It’s easy to mock the BBC TV series The Apprentice. Very easy indeed; so easy that even the BBC does it. That notwithstanding, it is perhaps the single most prominent showcase for entrepreneurship in the UK. Read more on Social entrepreneurs: Lord Sugar wants you! (Probably)…
Posts Tagged: social enterprise
There was a sense of excitement as the outspoken Sir Tim Smit, the co-founder and executive vice-chair of the Eden Project took to the stage at the Acevo Annual Conference 2014 yesterday. Smit is never backwards about coming forward (appropriate really, since ‘Tim Smit’ is a palindrome), and started his speech/rant – he admitted that he hadn’t really planned what he was going to say – by warning that he was “going to say some very horrible things”. Read more on My day with the vain, corrupt, and unmerged…
At the start of
Voice11, the biggest event in the social enterprise calendar, the chief
executive of the organisers, the Social Enterprise Coalition stood up and said this
was completely different from any event that had gone before.
On Friday, I read a short piece by Laurence Demarco, founder of Senscot, the network for social entrepreneurs in Scotland. Demarco – a popular figure in Scottish social enterprise who should probably be better known south of the border – is worried that the government seems determined to widen the definition of social enterprise to include anything it wants.
He is also concerned that a lot of profit-making businesses want to call themselves social enterprises because it sounds good and it helps them win business from local authorities. In the most worrying recent example, Andrew Lansley, the health secretary, decided to invent his own definition of social enterprise that includes government-owned organisations such as NHS foundation trusts.
Demarco’s problem with this is that this leaves the social enterprise sector open to public corporations, private enterprise, Uncle Tom Cobbleigh and all. Already, lots of people are calling themselves social enterprises even though they aren’t. Others are dithering about whether they are social enterprises or not.
As support grows for social enterprises, it becomes more and more useful to become one. And it becomes more important that the term is more clearly defined. Fortunately, there is already a reasonably clear definition of what social enterprise is: you can’t distribute the majority of your profit, and you must do something socially beneficial.
Any business that doesn’t meet that definition shouldn’t call itself a social enterprise.
Not that it’s a bad thing to distribute your profit. There are plenty of socially-focused businesses out there that do, and in many cases, this is a more sensible model. It’s one which can attract growth capital more easily – and obviously a bigger business can do more good. Also, if an entrepreneur has to risk his own capital to get a business up and running, he should be entitled to a reward when it works.
But they aren’t social enterprises. They should just be called something else. “Social business” is the term Demarco favours, and one already in use. Let’s use it.
In the run-up to the election there have been lots of promises from political parties about what they will do to improve the lot of social enterprises. This week Nick Hurd, shadow charities minister, suggested the Conservatives were thinking of using tax breaks to boost the social investment market.
If this is the case, it is good news. But where to apply it, and what form should it take?
There’s a very interesting illustration of the social investment space, produced by the social lender Venturesome, which seems to offer some clues (you can find it on page seven of this report). It shows a continuum between private, wholly-for-profit business, and wholly not-for-profit charity, with social enterprise occupying a space in between.
On one side, a tax-free legal form – the charity. On the other, a legal form with no tax reliefs – the plc. The space in between is crying out for a reduced-tax legal form which can make some profit, but is required to recycle most of its profit into the community.
There is an obvious candidate, in an existing but currently under-utilised legal form – the community interest company (CIC). At present, five years on from the creation of the CIC form, it’s not really clear what its purpose is. It seems to offer many limitations, and few opportunities.
Notoriously, the form had trouble attracting investment, thanks to the strictness of its asset lock and the fact it offers investors no advantage over other legal forms. Many people who have formed one say they regret it, because they cannot attract outside finance.
The strict asset lock, which acts as a guarantee of social purpose, ought to be good for attracting preferential funding from people with a strong social conscience. But there is little publicity about the model to make that clear, and little good information for potential investors, making it a very hard sell, even to the ethically committed.
The situation became marginally better earlier this year after the CIC regulator announced it was loosening the dividend caps that govern how much profit you can take out. But it is still too hard for investors – and social entrepreneurs themselves – to construct an exit strategy. Other social forms remain more attractive.
All of this would change with a tax break. A reduced-tax regime seems to have been the original intention behind the CIC, given in exchange for its strict asset lock and limitations on what business it can pursue. But that part of the model died the death of a thousand cuts during the journey through Parliament, and the CIC came into existence neutered, with the reason for its creation removed.
It ended up with all of the disadvantages of greater regulation and none of the advantages of lesser taxation. Its existence has been an embarrassing curiosity ever since. Whoever wins the election should provide a sensible tax incentive for the CIC and restore its potency.