Social enterpriseand public service delivery

John Maddocks

cipfa.org.uk

Changing service delivery landscape Health Localism Modernising Commissioning Review of service delivery and funding arrangements Personalisation of social care Promotion of social enterprise models Big Society Public Service Reform

“… 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”

(The Coalition: Our Programme for Government)

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Different policies different models Health

Foundation trusts with greater freedom Employee led trusts Stakeholder trusts

Localism Diverse supply of providers Voluntary & community organisations Staff mutuals Free schools Stakeholder models

Personalisation Diverse range of providers – micro budget holders

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Social enterprise ‘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.’

DTI 2002

‘… social enterprise if: the person or body is carrying on a business; the business’s activities are being carried on primarily

for a purpose that promotes or improves the social or environmental well-being …;

the greater part of any profits for distribution is applied for such a purpose.’Public Services (Social Enterprise and Social Value) Bill

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A social enterprise …

Undertakes trading activities Has a social purpose Profits are reinvested

= social enterprise

Independent Asset lock Accountable for social goals

= social enterprise mark

Participatory structure?

= participatory social enterprise

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Main types of ‘social enterprise’ Charities

Over 171,000 charities in UK Annual income approx £35bn

Community interest companies Over 4,600 community interest companies Mostly smaller organisations But number is growing rapidly

Mutuals Turnover approx £100bn 1million employees

Co-operatives (part of mutuals) Over 4,900 co-ops in UK Turnover approx £33bn

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Variety of legal structures

Including:

Company limited by guarantee Company limited by shares Company limited by guarantee & registered charity Company limited by guarantee & registered CIC Company limited by shares & registered CIC Industrial & Provident Society- for benefit of

community Industrial & Provident Society- bona fide co-op Limited liability partnership Charitable incorporated organisation

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Different models different characteristics The results of choices made over legal structure and

rules will be seen longer term. It impacts on:

Regulation Governance Property rights Financing Trading Tax Accounting Participation Long term purpose

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Differing characteristics - examples

Characteristic Charity Co-op CIC

Open membership Optional Yes Optional

All surpluses retained Yes Optional Optional

Asset lock Yes Yes, but1 Yes

Charitable status Yes No No

Issue member shares No Yes, if2 Yes, if2

Tax advantages Yes Limited No

Footnotes:1. Co-ops and companies able to revise asset lock terms in their governing documents2. Can issue member shares if not a company limited by guarantee

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Choice of business model depends on what is important Proven models of service delivery Effective as well as efficient Ability to leverage sources of financing Potential range of operational income sources Reinvestment of surpluses Tax advantages Boundaries of trading activities Local economic development Community involvement Member based control Anchoring capital Staying close to knitting

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Tower Colliery British Coal closed mine in 1994 Employee buy out - £2m raised by 239 miners Employees pledged £8,000 each from redundancy Mine reopened 1995 300 permanent and 100 contracted employees £28m turnover, profits of £2.7m. and a 26.8 per

cent return on capital (2002) Colliery closed in 2008 Employees own 350 acres

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Sandwell Community Caring Trust

Registered charity Funding £1.2m (previous year £1.6m) Initial 5 year contract Reduced number of managers Reduced spending on admin Increased spending on service delivery Culture of valuing staff Low absenteeism Low staff turnover

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Sandwell Community Caring Trust

Indicator 1997 2008

Number of managers 24(1.2m budget)

12(9.5m budget)

Administration costs 22% 6%

Spending on service delivery 62% 85%

Absenteeism 22 days 0.34 days

Staff turnover 20% 4%

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Sunderland Home Care Associates

Initially CLG – 20 members £1 share each Changed to CLS to allow for share allocations Shares distributed to employees in two ways: Annual free allocation linked to salary Annual sale Board includes 5 employees (3 year term) and

tax/legal expert 360 employees £3.5m turnover £168,000 pre tax profit (2009)

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Eaga: from social enterprise … to Plc … to …. Carillion

Started by 5 staff to address fuel poverty Initially a CLG Switched to CLS then Plc Established employee benefit trust (EBT) and

transferred share ownership Established charitable trust to fund research

into fuel poverty and wider energy issues Floated 49% of business on Stock Exchange 4,000 partners (2007)

Partners council Revenue £762m, 51m pre tax profit (2010)

Now Carillion Energy Services

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Sir Thomas Boughey Co-operative Business and Enterprise College

Co-operative trust school Company limited by guarantee (no shares) Multi-stakeholder co-op membership structure Students, parents/carers and local community Major sponsorship from Co-operative Group Ofsted - Outstanding 2010

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Lessons?

The choice of legal structure matters It takes time to develop services, governance,

management and participation It requires different ways of ‘thinking’ Membership can provide advantages The enterprise can benefit from a focus on a

particular purpose Choose structure for right reasons

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New opportunities

Changing relationships New service delivery models New financing and funding models New training and support services Organisational difference and what it offers to

users and providers

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New publication What is a social

enterprise? Types of social enterprise Legal structures part 1 Legal structures part 2 Financing Charity trading Tax and social enterprise Governance Tupe Considering options

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“Social Enterprise in a Box”

Appraisal oflegal structures and business models

On-going Support and advice

Understanding the sector

Transfer and establishment

of services

Addressing procurement issues

Working with a range of partners to deliver

informed support

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CIPFA Big Society website:www.cipfa.org.uk/bigsociety

Building skills and competencies to support commissioning

Supporting member-based organisations

Developing social enterprises

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Questions - discussion

John.maddocks@cipfa.org.uk http://www.cipfa.org.uk/bigsociety http://www.cipfa.org.uk/panels/charity