§ Mr. Gareth R. Thomas (Harrow, West)I welcome my hon. Friend the Minister for Small Firms, Trade and Industry to the Front Bench and congratulate him on his promotion. I am delighted that his first duty in the House is to examine the social enterprise sector.
Social enterprises, developed by social entrepreneurs as local responses to problems of neglect, marginalisation or the withdrawal of services, have often developed in the teeth of considerable financial, logistical and institutional barriers. In our first 20 months in office, the Government have instigated a range of measures from the new deal for communities, the creation of the regional development agencies, employment zones, and the coming deregulation of credit unions, to the cross-Government action teams on exclusion. Between them, those initiatives offer an excellent opportunity to break down the barriers inhibiting social enterprise and to promote the active expansion of the sector. Nevertheless, we still need an overarching strategy to tackle the problems of lack of recognition, lack of effective support and inability to access finance that are experienced by far too many social entrepreneurs and successful social enterprises.
Development trusts, co-operatives, neighbourhood projects, credit unions and community businesses are all examples of social enterprises that provide employment and training opportunities, locally needed services or a combination of all three. They operate on a commercial basis, but, rather than seeking a narrow gain for an individual investor, their principal aim is to maximise the social profit for the community in which they are located. Successful social enterprises, therefore, have combined the hard-headed financial skills of the private sector with a strong commitment to their locality and have succeeded in giving many a much stronger stake in their community.
Despite their considerable current contributions, and their potential, we do not yet celebrate in any organised or national manner our most dynamic social entrepreneurs. Neither do we trumpet the achievements of our most successful social enterprises. There is an annual round of rewards for the enterprise or entrepreneur of the year, but there is no similar ceremony to recognise the social entrepreneur of the year, and the sector's success stories are often little known beyond their immediate participants.
The North Kensington amenities development trust, for example, uses its assets under the Westway to generate rental income from more than 90 business tenancies. That income is used to fund leisure facilities, a youth training centre and large rent subsidies for the more than 20 voluntary groups that are located on its site.
The Bromley By Bow centre, in the constituency of my hon. Friend the Member for Poplar and Canning Town (Mr. Fitzpatrick), has grown—since a small church congregation decided to make use of its underused buildings—into a thriving community resource which now provides community care services, education activities, health projects and employment schemes. It was made possible by the local community's full involvement and leadership.
The Speke credit union was established in 1989, in its local community in Liverpool, and has grown considerably since, two years ago, it took over the 882 building housing the area's last bank. The credit union provides basic financial services to its 1,500 members, and is now funding skills training for jobs in computers, book-keeping and marketing.
Social enterprises have increased skills, confidence and economic activity in the communities in which they operate. However, rigorous analysis and support across Government, the financial services industry and regional and local agencies are absolutely essential if the social enterprise sector is to develop and fulfil its potential for regeneration.
Social enterprises often do not sit comfortably within the boundaries of more traditional definitions. They may have charitable status, yet still operate a range of highly commercial services. They may be a limited company, under whose auspices various not-for-profit services are offered. They often have highly diverse funding streams, ranging from statutory body grant income, members' savings and lottery funding, to commercial bank loans and equity and rental income.
A lack of understanding and awareness of the potential for social enterprise remains a key problem confronting social entrepreneurs seeking finance and support for their ideas. The Conservative party's sustained attack over the past 20 years on local government has led not only to a decline in the finance available for grants and loans to the third sector but, more importantly, to the loss of much of the staffing support for new social enterprises and, hence, access to the mentoring, technical assistance and basic skills training that is required by all social entrepreneurs at one time or another.
The growth of telephone banking, the centralisation of bank lending and the consequent tide of bank branch closures has made capital and support much harder to access for social enterprises, particularly in areas of deprivation. The social enterprise sector has consistently highlighted the reluctance of many mainstream bankers to understand and fund an enterprise, even when hard-headed evidence has been provided of an initiative's profit potential. The inability to access private sector finance is a significant block on development of the social enterprise sector. The Charities Aid Foundation estimates that, in the run-up to the millennium, the sector needs more than £250 million investment over and above current grant-based income.
