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5.21 pm

Baroness Smith of Basildon: My Lords, I have greatly enjoyed this debate. The expertise and support in your Lordships' House is one which the social enterprise sector will be immensely gratified by. I congratulate my noble friend Lady Andrews on procuring such an important debate, and making such a powerful case. She and others have pressed the Government to match words with deeds. I should declare an interest as a member of the Co-op party, and that I sit as a Labour and Co-op Peer in your Lordships' House.

No definition is going to be exact, but I always think of social enterprise businesses as those with a heart as well as a head; businesses where profit is measured not just in financial terms, but in how it benefits society. An expression I often use is of businesses that aim for a triple bottom line: that is, good for its business and employees, good for society and good for the environment-in shorthand, perhaps, good for people, profit and the planet.

How that profit is used is absolutely key. Social enterprise's prime objectives are social and/or environmental. That is not in any way critical of other businesses that have social objectives, but what gives social enterprises their distinctive character is that their social or environmental purpose is their primary purpose, and profits are reinvested in the business. The beginnings of social enterprise can be traced back to the Co-op's Rochdale Pioneers of the 1840s, which led to other co-operatives and social enterprises being set up in what is now a worldwide ethical movement.

I should confess to your Lordships' House that my last ministerial position in government was at the Cabinet Office with responsibility for social enterprise, including seeking to establish what was then called the social investment wholesale bank, bringing new finance to social enterprise. Delighted as I was to hold that brief, I never really thought that social enterprise sat well in the Cabinet Office, with what was then the Office of the Third Sector and is now the Office for Civil Society. Social enterprises are businesses-as we have heard, very successful businesses-but with a wider definition of what means success in business.

I was taken by the comments of the noble Baroness, Lady Randerson, about Welsh Water. Indeed, when I was a Northern Ireland Minister, I tried to export the model of Welsh Water to Northern Ireland Water. It has still not resolved the issues there, and it might do well to listen to the comments the noble Baroness made today. Social enterprises are not just about the third sector, and there must continue to be a greater discussion about the role that BIS can play in promoting and supporting social enterprises. I found my meetings with Business Ministers invaluable, and I hope that co-operation is continuing, and expanding.

Although I am consistently impressed by social enterprises, I also get frustrated-that frustration has been illustrated in other comments today-that those in charge of procurement choose not to recognise, or just do not understand, that they could take into account the wider benefits that a social enterprise can bring.

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I do not know whether your Lordships are hearing the same "dentists' drills" as I am and whether their teeth feel as uncomfortable as mine on hearing that sound.

The previous Government set up a Cabinet committee, of which I was a member, with the exciting title of "Miscellaneous 37", to address some of the issues around procurement. Many of these issues also affect small businesses. As the noble Lord, Lord Haskel, highlighted in his very knowledgeable speech, too often social enterprises have lost contracts to larger businesses which, although delivering on price, may not provide the added value or success of a social enterprise. Those larger businesses then sometimes subcontracted the provision of services to social enterprises. That cannot be right. Often a social enterprise has provided a service at a far lower cost than that for which the original contract was awarded. All we were seeking to do was to ensure a level playing field so that one sector did not have an automatic built-in competitive advantage over another.

This is a difficult area but one in which we were making progress. However, the new Conservative Government-sorry, coalition Government; that was a genuine error-went further. Francis Maude, as the Cabinet Office Minister, said in November 2010 that millions of public sector workers-the noble Lord, Lord Mawson, referred to this-would be given the opportunity of,

However, he rather unexpectedly added that this "right to provide" public services would in some cases,

As an example of extending this brave new world, he cited Central Surrey Health. Other noble Lords have mentioned that. That organisation was set up in 2006 under a Labour Government. Two former directors of the local primary care trust launched a social enterprise with 650 nurses and therapists who each had a £1 not- for-profit share in this new business. They provide services for the PCT. Although it has not been free of criticism, as is the case with all new businesses, it is highly regarded. It is clear that staff motivation and enthusiasm is second to none. Any profit made is reinvested in local services. Francis Maude was enthusiastic, saying, "They are my poster people". Therefore, your Lordships will understand how expectations in the sector were raised by these comments, especially as regards the tendering process. When so many charities and voluntary organisations were worried about their services in the face of government cuts, many saw this as a potential lifeline. However, when a major new contract came up in the neighbouring area, it was not Surrey Health-the social enterprise "poster people"-but a private company, Assura Medical, 75 per cent owned by Virgin, that won the contract. The noble Lord, Lord Mawson, also referred to that.

