ and Voluntary and Community Organisations’ spending is much harder.

    Though the Chancellor’s 2013 Spending Review won’t be published until Wednesday 26 June, so far Local Government bodies have followed the Government’s line, typified in Public Finance on Wednesday 29 May 2013:

    • “The Government has confirmed that Whitehall cuts agreed yesterday will not affect Council Funding, which is still being negotiated by the various departments”.

    The Local Government Association on Tuesday 28 May 2013 also followed this line:

    • “DCLG has confirmed that today’s announcement does not relate to local government funding, which is still being negotiated between departments. The ambiguity around today’s announcement highlights why in future local government should be much more directly involved in negotiating the settlement.

    Perhaps someone should tell them that the seven Government Departments which have so far agreed to further cuts represent a mere 20% of the £11.5bn total sought by the Chancellor?

    Institute for Fiscal Studies

    The Institute for Fiscal Studies’ observations on The Rapidly Changing State, which accompanied the Chancellor’s Budget on Wednesday 20 March 2013, were unequivocal:

    • “Spending on Debt Interest, Social Security Benefits and Health accounted for just over half of total public spending in 2003–2004, but all bar £14bn of the £125bn increase in public spending is forecast to be accounted for by these components. Real spending on all other areas, including Education, Defence, Public Order and Safety, and all other Non-Health Public Services, is forecast to increase on average by a fairly meagre 5% between 2003–2004 and 2017–2018, and to take up an ever smaller proportion of total public spending”.
    • “The Government is currently making big choices about the shape of the State as well as about its size. On current plans, we are moving ever more rapidly towards a state focused on welfare and particularly on health and on pensions. As the population ages, this focus on health and pensions will become still more evident. However, whether spending a diminishing fraction of national income on other public services is a sustainable choice is an open question.”

    The New Local Government Association

    Projections like these have already made by the New Local Government Association in Gaming the Cuts: Any Borough in 2018. In its Introduction on page 9:

    • “With the NHS, Schools, International Development and Defence Equipment ring fenced from cuts the savings burden will again fall disproportionately on Councils. Therefore, it now seems likely that Local Government, along with some other un-ringfenced services, will face real terms reductions of at least 50% of expenditure over the period 2011-2012 to 2017-2018″.
    • “At the same time growing demand pressures will become particularly acute in Adult Social Care, and costs will increase by a ‘very modest £7bn’ or about 15% over the decade. As the graph below shows, the funding gap opens out immediately the projections start and reaches £16.5bn by the end of the decade”

    In other words, irrespective of the Chancellor’s 2013 Spending Review Statement on Wednesday 26 June, we already know that less and less of the Government’s overall spending will be available for local service delivery by Voluntary and Community Organisations.

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    The Pain of Voluntary and Community Organisations

    NCVO’s Civil Society Almanac

    Already, the pain of the Voluntary and Community Sector is shown in NCVO’s analysis in its detailed UK Civil Society Almanacs for 2009-2010 and 2010-2011. In basic terms, this shows that between these two years, in England alone, around 1,000 Organisations disappeared. Though overall UK Charities real income hardly changed, there was a real terms spending fall of £800mn.

    In NCVO’s Counting the Cuts May 2013, further projections are made, based on Compact Voice Freedom of Information Requests in 2012 (more details below):

    • Figure 4 on page 15, even when based on “proportionate cuts”, shows that Voluntary Sector Organisations between 2010-2011 and 2017-2018 could lose £1.7bn or 12.5% of income.
    • Figure 5 on page 17 shows that under a “disproportionate cuts” scenario between 2010-2011 and 2017-2018, the Sector could lose £2.1bn or 15.3% of income.

    No wonder that in its Conclusion on page 18:

    • “On balance, NCVO anticipates that austerity policies will continue beyond the 2015 General Election. The depth and pace of cuts may change; but it is unlikely that Government funding of Voluntary Organisations will ‘bounce back’ to levels seen prior to the 2008 financial crash”.

    The Compact and Compact Voice

    The Compact, December 2010 is supposed to represent a partnership between Government and Civil Society Organisations.

    Compact Voice proclaims that it “represents the Voluntary Sector on the Compact – an agreement between the Sector and the Government to ensure better working together”.

    Section 3 on page 10 of The Compact includes:

      “Undertakings for the Government:
      “3.1 Ensure that CSOs (Civil Society Organisations) have a greater role and more opportunities in delivering public services by opening up new markets in accordance with wider public service reform measures and reforming the commissioning environment in existing markets.

      “3.2 Consider a wide range of ways to fund or resource CSOs, including grants, contracts, loan finance, use of premises and so on. Work to remove barriers that may prevent CSOs accessing government funding, thereby enabling smaller organisations to become involved in delivering services where they are best placed to achieve the desired outcomes.

      “3.3 Ensure transparency by providing a clear rationale for all funding decisions.”

    Despite this, Compact Voice is forced to rely on Freedom of Information Requests to secure information from Central and Local Government in England.

    For Local Government, Compact Voice: Local Authorities and the Voluntary and Community Sector, December 2012 shows:

    • Response Rates (page 9): 60 Local Councils (17%) did not reply and 39 (11%) refused to reply to Compact Voice Freedom of Information Requests .
    • Comparisons between 2011-2012 and 2012-2013 (page 22):

      “When considered together, this results in an overall reduction in expenditure with the VCS of £60,711,392 of the 173 authorities (49%) who provided information to enable comparison. This results in an average reduction of £350,933 per local authority, but given the different range of spending involved, does not provide us with a meaningful figure”.

    Clearly, many Local Councils in England took little notice when in September 2011, the Department of Communities and Local Government issued its Best Value Statutory Guidance, including page 6:

    • “4. Authorities should be responsive to the benefits and needs of voluntary and community sector organisations of all sizes (honouring the commitments set out in Local Compacts) and small businesses”.
    • “5. Authorities should seek to avoid passing on disproportionate reductions – by not passing on larger reductions to the voluntary and community sector and small businesses as a whole, than they take on themselves..”

    So no wonder that Compact Voice: Local Authorities and the Voluntary Sector, December 2012 concludes on page 21:

    • “When using grant funding as a specific example of support for the voluntary and community sector, it is clear that the Best Value Guidance is not being upheld. Compact Voice urges CLG and the Secretary of State to do more to ensure that this guidance is being enforced.”

