Social entrepreneurship and other models to secure employment for those most in need (Croatia, October 2013)

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1 Social entrepreneurship and other models to secure employment for those most in need (Croatia, October 2013) United Kingdom 1 Stephen Meredith Department for Work and Pensions Krisztina Tora UnLtd UK Introduction: policy relevance for the UK The question of how best to support the growth of social entrepreneurialism and through that help improve the employment situation and wellbeing of the UK s most disadvantaged groups is high on the UK s policy agenda. In its programme for government, the UK s Coalition Government committed to support the creation and expansion of mutuals, co-operatives, charities and social enterprises, and enable these groups to have much greater involvement in the running of public services 2. This commitment is driven by three key factors: A desire to improve the delivery of public services by opening them up to competition from private and/or voluntary organisations; To see a thriving social enterprise sector as part of a stronger civil society. This is something the Government would want to see whatever the economic weather, but the need to reduce the deficit makes it even more important; Social enterprises have a valuable role to play in delivering the Government s aims to improve social justice and mobility. Social enterprises, as well as providing employment opportunities themselves, are often uniquely placed to provide the tailored, personalised support needed by those experiencing disadvantage and to catalyse and join up local support services. Social enterprises within the UK The UK has a large and thriving social enterprise sector, and a growing understanding of what social entrepreneurship is by the general public. Social entrepreneurs are people with potential to make positive change and passion to solve a social problem, they have an idea for a solution and entrepreneurial qualities to carry out that solution, determined to make their idea a reality. As the background papers note, social enterprises are a diverse set of organisations that do not easily fit within a single definition. Their social missions and values vary but are deeply embedded and highly important to how they operate. In the UK context, they are typically understood to be businesses with primarily social aims 1 Prepared for the Peer Review in Social Protection and Social Inclusion programme coordinated by ÖSB Consulting, the Institute for Employment Studies (IES) and Applica, and funded by the European Commission. ÖSB Consulting, HM Government, The Coalition: our programme for government, May

2 whose surpluses are principally reinvested for that purpose in the business or community, rather than being driven by the need to maximise profit for shareholders and owners. Size and form of social enterprise sector Social enterprises have a long history in the UK, beginning in the 19 th century with the establishment of early co-operative societies. It is only since the mid-1990s, however, that growth in the sector has surged, with a concomitant recognition amongst political parties of the value it brings to the UK s economy and society. In 2006 the UK Government extended its annual survey of small and medium enterprises (SMEs) to capture social enterprises, allowing it to monitor developments within the sector. There are an estimated 690,000 SME social enterprises in the UK, of which almost 180,000 are employers. In total, SME social enterprises employ more than 2 million people and contribute over 55bn (Gross Value Added measure) each year to the UK economy 3. Social enterprises have a similar size profile to other enterprises, with around four fifths being micro businesses (employing fewer than ten). They are more likely to be led by ethnic minorities and someone with a disability and less likely to be entirely male led compared to other SMEs. Those most closely fitting the social enterprise description are more likely to be operating in deprived and rural areas. Social enterprises work across all sectors of the UK, though they are more likely than other businesses to be working in the fields of membership organisations, accommodation, sport/leisure, social work, food service and residential care 4. The most common main source of income for social enterprises is trade with the general public (32%). Over half do some trade with the public sector, a proportion that has grown in recent years, and close to half trade with the private sector 5. The social enterprise sector appears to be weathering well the significant headwinds caused by the recent recession and consequent scaling back of public expenditure. Although there are signs of static employment and reduced levels of turnover growth in the sector, recent signs point to a healthy growth in start-ups and increased business optimism 6, with a third willing to recruit in the next year. However, despite this encouraging picture, organisations point to a number of barriers to starting up and sustaining their businesses with lack of, or poor access to, finance being the principal concern, with cash-flow and time pressures also scoring highly. Public sector procurement practices and a lack of access to marketing expertise are also seen as key issues. Legal structure The diversity of social enterprises is reflected in their legal forms: Companies limited by guarantee or shares the most common form for social and standard enterprises. It provides flexibility in terms of governance as well as investment. Social mission often written into Articles of Association; Community Interest Company legal form introduced by UK government in 2005 to provide an easy method of establishing a social enterprise. Based on company 3 UK HM Government, Social Enterprise: market trends, June Ibid. 5 Social Enterprise UK, State of Social Enterprise Survey Ibid. 2