The problem is not only one of finance. Many training and enterprise councils do not do enough to support social entrepreneurs. One council that I spoke to, for example, has successfully provided support, technical assistance and seed-corn finance to social entrepreneurs. However, it admitted that such help is not standard and was no longer available in most of its area.
In response to the problems faced by the sector, some social entrepreneurs have attempted to develop strategic responses to the lack of finance and support. The New Economics Foundation recently highlighted the growing number of imaginative but relatively small community finance initiatives, which also offer technical assistance for social enterprises ranging from mutual guarantee schemes and reinvestment trusts to community loan funds.
The Aston reinvestment trust, for example, specialises in providing loan finance at commercial rates to small businesses and third sector projects in Birmingham that were unable to secure loans from banks. The projects that it funds are viable, but not bankable. Access, not the cost of the loan, has been the key problem.
883 Many of the projects were unable to secure loan finance because they lacked a track record or were unable to provide accounts over a sufficiently long period, although they were able to demonstrate their ability to repay a loan. Moreover, many of the loans that the Aston trust has made so far originated with banks bringing projects to the trust for part-financing. The consequent financial package has therefore often included a partnership between the bank and the trust—and sometimes Birmingham city council—to provide the necessary loan finance that the banks felt unable to provide on their own.
Since establishment of the council's social investment fund, in June 1997, £740,000 has been raised from individuals, companies and housing associations. A further £850,000 has been levered in from the banking sector by using the type of joint financing that I mentioned.
Successful community finance initiatives, as in the Aston example, are usually partnerships between the voluntary, private and public sectors—collaborating, for example, with banks for equity and borrowed capital or secondments, and with providers of technical assistance, such as local authority enterprise agencies or business links. They have developed considerable understanding of financing in their specific areas and provide a range of services, from commercial and micro-loans to grants, savings arrangements, assistance with training and help in developing effective business plans.
As research by the New Economics Foundation has highlighted, there is still a considerable gap between the potential of social enterprise and the capacity of current community finance initiatives to respond to it. Only five localities in the United Kingdom, for example, have dedicated local community loan funds. Recent growth in credit unions has been in workplace credit unions and not community credit unions. According to the bodies Industrial Common Ownership Movement—ICOM—and Industrial Common Ownership Finance—ICOF, the number of established co-operative development agencies, which are some of the more established support mechanisms for social enterprises, has declined from over 100 in the mid-1980s to only 30.
Research by Kingston university, which was highlighted by the New Economics Foundation, reveals that over one fifth of the loan funds that it had identified in the early 1990s as being accessible to social enterprise had closed within just 12 months. The majority of current loan funds and mutual guarantee schemes for social enterprises have been established within the past five years.
Fundamental in developing opportunities for social entrepreneurs and supporting development of social enterprises must be further changes in attitudes within the financial services industry. My hon. Friend the Member for Putney (Mr. Colman), in a ten-minute Bill, rightly highlighted the success of America's Community Reinvestment Act—which, with related legislation, has ensured that £300 billion to £400 billion has been allocated by mainstream banks to meet community lending needs. The banks have subsequently found that considerable profits can be made in the process.
Crucial to the legislation's success has been development of effective partnerships between banks and community finance initiatives. Those involved in the initiatives have been able, because of their existing 884 relationships with potential customers and knowledge of the local economy, to break down the barriers between banks and social enterprises.
The picture in Britain is not entirely bleak. Some parts of the financial services industry are responding to the need to provide investment funding and support for social enterprises, as the example of the Aston trust demonstrates. Unity bank, the Triodos bank and the Co-operative bank have support programmes. One of the major clearing banks, for example, has just announced a package of measures to help credit unions. Although those moves are welcome, the level of support, understanding and access to finance provided by the financial services industry has nowhere near reached its potential. Action is now needed further to stimulate private sector involvement in the social enterprise sector.
The Government, too, have to improve the access of social enterprises to basic help, training and technical aid. Fledgling pure commercial enterprises can turn to training and enterprise councils and business links and, through them, are able to access myriad training schemes and specialist support, as well as ideas for sources of finance. The remit of TECs should be specifically extended to require them to develop and support social entrepreneurs and social enterprises.
