UK: Speech of the Minister for the Third Sector

Mon, 10 Jul 06

Summary
analysis to follow

Contents
I want to start by congratulating all of you gathered here for the great success you have
made of the first year of CICs. It is because of your extraordinary initiative in areas from
childcare to health to recycling and regeneration to young people that mean CICs have
taken off in the way they have.

Let me also say it is a privilege for me to the minister responsible for social enterprise
and CICS. The decision to bring all the responsibilities for third sector issues from the
Home Office and the DTI into the Cabinet office, which is at the centre of government, is
a recognition of the central importance of what you do and the way it impacts every area
of our national life. It is also a recognition that there is a very important co-ordination
role to be played in the way departments operate which can only be done from the centre.

My argument today is three-fold:
CICS are an important innovation because of the concept they provide of locking in
social benefit and creating lasting progressive institutions.
CICs and social enterprises are part of a wider challenge that third sector organisations
are providing to public and private sectors.
As a progressive politician, I welcome this challenge and I want to try and use the power
of government to help that challenge flourish.

The importance of CICs

Let me start with the intentions behind the establishment of CICs. As Private Action,
Public Benefit said: “A Community Interest Company would protect assets against
distribution to members or shareholders, and create a strong new not-for-profit brand for
small scale community-based social entrepreneurs…By making it possible for
organizations which are not charities to protect their assets in law in this way, these
changes will pave the way for growth in the sector.”

Perhaps the best way I can explain why I think CICs are so important is as follows:

Britain’s enterprises are the lifeblood of the marketplace, employing people, creating jobs
and wealth for our country.

Britain’s social enterprises do the same thing, but in a way which more explicitly puts
social and ethical purposes at the core of what they do, reinvesting profits for the
community.

As many social entrepreneurs have told me over the last couple of months, that makes the
business of running an enterprise far harder: meeting a double or triple bottom line
requires additional skills, commitment and vision.

I hope CICs make that job easier. The community interest test and the limit on the
distribution of profits should help you reassure funders and customers of your broader
purpose. And the asset lock should reassure you that the community objectives of your
organisation will survive.

This is what makes CICs so exciting for me. As CICs, with an asset lock, you are social
enterprises forever dedicated to your communities.

You have chosen to make a public, permanent declaration: this company will always
work for and be representative to the community.

So you, the founders and supporters of the organisations here today, have not just
achieved lasting changes in people’s lives, although those are inspiring; you have also, in
creating CICs, created lasting agents of change.

With the new RBS Natwest Social Enterprise magazine results which will be presented
by Andrew Robinson later today, we get a fascinating insight into what motivates the
founders of CICs.

For me the most striking finding is that the biggest factor by some distance in motivating
the decision to establish a CIC was ‘to prove social purpose”.

The Challenge to Public and Private Sectors

This takes me on to the second part of my remarks: the nature of the challenge to public
and private sectors from CICS, social enterprises and the third sector in general.

What has struck me most since I became the minister for the third sector is this: what
people who work in a third sector organisation, whether it is a social enterprise, a
community group, or a small charity tell me about what they do what they do.

It is all about serving a cause. And what is perhaps most striking of all is the number of
individuals I meet who have left the corporate world to go and work in a social
enterprise. The reason is always the same: a sense that there is more to life than simply
making money, however much that is part of what we do.

The latest example was last Thursday when I spoke at an event for the Community
Channel. I met their Head of Scheduling, Anna Fox, who told me that she had been on
the Shopping Channel but frankly it had been hard to get up in the morning to persuade
people to shop.

Now she worked at an organisation attempting to open up the world of television to the
most excluded and find a way of nurturing movements for change through television.

Powerful anecdotes don’t add up to rigorous sociology. But I cannot be alone in detecting
a series of trends in this direction all centred around the third sector: whether it is make
Poverty History or the emerging environmental movement, the increase in the numbers
volunteering or the rapid growth in fair trade and ethical consumerism.

As someone who believes that our society and our world are unjust and unequal in so
many different ways, this trend is incredibly welcome. Not just because of the specific
work that you do but because it challenges practice in the public and private sectors
which might be either perpetuating injustice or not doing enough to tackle it.

The challenge to the private sector is clear. It is a challenge to the practices and actions of
private sector organisations domestically and internationally. CICs and social enterprises
are showing you can run ethical businesses with social responsibility at the heart of what
you do not as an add-on.

The private sector must, first, respond by showing that CSR is real and meaningful, not
just symbolic. Many conventional companies already have a strong sense of corporate
social responsibility, supporting staff volunteering or their local community – and we
have encouraged them to do so, with innovations such as Payroll Giving. So the
challenge of social enterprise is either to do more or make it real.

More importantly in a way, social enterprise represents a challenge to the way business
operates: Does it respect the environment? Does it encourage good health? Does it appeal
to the best of consumer habits? Does it respect local communities? Does it act to help
tackle the problems of the developing world?

The interesting thing about the concept of social enterprise and CICs is that you pose
competition to the private sector not in the conventional sense of market share but in the
new sense of ethical standard.

And consumers are on your side, and are driving this process. They want to know that all
the questions I asked can be answered positively, or else they may withdraw their
business. This represents a profound change, I believe, even from a few years ago: you
might say it is a change from a culture of narrow to ethical consumerism.

This then is the challenge to the private sector. What about the public sector? Here too,
social enterprise, CICs and the third sector represent a profound challenge. The nature of
the challenge lies in what we have learnt about public services, which is that they will
often only work with the engagement of the user.

This is a big challenge for the public sector because simply by its very nature, the public
sector finds it difficult to reach out and engage with the hardest to help who have
experiences of the public sector which will often make for suspicion and distance.