    Reporting on Central Government Departments, Compact Voice: Central Government and the Voluntary Sector, October 2012 is equally depressing. Pages 7 and 8 show that out of 15 Government Departments to which Freedom of Information Requests were sent:

    • 5 refused partially or completely
    • 4 did not respond or supplied no information
    • Only 2 supplied full or nearly full information

    The Compact and Compact Voice are supposed to represent the “Coalition Government and Civil Society Organisations working effectively in partnership for the benefit of communities and citizens in England”. But it’s clear to all that Compact Voice is just being given the “run around”. No wonder that James Allen, its departing Head, wrote a farewell piece called ‘The End’ – on Thursday 09 May 2013, which included:

    • “Cuts – no surprises here but clearly set to continue to 2017 and beyond. These cuts, particularly at local level, will start to bite deeper as any remaining easy targets are long gone.”
    • “An era of austerity means more pressure on everyone, with fewer resources. Getting people’s attention and persuading them to work with us is getting more challenging than ever”.

    Though all this shows that for Voluntary and Community Organisations the Compact process is not working, Huckfield and many others have noted that the Board of Compact Voice includes ACEVO, Social Enterprise UK, NCVO and NAVCA – all organisations in a position to do something about this sad state of affairs.

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    Few Voluntary and Community Organisations have any real choice

    Huckfield writes this piece as a strong supporter of Social Enterprise, Cooperatives and Third Sector Organisations, wherever these emerge through genuine democracy and where their governing bodies and employees are all part of a democratic decision taking process. Huckfield doesn’t support organisations’ being forced or cajoled into becoming Social Enterprises.

    So against an increasingly desperate background described above, it is dismaying that Social Enterprise UK and others seem to believe that many Voluntary Organisations and Charities have many choices for their future survival.

    Social Enterprise UK

    Social Enterprise UK’s Survey of Charities, May 2013 shows:

    • “In a survey of more than 100 charities, 92% said they would like to increase their income from trading and government contracts in the next three years”.
    • “When asked how they feel when they hear about social enterprise, 52% chose ‘excited’, 29% chose ‘interested and want to know more’, 12% chose ‘confused’ and only 7% chose ‘nervous’.”

    From this Survey, in “Charities Happy to Trade” in Pioneers Post on Wednesday 29 May 2013, Social Enterprise UK Chief Executive Peter Holbrook writes:

    • “The fact that more than half of the Voluntary Sector’s income is now earned through trading (selling goods and services and delivering public contracts), rather than giving through donations, legacies and grants, may come as a surprise to many”.

    He concludes:

    • “But it’s encouraging that the research points to a positive attitude, and it’s the job of organisations like Social Enterprise UK and NCVO to provide support and help charities navigate what at first may seem like a long and winding road”.

    From this, Huckfield and many others ask a simple question. If Social Enterprise UK really wants to help Voluntary Organisations and Charities to become Social Enterprises, why does it spend so much time propogandising Big Society Capital and Social Investment, which are utterly irrelevant to the real needs of these Charities in their desperate straits?

    Bates, Wells and Braithwaite Charity Law Conference, Thursday 16 May 2013

    Equally perplexing were contributions at the Bates, Wells and Braithwaite Charity Law Conference, reported in Civil Society where:

    • A delegate from St Andrews Healthcare had been told by Charity Commissioners that calling itself a Social Enterprise would help it win contracts.
    • Another delegate knew of a Charity calling itself a Social Enterprise to apply for grant funding.
    • Stephen Lloyd from BWB was reported as saying that “Social Enterprise enhances the Charity brand.”

    ‘Hooray Henry’ contributions like these don’t help the cause of Charities or Social Enterprises, especially when Big Society Capital and others want to keep the “Social Enterprise” definition wide enough to include private for profit companies because there are few takers for their Social Investment.

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    Enough Pain Already for Voluntary and Community Organisations

    If any Social Enterprise ‘Hooray Henries’ still don’t understand the pain in Voluntary and Third Sector Organisations, they should read Michael Bell’s From Cooperation to Competition and Fragmentation in the NCIA Bulletin, November 2012 about the Patchwork Project in Newcastle bidding against Barnardos:

      “There are people still meeting together in order to position themselves as a consortium to win money at the expense of their colleagues, reflecting values focused on competition – in their process destroying other projects. This assumes we can play this game, be canny and become business like – while what in fact we are doing is, firstly, making it too easy for decision makers to choose commissioning rather than use grant aid to allocate what is public monies; and, secondly, exposing ourselves and the neighbourhoods we represent to far stronger competitors”

    Is it any wonder that after experiences like this, the trade union UNISON warns its members that Social Enterprises are Bad for Your Health:

    • “Patient care will suffer as the race to provide the cheapest service will affect the quality of care – and teams from different organisations will find it increasingly difficult to cooperate with competitors over a patient’s care”.
    • “If these small Social Enterprise businesses fail, the NHS will not be able to bail them out. This opens the door for multi-national companies to step in, meaning that your healthcare will be run for profit. Any surpluses will go into shareholders’ pockets rather than into improving the service”.

    As shown above, especially in England, these are desperate times for Voluntary and Community Organisations:

    • They know more cuts are on the way.
    • They know they won’t get much protection through the Government’s Best Value Guidance or through Local or National Compacts when they see that Compact Voice is being given “the run around” by Central Government Departments and some Local Councils.
    • They understand the difficulties of the commissioning process, so they don’t want to be told that this is their way forward.

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    Don’t Forget the Shareholders

    Before its survey above, in October 2012 Social Enterprise UK published its own Why Social Enterprise? A Guide for Charities. On page 11 under Structure/Options, the Guide lists:

    • “Limited Liability Company (limited by Guarantee or Shares)”.

    So the Guide says that shareholders and for profit companies are OK. On page 15, there is even:

    • “Setting up a Social Enterprise owned by your organisation to generate income for it: You can set up a business that has no direct connection to your
      social mission but generates income that you can spend on fulfilling your social mission”.

    Whatever this means, Guide for Charities advertises the services of Bates, Wells and Braithwaite and is written by ‘Social Spider’, David Floyd?

    But at least this Guide lets us know clearly where everybody stands. We anticipate eagerly the next posting on David Floyd’s Beanbags and Bullshit site to tell us all where he differs in all this from Social Enterprise UK and Bates, Wells and Braithwaite.

    Microscopes and micrometers may be used.

    And, Finally

    Independence under Threat – the Report of the Panel on the Independence of the Voluntary Sector, published by the Baring Foundation in January 2013, says on page 34:

      “For example, we asked Clive Martin, the Director of Clinks, an umbrella organisation for voluntary bodies working with offenders and their families, about the impact of Government contracts on freedom of action and purpose. He said that Voluntary Organisations were the A&E of society but that, over the last ten years, that part of the sector increasingly saw its role as winning contracts, with the expertise of boards and staff shifting to support this goal. He said that he thought that it was the role and mission of the organisations he worked with to represent those on the margin”.

    Survey after survey shows that many small and medium Voluntary and Community Organisations are going to the wall, never to be seen again.

