From the Labour Party Manifesto 2005: “We believe that enterprises in the mutual and cooperative sector have an important role to play in the provision of local services, from health to education, from leisure to care for the vulnerable. As democratic, not-for-profit organisations, they can help to involve local people in shaping the services they want, unleash creativity and innovation, create jobs and provide new services – especially in neighbourhoods where traditional services have failed local people in the past. Where services can be provided by [social enterprises] to the required standards of quality and value for money, they should be positively encouraged to develop and be included in procurement policies.”
In recent years the Government has encouraged the ‘social enterprise’ sector to undertake many aspects of our public services. The Prime Minister has taken the view that the sector offers a radical combination of a strong public-service ethos and business acumen.
A social enterprise is defined as a business with primarily social objectives, the surpluses of which are principally reinvested for that purpose in the business or the community, rather than being driven by the need to maximise profit for shareholders and owners.
Growth of the social enterprise sector
There are a number of factors that have contributed to the growth of the sector. Under compulsory competitive tendering (CCT), the private sector was seen as the principal alternative for managing public services. Indeed, much of the legislation and public procurement rules were weighted in favour of the private sector through the creation of an ‘uneven playing field’. With the abolition of CCT in January 2000 and the advent of ‘Best Value’, there are opportunities now for the social enterprise sector.
The advent of ‘new localism’ and the creation of local social enterprises is a response to the unprecedented growth in the number of non-elected quangos operating in all aspects of national life and the desire of our towns and villages to take more responsibility for their own areas.
The UK, unlike many other nations in the world, has a strong voluntary sector – illustrated by the many self-help and community organisations operating in even the smallest villages. The Government is looking to create sustainable communities and there is a significant groundswell to build upon this pent-up enthusiasm.
Although it seems that the Government is increasing the centralisation of power, there have nevertheless been encouraging statements in favour of the creation of an ‘opportunity society’, whereby the traditional welfare state is replaced on the basis that the “nature of provision – public, private or voluntary sector – becomes less important than the delivery of the service the user wants” (Tony Blair, 11 October 2004). Furthermore, there have been some encouraging steps to facilitate social enterprises. These include:
- The Treasury’s cross-cutting review in September 2002, stressing the role of the voluntary and community sector in service delivery, followed in July 2004 by the same department’s £125m Futurebuilders investment fund.
- The introduction in July 2005 of the community interest company (CIC) and the proposed charitable incorporated organisation in the Charities Bill, coupled with a greater stress upon the importance of public benefit in the registration of charitable entities.
- An important good practice guide on procurement of services from the voluntary and community sector, produced jointly by the Home Office and the Office of Government Commerce, entitled ‘Think smart… think voluntary sector!’. This publication was aimed not only at public sector managers, but also staff and board members of voluntary and community organisations. The report outlined some of the essential benefits which the social enterprise sector could provide, such as links with the community, understanding the needs of specific client groups and independence and freedom from institutional pressures.
Implications for local government
Local government has a long history of diversified public sector service delivery. Research conducted by Lawrence Graham, covering a range of local authorities, indicates that this diversification will continue, encouraged by the Government’s initiatives referred to above. Those areas of particular importance are:
- Housing: the large-scale voluntary transfer of housing stock to registered social landlords has resulted in the latter owning and managing more homes than local authorities, and the increasing number of homes managed by arm’s length management organisations (the boards of which consist of volunteers) is a trend in a similar direction. Perhaps most significantly has been the Government’s requirement that all local authorities have an obligation to improve their housing stock and, if necessary, transfer their homes or their management.
- Leisure and culture: under Best Value, local authorities need to consider the management of all their services. More than 100 independent, non-profit-distributing organisations or trusts have been created for the transfer and management of leisure centres, museums, theatres and similar venues. Indeed, there are more facilities run by these trusts than by the private sector.
- Services for the elderly: the charitable sector has a long history of providing services of this nature and many local authorities have entered into partnerships with social enterprises to run residential homes and provide a range of similar services.
- Health and education: in some recent Government announcements, health and education is seen as an important new area for social enterprises, with, in the case of education, the proposal for self-governing trusts for every school.
- Community participation: One of the themes in recent announcements is the importance of community participation and the creation of smaller social enterprises in urban and rural areas.
The good practice guidance is essential reading for all local authorities, which will need to consider developing their supplier bases and establishing policies to encourage the social enterprise sector. It sets out a checklist to encourage such involvement and increase genuine partnership with the sector, which will be a huge challenge for local government.
Simon Randall is a partner and head of local government services at Lawrence Graham