Sometimes also it is not because of the inherent nature of the public sector but because of
the practice of the public sector.

Of course, this is where the third sector and social enterprises and CICs come in. Not just
the closeness to the user but the ability to innovate. Take one CIC represented here, ASIT
[“asset”], providing IT consultancy jobs for people with Aspergers syndrome. This is
doing something the public sector would have found it harder to do: employing people
with Aspergers in a way which respects and nurtures their talents rather than seeing them
as a social problem.

The challenge this creates for the public sector is to be open to using the skills and talents
of third sector organisations, including CICs, in different ways

The role for government

This takes me on to the role for government in helping CICs and social enterprises to
realise their full potential. As part of the Spending review which the Treasury and the
Office of the third sector are embarked on, we are tasked with coming up with a ten-year
vision for the relationship between government and third sector.

What this will not be is a top-down blueprint but it must provide a route-map for the
relationship of government to third sector in the next decade, and in particular, we face
the challenge of mapping out the potential evolution of social enterprise and CICs.

I want to hear from you both today and in coming weeks, including at the special social
enterprise consultation on July 24th but let me talk briefly today about the different areas
we need to consider as we nurture and foster the growing social enterprise movement.

First, the legal and regulatory structures. Working with you and listening to your needs,
CICs represent the first new form of company for 100 years. I want to pay tribute today
to the CIC regulator, John Hanlon for striking the right balance in his regulatory role. In
particular, it is a very good sign that 89% of those surveyed have said that they found it
quite or very easy to navigate their way through the CIC application process.

Of course, as with all companies we need to continue to bear down on unnecessary
regulation and as part of the spending review, stand ready to hear representations about
the situation facing social enterprises and CICs, whether in particular or as part of
business regulation in general.

We also need to look at all the legal forms that exist and see whether they require
modernisation. In particular, I know there is a desire among some for us to look again at
the role of Industrial and Provident Societies.

Second, the business environment, where we need to identify and fix market failures and
ensure social enterprises are enabled to develop a sound asset base.

I believe Futurebuilders has the potential to transform the financing prospects of social
enterprises seeking to deliver public services. It represents a new model, in which the
public sector supports social enterprises and other third sector organisations through loan
finance, as they seek to win contracts for the delivery of services. What is exciting about
it is that as organisations become self-financing the repayed loans can then finance new
social enterprises. Already, millions of pounds have been provided and millions more
will be lent in the coming years.

But issues of finance for social enterprises and CICs do not just lie in the delivery of
public services. More generally, we need to tackle the particular finance challenges
facing social enterprises and it is striking that 37% of CICs surveyed said access to
finance was the biggest barrier facing them.

We have recently commissioned new research, to be concluded this summer, to look at
this in detail and we are also assessing the experience of Community Investment Tax
Relief from which accredited Community Development Finance Institutions can raise
capital.

At a local level, we are also examining how we can strengthen the support provided by
Regional Development Agencies. All of them have included social enterprises in their
Regional Economic Strategies and Business Links and are continuing to learn more about
social enterprises. But I understand that more needs to be done to put social enterprise at
the heart of what the RDAs do.

All of this work will inform the Social Enterprise Action plan, which will be published in
the Autumn.

I also believe we should see where we can make progress on the issue of community right
to buy which could make an important difference to the ability of social enterprises in
local communities to develop an asset base. Often in local communities we see assets at
the heart of an area sold off to the private sector when there is a community need and
interest in using the assets for the purposes of social enterprise. This is an area that is
being discussed as part of the forthcoming local Government White Paper

The third task for government is to make the process of working with the public sector
easier for social enterprises. Some of the basic issues are familiar: the need for multi-year
contracts, full cost recovery, streamlined monitoring and appropriate apportionment of
financial risk.

On all these areas, we know we need to make progress. Let me highlight the issue of
multi-year funding in particular. I was an adviser in the Treasury in 1998 and 2004 when
we introduced three-year funding respectively for central and local government. The
purpose was not simply to bring stability to these departments but to the organisations
they contract with and fund. I am determined that three year funding should start to
become the norm and not the exception.

Progress also needs to be made on contracting with social enterprises so that contracts are
simpler and standardised. So we are working to develop standard contracts for key
service areas, to allow social enterprises better opportunities to bid for services.

The Public Services Action Plan, published in the Autumn, will also look at new areas
where social enterprise can play more a role. This is not simply about increasing the role
of third sector organisations in delivering existing existing services. It is about the way in
which those services are delivered. For example the Department of Health’s Expert
Patient Programme, which trains people to be experts in the management of their own
conditions and use their expertise to help others, is becoming a CIC. This will allow it to
reach even more people and develop according to the needs of patients.

The fourth and final area which I think will shape the success of social enterprises and
CICs in the years to come is in the shaping of our national culture. Twenty percent of you
said that lack of understanding of the CIC model was the biggest barrier you faced: the
second highest factor cited.

I am determined that government does more to bang the drum for CICs and for social
enterprise. From schools to boardrooms, we will do more to explain what CICs are and to
show what they can do. We want to do more to raise the profile of social enterprise
further, and this year we are working with Enterprise Insight to make this year’s social
enterprise day, Thursday November 16, a real chance to highlight the work of social
entrepreneurs.

But we can do none of this alone. So there is a remaining challenge for you – for CICs,
for social enterprise, and for all those engaged in serving their community.

I hope you will keep strong your commitment to community action, demonstrated in such
diverse ways by the CICs here today.

I hope you will keep showing the world – the private sector, other organisations here
today – that CICs and social enterprise can compete on business success and social
conscience, and win.

And I hope you will keep telling us how we can do things better. When you told us that
you would benefit from a new legal structure, with less regulation and a public
commitment to community benefit, we created it.