    They deserve better than Social Enterprise ‘Hooray Henries’ and wannabes with smart alec tips about trading and earned income. They had 13 years of that from New Labour and the Coalition Government just repeats the same message.

    When it comes to cuts, no one has ever called Eric Pickles a ‘Hooray Henry’ or wannabe.

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    No Standing Ovation for Big Society Capital’s First Annual Report

    Huckfield offers these comments on Big Society Capital’s First Annual Report , which finally appeared on Friday 10 May 2013.

    In a previous posting on this site, Big Society Capital’s £600mn – An Alternative Strategy for Supporting Social Enterprises , has already been suggested.

    Thirteen Years to Spend £5mn

    These are highlights from a chronology of events leading to the First Annual Report of Big Society Capital (BSC):

    Though the concept, legislative framework and detailed proposals have been developing since the Millennium, in its first year of operation, BSC invested only £5.4mn – and some of that in Bridges Trust, where Sir Ronald Cohen Chairs its Advisory Board.

    Big Society Capital roles

    In describing its roles, the BSC Annual Report raises important issues:

    • The Social Investment Market Maker. BSC’s dual role as Investor and Social Investment Champion is described on page 13 of its Report. But BSC is also a well heeled market maker, spending public money to make a Social Investment market.
    • How much real Social Investment? Unclaimed Bank Assets are really public money. BSC’s ‘Founding Principles’ on page 13 include Independence (with Big Society Trust’s owning 60% BSC’s shares) and Transparency. Despite receiving £119.4mn equity capital during the year, only £5.4mn has actually been drawn down. And we still don’t know how little has yet been received by ultimate investees. £5.4mn represents investment in intermediaries, not final beneficiaries.
    • No benchmarks or comparators. Operating in a political and economic context without benchmarks or evaluation standards, it is not easy to reflect accurately BSC’s performance. BSC handles large amounts of public money without any UK or international precedent or comparator. In their absence, it is very difficult to judge BSC’s efficiency, productivity or effectiveness. If, as claimed in September 2012 in The First Billion Report by Big Society Capital and Boston Consulting, there is demand for £750mn Social Investment by 2015 and for £1bn in 2016, how much BSC spending activity is really additional and how much is just deadweight? Is there a need to spend so much public money on creating a Social Investment Market?
    • Operating in an environment without questions. Other factors mitigate against effective measurement and analysis of BSC’s performance. BSC operates in an environment where the Cabinet Office and Government are supinely supportive. Beyond its immediate operations there is minimal political understanding and, as shown below, unwavering and uncritical support from London Third Sector Organisations.

    BSC’s Friends, the London Third Sector Organisations

    The BSC Annual Report showers praise on London Third Sector organisations:

    • “We appreciate the help and encouragement that we have received from ACEVO, NCVO, Social Enterprise UK and a host of established Social Investment Finance Intermediaries and frontline organisations. We are grateful to all of them. This collaboration is critical to our long term success”. (page 11)
    • “Many of these (policy) initiatives have been undertaken in collaboration with partners such as NCVO, Social Enterprise UK and the City of London Corporation”. (page 32)

    Directors of the Big Society Trust – with an 80% controlling vote in Big Society Capital – include Stephen Bubb (ACEVO) and Peter Holbrook (SEUK ).

    Though Non Executive Directors’ fees are not ascribed or apportioned to BSC or the Big Society Trust, they receive £7,000 annually, plus £3,000 annually if Chair of a Committee and £1,500 annually for being a Committee Member. Non Executive Director’s fees in 2012 were £45,000. (page 37).

    “Principles for Non Executive Remuneration” on page 37 says “Non Executive Directors will be paid an equivalent sum paid by other comparable not-for-profit and public bodies such as housing associations and primary care trusts to Non Executive Directors”.

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    What has Big Society Capital done during its First Year?

    Nick O’Donoghoe’s CEO Statement:

      “Since our launch in April, Big Society Capital has used its capital to cornerstone ten social investment funds. These funds have diverse objectives” (page 8)

      “By the end of 2012 we had committed £56mn to 20 different intermediaries, £19mn firmly committed and £37mn subject to matching finance being raised.”(page 10)

    Throughout the CEO’s Statement, though BSC operates in entirely uncharted waters, there is little contextual analysis or description of any processes used. Regrettably, there is no further analysis in the Performance Review shown below.

    Key Performance Indicators and Market Diversification

    Despite an ongoing series of high profile media stories, this is the first time many of these figures have been released by BSC. A major problem is that much information in the Report is provided without context, without a description of criteria used or comparisons elsewhere. Page 16 shows:

    • £19.4mn for 15 “investments signed”
    • £37.2mn for 5 “in principle investment commitments”
    • £19.7mn “matching finance” for BSC investments made”
    • 13 Social Investment Financial Intermediaries with £48.2mn investment commitments
    • 23 “frontline organisations” receiving investment commitments so far

    Without further details or external comparators, it is difficult to construct valid yardsticks for progress or form judgement on what all this means. On pages 16 and 17 BSC analysis poses more questions than answers through using graphics and percentages rather than actual titles or figures. For example, in which Social Investment Financial Intermediaries in the Northwest does it invest? Actual amounts may be one investment in an organisation represented on one of BSC’s boards.

    Review of the Business features on page 38:

      “During 2012, £119.4mn of equity capital has been received, £71.7mn from the dormant bank accounts via the Reclaim Fund Limited and £47.7mn from the shareholder banks. In principle commitments of £56.6mn have been made for 20 investments. Of this total, £5.4mn has been drawn down. Total revenue for the year was £1.9mn principally from treasury management returns. Expenses were £3.0mn with average headcount of 18.”

    So, despite drawing nearly £120mn equity capital during its first year, £462,471 of BSC’s income of £1.9mn was a Government Grant. Page 39 shows that the company made a loss of £1.1mn. Most small to medium Social Enterprises would need to manage cash flow better than this!

    Sums for Specialised Funds, General Funds and Operating Intermediaries are very large. There is little justification provided on pages 20 and 21 for chosen intermediaries or the amounts BSC invested in them. These questions are surely relevant:

    • Since all this is very new market, how were bids or submissions for these investments assessed or prioritised? Which potential Social Investment Financial Intermediaries were invited by BSC to make submissions?
    • Significant investments were made in organisations represented on BSC’s various boards. Big investees are well represented, including by Chief Executives, either as BSC Directors, Big Society Trust Directors or Advisory Board members. While not suggesting any impropriety, at each stage Sir Ronald Cohen sits on boards throughout the investment processs – Big Society Trust, Big Society Capital and Bridges Trust Advisory Board (Bridges received £10mn for Social Impact Bonds)
    • What assessment criteria or ranking were used before investing, for example, £950,000 in Big Issue Invest (on BSC Advisory Board) and £8mn in NESTA (on Advisory Board and BSC main board)? (page 20.)
    • What criteria were used to determine that NESTA should receive £8mn and Impact Ventures UK £10mn, whether this represented “value for money” or the best investments which could be made by BSC? Do NESTA or Impact Ventures have staff to provide required information and to evaluate and appraise their own investments?
    • To become an “Operating Intermediary”, what kind of Business Plan did ClearlySo (on Advisory Board) submit? For its £1mn, does ClearlySo have appropriate staff to provide investment support required by BSC?