3 form, but regulated to ensure maintenance of organisation s social mission and to protect its assets from being sold privately. Used by over 7,600 enterprises 7 ; Industrial and provident society usual form for co-operatives and community benefit societies, democratically controlled by members; Group structures with charitable status very common form, partly reflecting increasing number of charities moving away from traditional fundraising models and becoming more business like to ensure sustainability. Retention of charitable status within group structure can have tax benefits. Current policy position The size of the UK s Social Enterprise sector means it is self-sustaining and benefits from a wide array of non-government intermediaries and organisations whose purpose is to support its growth and health (though some of these do attract public funds). This includes trade bodies to represent its views to Government and develop the social enterprise ecosystem more generally (e.g. Social Enterprise UK); provide financial backing and expertise to support start-ups and already successful enterprises achieve scale (e.g. Unltd); and help to develop business models that can attract private investment (e.g. Social Finance). The UK Government s role is thus to champion the sector, create an enabling environment and remove market failures that would otherwise stifle its growth. Led by the Office of Civil Society, it aims to do this through a three-pronged strategy: Making it easier to set-up and run a social enterprise The UK Government has an ongoing programme to review the regulatory environment as it effects social organisations, ensuring it does not impose unnecessary costs, while maintaining confidence in the sector. This includes removing barriers that can restrict the types of volunteering activities on which many social enterprises rely and removing tax barriers that can prevent enterprises cutting costs by sharing services. The Government also provides various targeted grants to partner organisations to ensure information is available to those looking to set-up and expand social organisations, including public sector employees looking to spin-out and form new mutual organisations. Also to help build necessary business and leadership skills within the sector, take advantage of digital technologies to reduce costs and boost charitable giving, whether in the form of money, time or business expertise. Making it easier for social enterprises to work with the state The UK Government s Open Public Service 8 Strategy seeks to improve the quality of public services by handing greater power to its users and by giving commissioners greater choice over who they buy from. This should present opportunities for social enterprises to increase their trade with the public sector, some of whom may have seen reductions in traditional grant funding sources due to public sector austerity measures. However, it also presents a challenge to the sector: to develop a sharper competitive edge and to focus on delivering proven social outcomes. The UK Government is taking a number of steps to aid the sector in this transition, introducing a commissioning academy to make commissioners more sensitive to the needs of civil society and from 2013 requiring commissioners to consider social value when purchasing services thanks to the Social Value Act. It is also making it easier for social organisations to identify procurement opportunities through a Contract Finder website, as well 7 Regulator of Community Interest Companies, Annual Report 2012/13. 8 HM Government, Open Public Services White Paper, July

4 as providing a Community Right to Challenge to challenge local authorities to open up services to competition. These innovations sit underneath a National Compact that maps out the principles that should guide the partnership relationship between government and voluntary and civil society organisations in England and on which government departments are held to account. Getting more resources into social enterprise sector A key barrier for social enterprises looking to grow is to access affordable capital to support their plans, with traditional forms of finance e.g. bank loans often harder to obtain than for other businesses. The UK Government is seeking to address this by providing strong support to the emerging social investment market; a market currently worth around 200m but forecast to grow up to 1 billion by By growing this market it is hoped new funding streams, motivated by social as well as financial returns, can be unlocked, bringing the resources and business expertise of the private sector to ambitious and innovative enterprises. To increase the supply of social investment, the UK launched the world s first social investment institution of its type Big Society Capital an independent organisation with up to 600m to invest and responsibility to provide wider support to the market. The UK is also hoping to attract further investment into the market by introducing a new tax-relief and by ensuring the regulatory environment recognises investors non-financial goals. This sits alongside support to help enterprises take advantage of this new finance source by supporting an investment and contract readiness and a social incubator fund, and by helping social organisations evidence and demonstrate their impact through an inspiring impact programme. It is also encouraging innovative new commissioning methods called Social Impact Bonds, where a government commissioner lets a contract to a social enterprise, backed by a social investor, who is then paid in direct proportion to the social outcomes it delivers. Particularly relevant to this peer review is the Department for Work and Pensions Youth Unemployment Innovation Fund, described below. Supporting the most disadvantaged into employment As with other EU countries, the UK s labour market fell back during the recent recession, though it proved more resilient than in previous recessions and is now showing signs of recovery. The UK employment rate, at over 70%, is higher than the EU average of 64%, while its unemployment rate, at 8%, is lower than the EU average of 11%. Long term unemployment is one of the last indicators to recover after a recession. Around a third of those unemployed have been so for over a year, similar to the EU average, though there are early signs of improvement. However, this generally quite positive picture masks variation across groups. Of particular concern is the number of young people Not in Education Employment or Training (NEETS), especially amongst those with no or low qualifications million (18% of) young people aged years old aren t in work or full-time education with roughly equal numbers inactive and unemployed. Around 750,000 young people are claiming out of work benefits, including 366,000 claiming Jobseekers Allowance, 159,000 a disability benefit and 165,000 a lone parent benefit. UK NEET rates at 14.0% are slightly higher than the EU (28) average of 13.2%, though they are now be falling (whereas the EU average is rising). 9 Boston Consulting Group, 2012, The first Billion, A forecast of social investment demand, Big Society Capital. 4