The guidance published for the regional development agencies rightly refers to the importance of community businesses and community enterprise. RDAs should be specifically required to draw up strategies to promote social enterprise, to ensure that the range of necessary technical expertise is available and to identify the needs of social enterprises in their regions.
RDAs should be supporting and stimulating the growth of community finance initiatives that are able to fund and provide the development finance for social enterprise. Indeed, RDAs should be the stimulus to partnership between community finance initiatives and the banking sector, using their resources to help to lever in private sector finance.
At macro level, Government action to stimulate social investment is crucial. One model, to which I have referred in other debates in the House, is the tax relief system for green investment funds operating in the Netherlands, which has levered almost £200 million of private finance into environmental projects since the establishment of the funds in 1995.
The funds are offered to the public by banks and are regulated through the Dutch central bank, with projects that are to be funded licensed by the Ministry of Housing, Spatial Planning and the Environment. The interest or dividends generated by the green investment funds are exempt from income tax, which allows the bank to pass on favourable terms to the project being financed. The certificates of the first such funds, to the value of £150 million, were sold out in only nine days. Similar funding streams backed by tax relief have been developed in America and elsewhere.
Social investment funds in this country have already supported social enterprise. Without Government action to stimulate them, however, such funds will remain at comparatively low levels. The evidence from the successful, but small scale, funding initiatives taken by bodies such as ICOM, ICOF or, indeed, the Aston reinvestment trust, is that there is strong latent desire 885 among the public to be able to invest their savings in social enterprises while still receiving an acceptable rate of return.
The Aston reinvestment trust is keen to begin paying interest to the investors in its social investment fund, which would ensure that they receive some return and would help to attract more investors. A system of carefully regulated tax relief on such investment funds would undoubtedly help to spur that process and lever much larger sums of private finance into the social enterprise sector.
The Government, too, should consider how else they can support access to finance for the social enterprise sector. Loan guarantees mirroring the small firms loan guarantee scheme, or the deployment of part of the RDA budgets for community loan funds, have also been highlighted as options for encouraging private sector finance to invest in social enterprise.
Social enterprises and, indeed, social entrepreneurs are powerful forces for regeneration, community empowerment and increased employment. I hope that this debate, even though it is brief, will serve further to promote these enterprises and entrepreneurs, who do not get the recognition that they deserve.
§ The Parliamentary Under-Secretary of State for Trade and Industry (Mr. Michael Wills)I congratulate my hon. Friend the Member for Harrow, West (Mr. Thomas) on securing the debate and thank him for his kind words. He has raised an issue that is important in its own right and has set out cogently and persuasively the case for social enterprise. Social enterprise is also important because it is part of a wider agenda of promoting all forms of enterprise, which lies at the heart of Government policy.
We live in a rapidly changing world in which certainty is a luxury. Patterns of work are changing faster than ever before, and knowledge, skills and creativity, and the people who possess them, are our most valuable assets. People, and the organisations in which they operate, must change—and respond to changing circumstances—to survive and thrive.
Europe is becoming a unified market with the potential to match the United States, but only those United Kingdom businesses that are ready and willing to think and operate on a European scale will benefit. The world economy is open as never before, with larger markets offering greater opportunities, but competitors are stronger and more numerous.
New technologies offer scope for new products, and shorter product cycles make it easier for new entrants to compete with established players, but constant product refinement and development are required to keep pace with those developing technologies. Science is generating new industries faster than ever before.
Enterprise, entrepreneurship and innovation, in the broadest sense, are central to that new economy, promoting growth, increasing productivity and creating jobs—but enterprise does not happen in a vacuum; it is part of a wider social, educational and cultural environment. Enterprise cannot flourish unless it exists in a cohesive and inclusive society.
886 The Government are determined to build a dynamic economy driven by vigorous competition and commitment to enterprise, but we are also committed to a fairer and more inclusive society. The competitiveness White Paper, which we published at the end of last year, set out our vision of how we will encourage economic growth and regeneration at national and local level to promote wealth, widen individual options for employment and create opportunities for all.