    None of this is suggesting any impropriety or wrongdoing. However, against a similar background of close relationships, Civil Society on Tuesday 19 March 2013 reported Questions are raised over Social Action Fund grant to Big Society Network. Complaints were made to the Office for Civil Society and Social Investment Business about Big Society Network, which received £200,000 in Round Two of the Social Action Fund, concerning the way in which the grant was processed.

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    What Remit for Policy Changes?

    BSC has sought to fashion various national and EU policies. Since it uses public money, where is BSC’s remit, or where has it sought policy guidance for shaping significant policy changes outlined on page 32? These include:

    • Furtherance of Payment by Results
    • Seeking tax relief for investors
    • Seeking to widen scope for Charities’ investments
    • Making submissions in response to the Government’s Red Tap Challenge Consultation (which includes dilution or removal of some sensitive business names, including “cooperatives”) and
    • Influencing policy under the EU Social Business Initiative.

    Through the influence of BSC and others, policy headings for the EU Social Business Initiative have been steered from Social Enterprise towards Social Investment. The Outline of the EU Guide to Social Innovation February 2013 summarises actions which may be undertaken by either For Profit or Not for Profit Organisations in a deliberately ‘sector blind’ approach.

    The EU’s Social Business Initiative is now less concerned with governance arrangements of funding recipients so that funding for Social Innovation may be received by public, private and Third Sector Organisations.

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    Social Investment in the Education Sector

    Page 33 shows that a Report on Opportunities for Social Investment in the Education Sector, partnered with the Private Equity Foundation, is expected in Spring 2013. The incursion of For Profit Academies into Secondary Education and For Profit Universities into Higher Education are already highly controversial. Almost politically unnoticed, BIS Alternative Providers Draft Guidance in April 2013 permits For Profit HE providers’ access to the English Student Loan System. They will also remain outside HEFCE Controls on Student Numbers until 2014-2015.

    Who gave BSC policy advice to encourage more “Alternative Providers” in Higher Education? Since BSC is increasingly sector blind in its approach, all this will increase fears that in an already highly politically charged arena, further For Profit and private equity expansion in English Higher Education could be disguised as “social”.

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    Financial Statements and Auditors’ Report

    Page 61 “Note 17 – Valuation of Financial Investments” says:

      “Where a regular Net Asset Valuation is available for the investment, the company will assess this for reasonableness and consider whether the investment can be valued on the basis of the underlying Fair Value of its assets, rather than its earnings. If this is considered appropriate the company will apply the Adjusted Net Asset Valuation method.”

      “If future cash flows can be reasonably estimated, and it is felt that the risks, due to the high level of subjectivity, involved in applying the Discounted Cash Flow method do not render the method insufficiently reliable, this will be applied.

      “If industry benchmarks can be applied to the investment to derive a fair value, these will be applied. The company may decide to use a combination of the mentioned methods, or other methods that are considered more appropriate to derive the fair value of its investments.

      “Given that all investments have been made recently, the company has used Price of Recent Investment, unless a more accurate valuation is available. The company has considered whether there is any evidence to indicate that the Price of Recent Investment is no longer relevant, where this is the case a fair value adjustment has been made.

    It is not being suggested here that any of these valuations are irregular or unethical. However, most of BSC’s operations are in areas without market assessment of asset and investment values. Are the “fair value” criteria chosen above those which are most appropriate in the circumstances? Since BSC uses public finance, will any comment be made by the Financial Conduct Authority or other regulator?

    The detail in Note 17 shows that BCS is aware that much of this is unfamiliar investment territory. It would be more helpful if the Performance Review below showed an awareness of this.

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    Performance Review

    The BSC “Performance Review” has been trailed heavily by Pioneers Post and other media. James Perry – a director of Cook, a family run frozen meals business – writes as a “co investor”. But there is nothing which shows that he is also a member of the BSC Advisory Board (page 35 of the Annual Report). Since this ‘Review’ appeared before publication of the BSC First Annual Report, its writer will obviously have seen the Report’s contents. This is hardly an independent performance review!

    Despite raising several important issues, the “Performance Review” offers no real analysis. As an example, James Perry writes:

      “There is a fundamental mismatch between BSC’s supply of capital and the demand side. One way to address this mismatch is for BSC to focus on fewer, bigger deals with established market participants, such as Ecology Building Society and Charity Bank”.

    Though he offers no analysis, is Perry is really confirming that most BSC investments so far have followed this strategy?

    Page 33 of the BSC Annual Report shows that finding investees has been hard going. ‘Seeking Opportunities and Ideas for Social Investment’ says:

      “Our “Market Update and Call for Ideas” of October 2012 detailing our view of the market’s development, and setting out the areas where we see demand side potential but fewer investment proposals. The call for ideas placed a particular emphasis on health and social care markets, on community assets, and on more PbR opportunities.

      “An active ideas co-development programme – since late 2012 we have run four programmes to co develop investment ideas with potential partners in a range of target areas such as social housing and community assets”.

    Though this seems to show that BSC is finding progress is difficult in these areas, none of this is really analysed further by Perry.

    On BSC’s “Creating a New Culture”, Perry writes:

      “Engaging with Social Investment is a bruising experience for the social sector, as it comes to terms with new expectations. If BSC cannot bring the social sector with it, then it will have to move into a bunker. The recently advertised social sector leader role at BSC is perhaps a recognition of the need to strengthen this area. It is crucial that this role is seen as strategically core to BSC and allowed to infuse every nook and cranny of BSC’s organisational culture, from top to bottom.”

    What a pity James Perry didn’t enlarge on this – which is surely BSC’s core problem – that Social Investment is neither sought, needed nor appropriate for most Social Enterprise and Third Sector Organisations.

    Throughout this Pioneers’ Post Performance Review Perry selectively refers to the “social sector”, “Social Investment” and “social transformation”. As they scan the horizons for real investees, BSC and its Social Investment Financial Intermediaries are becoming less concerned about any distinction between For Profit and Not for Profit entities and their governance. They are increasingly sector blind. As long as a “social sector” company proclaims a “social mission”, that seems to be acceptable.