5 UK labour market system The UK system of labour market support is based on four key elements: For those able to work, support to find work through the Jobcentre Plus employment service, with benefit receipt conditional on active job search. Around 75% of claimants find work within six months of the start of their claim without significant specialist support required. Those not required to find work e.g. the disabled or lone parents with a young child can also access work support. Ensuring it pays to work. The UK is currently undergoing a major reform to simplify its benefit system, introducing a Universal Credit, to achieve this aim. More intensive support as the duration of unemployment increases, or where specific needs are identified, with flexibility given to Jobcentre advisers to provide additional support e.g. boosting literacy/numeracy skills. Once a person becomes long-term unemployed, at 12 months or sooner if they face significant barriers to work, additional support is given through a mandatory Work Programme. Participants receive personalised support to find and stay in work. Providers are paid by results, getting more for helping the hardest to help. Specific measures to support young people Since youth unemployment can have long-term scarring effects on those affected, taking action before worklessness becomes entrenched and avoiding disadvantaged young people drifting to the margins of our society is a high priority for the UK. The UK s strategy begins before young people enter the labour market. In order to ensure young people have the skills needed to compete in an increasingly global economy, it is reforming its education system to boost attainment, providing a pupil premium to help narrow the difference in achievement between disadvantaged children and their peers; and raising the school participation age to 18. It is also helping young people move into the labour market, reforming the vocational education system, working with employers to improve and widen access to high quality apprenticeships, and supporting local partners to provide effective, local services to avoid young people falling through the net. Over and above its core labour market regime, the UK also offers a range of specialist support to young people within the NEET group: The Youth Contract, launched in April 2012, provides almost 1 billion of additional investment over 3 years to provide specialist support to young people. It provides opportunities to gain work experience; funds more intensive support from Jobcentre Plus advisers; and wage incentives and apprenticeship grants to encourage employers to recruit young people. As part of the Youth Contract, a 126 million payment-by-results scheme to support the hardest to help year olds into education or training began in September 2012 those with low or no qualifications who are NEET, who are in or leaving care, or who have criminal records. Young people are given early access to the additional support contained within the Work Programme, accessing it at nine rather than the usual twelve months. For those who have been NEET aged (i.e. before becoming eligible for unemployment benefit), access occurs at three months. Through a 30 million Innovation Fund, the UK has set up 10 innovative social investment projects to support disadvantaged young people most at risk of becoming NEET. These are delivered by social ventures using innovative delivery models such as peer group and workplace mentoring, residential courses, school based coaches, relationship and family counselling and money management 5

6 support. The projects are 100% payment by results, with projects getting paid for proven increases in school engagement, educational attainment and movements into work, up to a limit of 11,700 per participant. The England ESF programme is investing about 334 million in specific projects to help young people aged who are or who are at risk of becoming NEET. There is a focus on those who face multiple barriers to participation (e.g. young people with learning difficulties and/or disabilities, care leavers, mental health difficulties, young offenders and teenage parents). These individually tailored packages of support are designed to enhance or fill gaps in mainstream provision. The role of social entrepreneurship Within this system, the exact nature of support commissioned by Jobcentres or through the Work Programme should be tailored to local needs, infrastructure and in partnership with local support services. Many providers will be social enterprises. For example, over 300 community and voluntary organisations are involved in the supplier chain of the Work Programme, making up 45% of all those involved. Above and beyond the delivery of public services, social entrepreneurship has a valuable role in creating employment opportunities more broadly whether through self-employment of the social entrepreneurs themselves, social enterprises taking on employees as they grow or by having a primary purpose to help improve the skills and employability more generally of people distant from the labour market. An example of the value of social entrepreneurship in tackling the problem of NEETs comes through the work of UnLtd. UnLtd is a leading provider of flexible, personal support to social entrepreneurs in the UK, offering a tailored mix of funding, ongoing advice, networking and practical support. UnLtd has experience of working in areas where there is little history of entrepreneurial behaviour, and has developed outreach and support strategies that work well with emerging leaders allowing them to channel their enthusiasm and passion into transforming their neighbourhoods. UnLtd supports future entrepreneurs throughout the journey to create their business including start-up, scale up, rapid growth, incubation and innovation - working with them to build confidence, skills, commitment and contacts. Since 2003, UnLtd and its partners have helped 20,000 social entrepreneurs in the UK. UnLtd has been running various programmes dedicated to young people, especially those between 11 and 21 years, since Clear evidence shows that social entrepreneurship makes a difference for young people: most of them develop at least one skill, are more confident and feel more employable as a result of running a social enterprise project. Over 30,000 people have either directly benefited from UnLtd s 790 young social entrepreneurs projects since 2009 or been amongst the young people helped by the activity of these young social entrepreneurs. Many stated that their projects aim to address a lack of activities for young people in their area; help other young people to gain a sense of community and/or form new friendships or challenge negative perceptions of young people. More information about UnLtd and the project it supports is at unltd.org.uk 6