The Chancellor's pre-Budget report and the White Paper set out the next steps in the Government's strategy for modernising the economy. The debate has highlighted how we need to build a more inclusive framework within which that new, dynamic economy can flourish. We need to ensure that everyone is given the opportunity to realise their potential—in business, as in every area of life: young and old, and men and women, of whatever ethnic origin and wherever they live.
We want business opportunities for the many, not the few. That is why the Government are working with business, banks, business support providers and a raft of other players to promote enterprise throughout this country.
§ Mr. Jim Fitzpatrick (Poplar and Canning Town)I congratulate my hon. Friend on his appointment. On his last point, and the point about financial institutions supporting social enterprise, which was raised by my hon. Friend the Member for Harrow, West (Mr. Thomas), one area of concern is that the financial institutions—the high street banks and building societies—have left whole areas of our inner cities. How are the Government encouraging the banks and building societies to go back and become involved with local communities, even though they are impoverished, so that they can play a partnership role with the social entrepreneurs who are the bedrock of such initiatives?
§ Mr. WillsMy hon. Friend raises an important point, and I shall address it in a moment.
We are working with all those financial players to promote enterprise, and a number of key principles underlie our approach. We are fostering an enterprise culture that encourages innovators and risk takers; provides and maintains a supportive economic environment; identifies and removes barriers to growth; and provides business support of the highest quality to firms, at all stages of their development.
We simply cannot afford to miss any opportunity to encourage each and every form of economic activity. We cannot afford the human and economic waste of individuals being denied the opportunity to realise their potential. We must not tolerate the persistence of poverty, unemployment and despair anywhere in this country.
As my hon. Friends have suggested, that requires the wholehearted commitment of many players, not least the new regional development agencies. They have a crucial role to play in taking forward measures to raise regional skills, to encourage links between business and education, to review the coherence and quality of business support provided through the business links and TECs in their areas and, in so doing, to strengthen their communities.
The Government are also considering new measures to support the growth of smaller businesses in areas of particular need—for example, coalfield communities, 887 coastal towns and countryside areas, which are suffering steep decline in traditional employment, and cities and towns with severe joblessness. Those measures will complement action to combat social exclusion and will link with other Government programmes to combat deprivation, such as the employment zones, health action zones, the new deal for communities, the single regeneration budget and the new coalfields enterprise fund. That is what joined-up government is all about. I should also mention the initiative launched last year by the Prime Minister to establish a national strategy for neighbourhood renewal. To take that forward, the Government have set up a number of policy action teams. These teams of experts, each with a champion Minister, are working together to solve some of the most intractable problems faced by deprived neighbourhoods.
The teams consist of representatives from the communities themselves, and from business, local and national government and the voluntary sector. They are consulting widely as part of their work. The teams will report by December, so that their work can inform and shape the national policy for neighbourhood renewal, which will be put in place early next year.
The Department of Trade and Industry has a team looking at access to information and communication technologies. It is vital that people living in those neighbourhoods can connect to the real opportunities and activities now being offered by the information revolution. We cannot have a nation divided between information "haves" and "have nots".
Last November, the Economic Secretary announced a package of measures to help to expand the credit union movement. As my hon. Friend the Member for Harrow, West suggested, credit unions do invaluable work in providing some of the poorer members of our society with savings facilities, low-cost credit, which has traditionally been a problem for them, and financial education. That gives people most in need the opportunity to build up a good credit record, which would otherwise be denied them. The proposed measures, on which the Government are currently consulting, include allowing credit unions to offer interest-bearing share accounts, making the common bond requirement more flexible to allow more people to join, increasing flexibility in relation to accounts for young people, extending repayment periods for loans, and removing the current 5,000 maximum membership limit.
Those measures, along with proposals for the future regulation of the credit union sector under the Financial Services Authority, will allow the sector freedom to develop, but, at the same time, ensure that adequate protection is in place for savers. A further important initiative is that the banks and credit unions task force is exploring how banks and building societies can work more closely with credit unions to increase their effectiveness.