    As Huckfield has written before, surely there must be more effective ways of spending £400mn of Unclaimed Bank Assets, £200mn from Merlin Banks and up to £1bn when the contribution from the Cabinet Office is added?

    Big Society Capital’s £600mn – An Alternative Strategy for Supporting Social Enterprises has already been suggested.

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    We will say this only once: “You will become a Mutual”

    Background and Outline

    Huckfield writes this as a strong supporter of Social Enterprise, Cooperatives and Third Sector Organisations, wherever these emerge through genuine democracy and where governing bodies and employees were all part of a democratic decision taking process.

    In its desperate haste to reduce the extent and size of the public sector before the next UK General Election on Thursday 07 May 2015, the UK Coalition Government is not really giving many in the public sector any choice. The message is that they will become a Mutual or Social Enterprise, often with encouragement to form a joint venture with the private sector. So trade unions are right to be concerned.

    In many cases, this mutualisation processs is happening under Right to Request and Right to Provide procedures set up under New Labour.

    Based New Labour’s foundations, UK Coalition Government policies mean that a wide range of national and local public services ultimately will be delivered by Capita, Serco, Sohexho, A4E and perhaps one or two big Charities.

    Whether through opening up the NHS to private tendering, under the DWP’s Work Programme, or through contracting Probation and Prison Services under the National Offender Management Service and Ministry of Justice, most will be based on Payment by Results and Impact Measurement, with more funding through private Social Investment and Social Impact Bonds.

    Private investment in public service delivery will be promoted as Britain’s offering to the G8 Summit at Lough Erne, Fermanagh from Sunday 16 June till Tuesday 18 June 2013.

    Increasingly, these services will be benchmarked not by public service delivered but for the financial return they produce for private investors. JP Morgan’s Global Social Finance: Perspectives on Progress, January 07 2013 on page 16 refers to “standardised metrics for impact measurement” as “important for development of the industry.” For Independent Financial Advisers, Retail Social Investment has already been included in the Financial Services Authority’s Newsletter in February 2013.

    Already up to £1bn is being provided by the Cabinet Office, Big Society Capital and various intermediaries to promote this Social Investment in Social Enterprise. But since Social Investment is being resisted by many Social Enterprises, for trade unions, the faster pace of forced mutualisation poses a more direct threat.

    An example of the mutualisation process was given on page 32 of the Response from the Trades Union Congress to the Government’s Open Public Services White Paper October 13 2011:

      “The White Paper cites MyCSP (My Civil Service Pension) as an exemplar mutual spinning out from the Civil Service. However, there has been minimal consultation or negotiation with the workforce or union and PCS members at MyCSP have been so hostile to the move that industrial action was held in July of this year (2011).

      “Feedback from unions working in areas earmarked for the 20 or so Pathfinder Mutuals has been similar. In nearly every case, the drive has been from management. In many cases, there has been very little or no consultation with staff and even less with unions”

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    75,000 jobs to the Private Sector – an Insight into Government Behaviour?

    The ‘Independent’ newspaper on Wednesday 01 May 2013 carried the story The Great Civil Service Sell-off: Dozens of Services and 75,000 Staff set to be Transferred to Private Sector. These are the main points of the story:

    • Cabinet Office minister Francis Maude announced that the Government’s Behavioural Insights Team – its “Nudge Unit” – will become the most high-profile area of Government to be “mutualised”.
    • It will be turned into a profit-making joint venture with private companies invited to bid for a stake of up to 50%.
    • The move heralds a wider sell-off of Government functions and assets. Among areas under consideration are Whitehall’s IT, personnel and legal functions.
    • Cabinet Office sources said they hoped to support “dozens of such spin-offs” in a programme to raise £mns for the Treasury. It will leave a dramatically slimmed-down Civil Service providing only core functions of policy advice and implementation.
    • Eventually other Government bodies – the Land Registry and Office for National Statistics – could become candidates for mutualisation.

    No wonder that Dave Prentis, General Secretary of Unison, the public sector union, called this “privatisation by stealth”.

      “The involvement of big private companies makes mutuals just another Tory party ploy to sell off public services. The Government is stretching the definition of mutuals to the limit – genuine coops and mutuals will be up in arms.”

    For damage limitation, on the Civil Service site, Sir Bob Kerslake, the new Head of the Civil Service, replied on the same day in A Nudge in the Right Direction:

      “Some of you will have read today’s article in the ‘Independent’ claiming there will be a “Civil Service sell-off”. The first point to make is that there are no plans to transfer 75,000 civil servants into new organisations and we have no firm targets for services and employees spinning out of the public sector”.

    But Sir Bob has a problem. This isn’t what is shown under Action 4 on Clarifying the Future Size and Shape of the Civil Service on the new Civil Service Beta site which is maintained by the Government Digital Service:

      “The Delivery Landscape and Arms Length Bodies
      By the end of March 2015 approximately 500 bodies will be reformed and the total number reduced by over 250. The Government estimate that public bodies will deliver administrative savings of £2.6bn over the spending review period. All remaining NDPBs are now subject to review every three years, which will seek to identify innovations and new models for delivery, such as mutualisation, joint venture partnerships and transferring to the voluntary or private sectors, and strengthen accountability and governance arrangements for NDPBs that remain.”

    A footnote on the new Civil Service Beta site admits:

      “This site is provided by Government Digital Service, and once membership is up and running, we’ll moderate some of the community areas. Where groups are more specific in content, other teams take moderation responsibility. In comment sections we ask that you stick to our house rules”

    This is really ‘Sir Humphrey speak’ for “We are still learning how to ‘spin’ our stories better”

    If there are still any doubts about the size and scale of the Government’s intentions, the Cabinet Office Public Service Mutuals Presentation to Local Authorities on Friday 15 February 2013 in Slide 49 under the “Right to Provide” shows the full range of services now on offer for mutualisation.

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    “With a Little Help from our Friends”

    On this site Huckfield is frequently critical of the timid role of the Association of Chief Executives of Voluntary Organisations, Social Enterprise UK and the National Council Council for Voluntary Organisations which offer little resistance as the Cabinet Office, Big Society Capital and hordes of financial and legal intermediaries force inroads for private investment into Social Enterprise. But the Cabinet Office also has some “little helpers” in its mutualisation process.

    The Cooperative Group has set up Public Service Mutuals to lend a helping hand. With Social Enterprise UK, the Employee Ownership Association, and the Baxi Partnership, Cooperatives UK is also a member of the Cabinet Office Mutuals Information Service.

