Social enterprise and 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)

cipfa.org.uk 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

cipfa.org.uk 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

cipfa.org.uk 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

cipfa.org.uk 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

cipfa.org.uk 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

cipfa.org.uk 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

cipfa.org.uk Differing characteristics - examples CharacteristicCharityCo-opCIC Open membershipOptionalYesOptional All surpluses retainedYesOptional Asset lockYesYes, but 1 Yes Charitable statusYesNo Issue member sharesNoYes, if 2 Tax advantagesYesLimitedNo Footnotes: 1. Co-ops and companies able to revise asset lock terms in their governing documents 2. Can issue member shares if not a company limited by guarantee

cipfa.org.uk 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

cipfa.org.uk 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

cipfa.org.uk 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

cipfa.org.uk Sandwell Community Caring Trust Indicator Number of managers24 (1.2m budget) 12 (9.5m budget) Administration costs22%6% Spending on service delivery62%85% Absenteeism22 days0.34 days Staff turnover20%4%

cipfa.org.uk 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)

cipfa.org.uk 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

cipfa.org.uk 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

cipfa.org.uk 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

cipfa.org.uk 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

cipfa.org.uk 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

cipfa.org.uk “Social Enterprise in a Box” Appraisal of legal structures and business models Transfer and establishment of services Addressing procurement issues On-going Support and advice Understanding the sector Working with a range of partners to deliver informed support

cipfa.org.uk CIPFA Big Society website: Building skills and competencies to support commissioning Supporting member- based organisations Developing social enterprises

cipfa.org.uk Questions - discussion   