The Joseph Rowntree Foundation report entitled "Small is bankable: Community reinvestment in the UK", which was published last year, found that, although there is a wide variety of community finance initiatives, they do not fully fill the financing gap between the demand for small enterprise finance in deprived areas and the supply from commercial lenders. My hon. Friend the Member for Harrow, West has given the House further evidence of that in relation to the social enterprise sector.
888 There are already examples of good practice. For example, credit unions are beginning to take hold, and we shall do what we can to encourage them. Some of the high street banks are already doing excellent work. There are community loan funds, several of which have now formed a UK association—the Rebuilding Society Network; micro-finance funds, the largest of which, the Prince's youth business trust, has assets of £21 million; mutual guarantee societies; and social banks, of which Triodos bank has some £52 million assets in the UK.
The challenge now for the Government is to explore how best to extend nationwide the best practice of the most successful local community finance initiatives, while enabling local partnerships to devise the most appropriate forms of financial support for all the enterprises operating in their areas.
Crucial as they are, it is not just financial issues that matter; it is also the attitude and good will of all the players at the local level. That lies behind many of the points that my hon. Friend the Member for Harrow, West made. We need to create a sympathetic culture, and I have referred already to the pivotal role that the regional development agencies will play in that respect.
My hon. Friend mentioned the role of the training and enterprise councils and said that he wanted them to do more. I commend the report produced recently by the TEC national council equal opportunities advisory committee on how the TECs and the chambers of commerce are tackling social exclusion. Equality and social exclusion are integral to the work of all TEC national council policy committees, which are charged with
seeking proactively to ensure that funding mechanisms, entitlement policies and associated regulatory and support regimes enable all individuals to participate to the full extent that they are able".The Government's approach is holistic. It is based on a fundamental commitment to a fair and just society for everyone by stimulating enterprise, creating employment, encouraging everyone to maximise his or her potential and protecting those in greatest need. The Government recognise that it is not for us to do that on our own. We can do it only with, and in support of, effort by others. That is why last year the Prime Minister initiated the Giving Age project, which is now being taken forward by the Home Office. It aims to rebuild a sense of community throughout the UK by encouraging and supporting all forms of community involvement.Another project, UK Cares, is led by Business in the Community with support from the Government as well as from some of our best-known companies. It aims to modernise the concept of employee volunteering to enable many more businesses and employees to contribute to the communities in which they live and work.
My hon. Friend spoke eloquently about the social economy—the so-called third sector—and he was right to do so. Social enterprise has particular qualities, aims and values that place human achievement and enrichment at the forefront of all its activities. We have only to remember the Rochdale pioneers and their selfless work, which started in the local community but extended far beyond their own dreams to influence today's society. I hope that I have reassured my hon. Friend that, both directly and indirectly, the Government share the values 889 implicit, and explicit, in what he has expressed today and recognise the need to support them through practical actions.
I am convinced that one way in which the Government can help is by ensuring that all those who are involved in running social enterprises are helped to become more professional and better equipped with the skills, knowledge and acumen that create profitable businesses and successful organisations. It is the Government's responsibility to ensure that the wealth of advice and support that is available is extended to the third sector. Obviously, it is the responsibility of the sector itself to take advantage of what is available, to make demands on business links and training and enterprise councils, and on 890 all who provide enterprise support in the UK. If that support is sought and help is not forthcoming, I should like to know about it. I hope that my hon. Friends will inform me about it so that I can sort it out.
The Department of Trade and Industry is committed to continuing to work closely with other Whitehall Departments to ensure that the social economy has its rightful place on the Government's agenda. In my role as Minister responsible for small businesses, I shall do whatever I can to promote this very worthwhile aspect of the enterprise spectrum. Furthermore, I undertake to report again to my hon. Friend by Easter on the progress that I have been able to make on these issues.
§ It being before Two o'clock, the motion for the Adjournment of the House lapsed, without Question put.
§ Sitting suspended, pursuant to Standing Order No. 10 (Wednesday sittings), till half-past Two o'clock.