    The Cooperative Group’s Public Service Mutuals site proclaims:

    • “We believe the principles upon which mutuals are founded have a particular resonance in the public sector where there is an underlying sense of public purpose. Unlike private ownership which tends to be for the financial benefit of the few, mutual ownership is shared amongst stakeholders and is therefore more fitting for the delivery of a public purpose.
    • “Significant parts of the UK’s public sector are now in forms of cooperative or mutual ownership, the highest profile examples being NHS Foundation Trusts and cooperative schools.
    • “Across the political spectrum mutual organisations are now seen as a legitimate alternative to privatisation and we want to help you determine whether the mutual way is the right way for you.”

    But surely the policy motives of the Cooperative Group with Public Service Mutuals and Cooperatives UK are not the same as those of the Cabinet Office with its ultimate aim of shifting more public service delivery to the private sector?

    Ed Mayo, Secretary General of Cooperatives UK, wrote in the Guardian on Friday 03 May 2013 under Nudged Out: This is Mutualisation, but not as we know it:

      “But the Government’s entry definition of mutual ownership, with a paltry 25% for staff and no rights for service users, gives no guarantees of member control and leaves investors in charge. It is a start, but when public services have been sold in this way before, such as the bus firms in the 1980s, the assets moved as night follows day from being employee-owned into private hands.”

    These are fine words. But does this mean that Cooperatives UK will remain a member of the Mutuals Information Service as the main body promoting all this? Does it mean that the Cooperative Group’s Public Service Mutuals service will now force the pace by insisting that genuine prior consultation with staff takes place?

    Huckfield hopes that Cooperatives UK and the Cooperative Group will not follow established precedents where ACEVO, NCVO and Social Enterprise UK offer occasional, tepid and timid reservations about Government policies for Social Investment in Social Enterprise, but still support their general thrust.

    This continuing timidity of London based Third Sector Organisations was questioned in the January 2013 ‘Independence under Threat’ Report of the Panel on the Independence of the Voluntary Sector. On Infrastructure Bodies, on page 43, the Report said:

      “We also believe that infrastructure bodies could do even more than just question practices that threaten the independence of the sector – for example by launching judicial reviews of contractual terms which reduce independence.”

    What Others are Saying

    The following shows that mutualisation and setting up mutuals might not be all that the Cabinet Office would like us to believe:

    • The House of Commons Select Committee on Communities and Local Government Report on Mutual and Cooperative Approaches to Delivering Local Services, November 21 2012, in its Conclusion in paragraph 94 on page 41:

        “Mutuals and cooperatives providing local services are not being set up in significant numbers. From the small number of mutuals and cooperatives in the local government sector the evidence is encouraging but it not sufficient either to demonstrate conclusive improvements in service or that savings can be made or that benefits in engagement and accountability will follow. The necessary critical mass will be slow to build up without more and better support”.

        The Committee’s Recommendations continued on page 42:

        “The evidence we received suggested that a small number of local authorities are using or have established mutual or co-operative bodies to deliver their services. There appears to be confusion in local government and beyond about what constitutes a co-operative or mutual service delivery organisation.”

    • The Association for Public Services Excellence in ‘Proof of Delivery? A Review of the role of Co-operatives and Mutuals in Public Service Provision’ August 2011. on page 11 says:

      • “co-ops and mutuals mean different things to different people….too often, terms such as ‘co-op’, ‘mutual’ and ‘Social Enterprise’ are conflated and used interchangeably”.
    • Public Finance on August 18 2011 summarised this Report:

        “The latest research publication from the Association for Public Service Excellence, ‘Proof of Delivery’, finds very little evidence base to support any of the claims made about the superiority of cooperatives and mutuals over any other form of service delivery in public services. From 1,600 sources our researchers were only able to find 12 case studies where any impact evaluation had been carried out.”

    None of this offers a ringing endorsement of the Cabinet Office or its Mutuals Information Service

    This surely isn’t supposed to happen as part of the service offered by Public Service Mutuals?

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    A Range of Issues to be Considered

    • Legal Form and Governance Framework for giving workers a say.
      The Cabinet Office is happy for ‘mutual’ to remain a wide ranging term. ‘What is a Mutual?’ on its Mutuals Information Service site shows that mutuals may be a Limited Company (Limited by Guarantee or by Shares), Community Interest Company, Industrial and Provident Society (a Cooperative or Community Benefit Society) or Charitable Incorporated Organisation. The Government also encourages Joint Ventures which include private investment. The Quick Reference Guide to Legal Forms on the Mutuals Information Service site shows a legal minefield.

      This will be further complicated if under the current Business, Innovation and Skills Company and Business Names Consultation under its Red Tape Challenge, February 2013 protection for terms like “Cooperative” under the 2006 Companies Act is weakened. The Consultation Response from Cooperatives UK says in Section 4.21 that “businesses would be trading off the value of the cooperative identity, but also undermining it in that they are making essentially false claims as to the nature of their business”.
    • Funding Expected from a Commissioning Body
      While initially a mutual may receive a grant or contact from its Commissioning Body, most contracts will need to be retendered. Capita, Serco, A4E and some of the major Charities will be watching and waiting.

      Central Surrey Health. A major warning precedent on re tendering is from Central Surrey Health losing out to Virgin Healthcare in September 2011 when it failed to raise the required £10mn bond.

      Secure Healthcare, one of the original 2006 Department of Health Social Enterprise Pathfinders, despite an initial £0.5mn Department of Health grant, winning a £5mn a year contact with HMP Wandsworth and receiving further funding from Futurebuilders, went into debt in 2009 and was taken back into the NHS. The Wandsworth Council Health Overview and Scrutiny Committee January 11 2010 on Secure Healthcare recommends on page 14 that “No bidder should be allowed to progress within a tender process if they cannot prove themselves to be adequate on both a service delivery and qualitative basis and also on a Financial Capacity basis”.
    • Length and Extent of Initial Contact .
      From a standing start, after negotiating the obstacles above, any new mutual will need to rehearse its Business Plan and devise a Bidding Strategy. Capita, Serco, A4E and existing bigger Charities have full time teams working on tenders, able to submit them “off the shelf”

      DA Partnership, a mutual set up after the Secretary of State for Communities and Local Government abolished the Audit Commission in 2012 with an initial minority stake from accountants Mazars, bid for £90mn of private contacts and won only one out of 10. Others went to Grant Thornton, KPMG and Ernst and Young. Previous DA Partnership ‘mutual employees’ now feature under Public Services on Mazars Accountants’ site as ‘recently recruited former Audit Commission staff’
    • Competition to be faced by a Mutual following an Initial Contract
      EU Procurement Law means that the NHS, Councils and other Public Service Commissioners seeking to establish shared service, spinouts or ‘in house procurement’ must conform to various precedents for Teckal (in house or shared services) initiatives. This is not straightforward – as shown in Local Government Lawyer’s ‘Use of Teckal Company Structures in Public Service Delivery’. A new EU Directive is scheduled for 2014, with the requirement that a Teckal company undertakes at least 90% of activities for its owner public authority. Otherwise the tender must be offered under the full force of current EU Procurement Directives.
    • Accountability for Service Users and Commissioners
      Policy Network on October 12 2010, carried a major feature:

        “Without a clear mutual governance structure that retains them as community assets in which all members of that community (service users and staff) have a say in how they are run, those services become vulnerable to either collapse or the intervention of a private sector provider. It is Thatcherism disguised as mutualism.

        “The challenge for the left is to see this betrayal of mutualism in terms of its biggest progressive policy offer.”

      This was written by Michael Stephenson as General Secretary of the Cooperative Party on ‘The Limits of National State Social Democracy’ as part of research for Policy Network.

    • Pay, Conditions and Collective Bargaining
      Huckfield is a member of a Unite Not for Profit branch and well understands the difficulties for trade union representatives on behalf of their members in negotiations with mutual employers whose background may have been Third Sector but lacking trade union involvement.

    • Asset Locks .
      There are significant recent examples where neither employee ownership nor an asset lock under a Community Interest Company may be adequate to prevent private sector acquisition:

        EAGA
        As shown in Construction Inquirer, February 28 2011, EAGA was bought by Carillion for £306mn despite strong protests of more than half its workforce.

        Ealing Community Transport
        In June 2008, ECT Recycling was bought by the for-profit May Gurney construction company for £15mn. The ultimate result was that assets held for the interest of the community were transferred into private hands, despite ECT’s being registered as a Community Interest Company.

      All this shows that even with strict definitions of ownership, profit distribution and an asset lock, it is still possible that assets held for employees or the community may pass into private ownership.

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    And, Finally

    Huckfield recognises that this is detailed and perhaps pretty tedious stuff. The Cabinet Office and Mutuals Information Service will not emphasise that one of its main policy aims is to outsource and move public services from Central Government, NHS and Local Government to the private sector.

    Because they have have the resources and staff, Capita, Serco, A4E and some bigger Charities have worked out most of this already. So even if they don’t win the first contract, they will have the muscle and resources to win the second – even if the contract is based on Minimum Wage, Zero Hours or payment only for “Face Time”.

    Huckfield doesn’t believe that this is how public services should be delivered. But, based on policies and procedures put in place by New Labour, all this is UK Coalition Government policy.

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    Why Craig Dearden Phillips is wrong on Trade Unions and Social Enterprise

    Defending Public Services

    Craig’s site claims that he’s “one of the UK’s best known social entrepreneurs”.

    But his posting True Enemies – or Necessary Allies? Unions and Social Enterprise on Saturday 20 April 2013 shows that he doesn’t know much about trade unions.

    Much of his piece seems based on Care Plus in North East Lincolnshire. From this one example – about which Huckfield doesn’t know enough to comment – his posting becomes a wide ranging and general rant against trade unions. He writes:

      “We have to get prepared, together, for the possibility that very few services will be delivered directly by the State within a decade, particularly if growth does not materialise.”

    Huckfield doesn’t disagree and regularly makes postings on this site about cuts in public expenditure, including Private Philanthropy is not the Answer to Public Spending Cuts.

    The latest projection by the New Local Government Network’s April 2013 Gaming the Cuts: AnyBorough 2016 on page 9 is that “Local Government, along with some other un-ringfenced services, will face real terms reductions of at least 50% of expenditure over the period 2011/12 to 2017/18″.

    But how can Craig blame trade unions for resisting cuts and reductions in services when London Third Sector Organisations encourage more competition through external tendering for delivery of these services, especially in the NHS? That’s why trade unions have fiercely opposed ACEVO in its campaign to open up the NHS to more private competition through its support for the National Health Service (Procurement, Patient Choice and Competition) Regulations) 2013.

    Whatever Craig may think, trade unions and the rest of us know that these Regulations will open the NHS door ever wider to the private sector.

    Trade union members have not forgotten that on Friday 19 October 2012, the Chief Executives and Secretaries of several London Third Sector Organisations sent a Letter to Sajid Javid MP, Economic Secretary to the Treasury, which led many to believe that they had not only signed up to the Coalition Government’s spending cuts, but to its welfare reforms too!

    In that letter, these organisations wrote:

    • “Firstly, our sector stands ready to make a greater contribution to the Government’s Open Public Services agenda. Crucially, we need the opportunities to do this. National and local commissioners need more encouragement and support to engage with the sector”.
    • “…..Naturally, the Government wants to support people off benefits and back into jobs wherever possible. But we know that it can end up costing Government more if vulnerable people are not supported through these processes appropriately: the costs associated with contested work capability assessments are an example of this. We therefore ask Ministers to give special consideration to the important work that our sector, and particularly advice services, can play in relation to welfare reforms and preparing for their impact”.

    Trade unions know that among the organisations which signed this letter were:

    It is any wonder that in October 2012 Unite Voluntary Sector members called for Charities to leave ACEVO?

    Unite Community, Youth and Not for Profit members working for Crisis, Greenpeace and Amnesty International and from Unite’s London and Eastern Regions, sought action at national level.

    On Wednesday 21 November 2012 NCIA (the National Coalition for Independent Action) reckoned that these Third Sector organisations had signed up to privatisation and welfare reform and responded:

    • “NCIA says the open public services agenda is code for privatisation and termination of public services. ..We question whether we should connive in delivery of policies about which there is growing evidence of damage to our common wealth and to vulnerable people. Our starting point should always be the expressed needs of our beneficiaries and those with whom we stand in common cause.”

    And in January 2013, Independence under Threat – the Report of the Panel on the Independence of the Voluntary Sector on page 43 said:

      “The letter was seen by some as placing the Voluntary Sector at the disposal of the Government machine”.

    So instead of ranting against trade unions trying to defend public services, perhaps Craig should address his remarks to those London Social Enterprise and Third Sector Organisations which through their actions support UK Coalition Government policy of opening up public services to private profit-making, payment by results and funding through Social Investment?

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    ‘Defined out of the Equation’

    Craig writes about trade union fears of being “defined out of the equation”. But the real trade union fear is of services themselves being “defined out of the equation”.

    Unite has a Community Membership for those not in paid employment, students, carers, and those who are retired or unemployed – for 50p a week. What will Craig do when these Community members team up with those union branches of which he complains to defend services – when those delivering services could be in the same union as those receiving them?

    Huckfield belongs to a Unite Not for Profit branch in Edinburgh which is setting the pace in recruiting Personal Assistants employed through Personal Health and Care Budgets. Through trying to safeguard these assistants’ employment rights and conditions, the branch also works to uphold and extend the levels of service delivery made possible through these payments.

    Huckfield hopes that Craig supports trade unions working with local communities and service recipients to maintain delivery of their services.

    “Let me talk to the Workers”

    Referring to Care Plus, Craig writes:

      “my understanding is they (the employers) have tried to change terms and conditions for staff and, in doing so, have sought to deal directly with their own workforce (who are also owners of the company) – rather than deal mainly with the unions.”

    But he also writes:

      “It is easy to see where the unions are coming from. The public sector is, in many ways, the only place left in the UK where terms and conditions of staff are relatively good. History has taught the unions that once things are moved out of the public sector, things get worst a lot more quickly for the staff”.

    Craig should know that “Let me talk to the workers directly” is the oldest trick in any employer’s book. In reality, many of these are not – as Craig describes – “conversations between bosses and workers”, since neither employer nor employee may know enough about employment law.

    Anyone attending the Edinburgh Unite Not for Profit Branch, of which Huckfield is a member, will hear an unending littany about employers’ ignorance of employment law.

    Members of this branch work for Third Sector organisations in and around Scotland’s Capital – Voluntary Organisations, Charities and Social Enterprises. Each month it’s the same. Members’ and stewards’ workplace reports tell of Third Sector employers knowing little about sickness pay, redundancy and the rest. And some of these employers are large Scottish and UK organisations, including Housing Associations.

    So the Branch is now producing some basic guidance on these issues. Though this is for members, their employers will probably read it keenly.

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    Resisting the Next Public Spending Cuts

    Craig writes:

      “… trade unions, I believe, need to re-evaluate the Social Enterprise route in terms of its alternatives as the UK enters its next round of public austerity.”

    Huckfield hopes that Craig will support trade union opposition where Local Councils may decide to contract out their entire homelessness provision on a payment by results basis. Political decisions for payment by results mean that only the biggest providers – especially those members of the Employment Related Services Association – stand a chance of getting the contract.

    Trade unions already resist contracts where their members providing care only get paid “face time” and nothing for time spent between home visits. And some Third Sector employers have agreed contracts which only allow payment for “face time”.

    Trade unions will also oppose any attempts to provide housing and care services using a “volunteer plus” formula, under which mentors or befrienders instead of paid employees deliver the service.

    Surely Craig supports unions’ arguing against these minimal levels of service delivery?

    The Coalition’s Third Sector Procurement

    Craig writes:

      “Furthermore, there need to be assurances to trade unions that all will be done to ensure that they are included fully in the operation of these businesses. It happens on the Continent and there is no reason it should not happen here.”

    But there is a major political difference for Social Enterprises and Third Sector organisations in many Continental countries. The UK has never experienced a sustained political period when Social Enterprises or Third Sector organisations are regarded as part of a mixed economy in public service delivery.

    Jim Callaghan’s 1976 to 1979 Labour Government gave more encouragement to the Third Sector than during the whole recent New Labour era, when a string of Government Third Sector policy statements and documents read like a Procurement Manual.

    The latest testimony to this came in the January 2013 Independence under Threat – the Report of the Panel on the Independence of the Voluntary Sector.

    On Infrastructure Bodies, on page 43, the Report said:

      “We also believe that infrastructure bodies could do even more than just question practices that threaten the independence of the sector – for example by launching judicial reviews of contractual terms which reduce independence.”

    Hopefully, Craig will recognise that these timid “infrastructure bodies” are those same London Third Sector organisations which through their actions are signed up to the UK Coalition Government’s political agenda.

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    ‘Privatisation – you’re just as a bad as all the rest’

    Craig writes:

      “Compared to the prospect of mass-privatisation to firms with dubious motives and a bad track-record, Social Enterprise may well look more attractive, particularly if this can also maintain a wider range of services”

    But what does Craig expect unions to say when Big Society Capital, Social Investment Business and London Third Sector Organisations keep extending the range of “social sector organisations” which now style themselves “Social Enterprises”?

    Big Society Capital in its For Profit Social Sector Organisations Governance Agreement September 2012 shows that shareholders’ interests are as important as those for whom services are being delivered:

      “The Company exists:
      (a) Primarily to provide affordable credit and other financial services to individuals
      and organisations which are excluded from or are underserved by mainstream credit and financial services markets; and

      (b) As an equal or subsidiary object, to generate value for shareholders.”

    Rodney Schwartz, Chief Executive of ClearlySo, when he wrote Social Investment is a Large Tent that is Broadly Defined in Third Sector News on Tuesday 09 April 2013, was equally relaxed about extending to more organisations with a self-styled social mission:

      “From our perspective at ClearlySo, the biggest problem for Social Investment is not the precision of the definition of the term, or its deviation from some ideal, but rather the small size of the market. Put simply, we need more investment in social everything.

      “Thus, we endeavour to bring in more investment from individuals or organisations with capital, however they choose to define ‘social’ (within the bounds of decency and legality, of course) and match them with appropriate investments. By defining the sector broadly, we help to create the largest possible market”.

    Again, the conclusion of Independence under Threat – the Report of the Panel on the Independence of the Voluntary Sector is relevant. On the independence of the sector on page 25, the Report says:

      “One danger is that commentators will call for new categories of Not for Profit Organisations to be created, where public money is received, reducing rather than reinforcing distinctiveness. The defining characteristic of the Voluntary Sector should be the primacy of its mission and purpose and independence, rather than the source of funding or activities. A clearer definition of Social Enterprise is needed to prevent abuse”.

    On Social Enterprise on page 25, the Report says:

      “.. 26% of small and medium size enterprises badge themselves as Social Enterprises. (Annual Small Business Survey 2010, BIS, April 2011) The Voluntary Sector brand is being abused. ‘Social Enterprise’ is a totally unregulated or defined concept and, for some, just a convenient brand”.

    Hopefully Craig will agree that the Baring Foundation’s Panel membership isn’t from trade unions but from those with a distinguished track record of service in the Third Sector.

    And, Finally

    None of the above represents what Craig calls an argument between “Two Tribes”. “Face time contracts” and mainstream public services delivered by “volunteer plus” befrienders are on the agenda right now. Craig should surely be arguing against Social Enterprises and Third Sector Organisations being driven into contracts which only permit payment for “face time” or public services delivered by volunteers?

    Instead of ranting against trade unions, he should surely recognise that these public spending reductions are so big that Social Enterprises and unions should join together to resist them?

    Just as importantly, Craig should be asking those London Third Sector Organisations why they have allowed the whole concept of Social Enterprise to become so diluted that Big Society Capital, ClearlySo and others in the London Bubble no longer distinguish between Social Enterprises and profit making Companies Limited by Shares with a self-styled social mission.

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