I use this example to highlight the great difficulties for social enterprises in bidding for such contracts on a level playing field. Uncertainty was also created for employees leaving the public sector to join a social enterprise. Instead of "not having to tender", as referred

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to by Francis Maude, they can later lose the provision and control of that public service to a private company in a way that was never initially intended. We all want to avoid another Southern Cross situation occurring.

The central point is the need to take into account the wider social and environmental benefits as part of the assessment process. Other noble Lords have referred to this as being an important way forward. It is also about improving the capacity to bid, providing support and assisting possible social enterprise consortia, such as was previously done through Futurebuilders. The consensus in your Lordships' House is that social enterprise is not a political football to speak warm words about and then fail to deliver on when in government.

I was struck by the comments of the noble Lord, Lord Bhattacharyya, on social innovation. It seems to me that it is the crux of the matter. For me the real value of social enterprises, and where they make the most difference and greatest contribution, lies with those which identify a need which is not being met and then devise innovative solutions to meet that need. They also make an enormous contribution to the economy, including employment. We have heard the examples of Sandhurst Community Care and Hackney Community Transport. One of my own favourites is Jamie Oliver's restaurant Fifteen. This is a restaurant that gets young people, many of whom have convictions, to learn a trade and get their life back on track. Divine Chocolate, led by Sophie Tranchell produces first-rate chocolate and, for the first time, ensured that cocoa farms were not being ripped off. It helped to establish a farmer's co-operative in Ghana and today almost every chocolate company in the world is looking to be fair trade. Another of my favourite social enterprises is the Elvis & Kresse Organisation, which, seeing how many fire hoses were going into landfill, used that high-quality and very expensive waste for bags, purses and luggage. It then gave 50 per cent of the profit it made to the Fire Fighters Charity.

These examples and others we have heard about are truly inspirational. I also urge the Minister to listen to the social enterprise ambassadors. We have heard about these already from the noble Baroness, Lady Scott. They were introduced by the Labour Government and really impressed me. They are not asking for something for nothing. They are not asking for an unfair advantage but they are asking and seeking to grow the social enterprise sector with the knowledge and experience they have. They need recognition of their work and a level playing field that properly evaluates their worth and their value to society so that they can make their contribution to the economy.

As the noble Baroness, Lady Andrews, made clear, the danger is that we have lost so many of the programmes that support social enterprises; and government announcements are not yet anything more than that. I hope the Minister will be able to positively address the questions of the noble Baroness, Lady Andrews. If the banking crisis and recession has taught us anything it should be about values. The cheapest is not always the best and value for money can be achieved in more ways than one.

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5.31 pm

Lord Wallace of Saltaire: My Lords, I thank noble Lords for the immensely valuable and expert contributions to this debate, including the speech we have just had from the noble Baroness, Lady Smith of Basildon, who has reminded us that there is a great deal of continuity between what this Government are determined to do and what their predecessor was determined to do and in the obstacles faced by the last Government and this Government.

I thank the noble Baroness, Lady Andrews, for the debate and remind her that I was happy to show her around Saltaire last summer. I often think that Saltaire is in many ways an easy and ideal community, not only because is it a very beautiful village in which the Guardian outsells every other newspaper, and partly for that reason atypical, but because it is full of self-motivated people interested in public service naturally taking part in local activities. I only wish that was common across the whole country. Part of the problem that we face, in answer to the noble Baroness, Lady Scott, is that we do not have, across the entire country, the same level of motivation or willingness to participate in local public community life that we want to generate. That is part of what this Government are now attempting to do.

We support social enterprises because these are now integral to a more active, fairer and more prosperous society. We see social enterprises as ways of supporting citizens in communities to take more power into their hands and to build what the Prime Minister calls the big society-a more engaged and less passive society. Social enterprises are also an important part of a business community that contributes to our economic prosperity. I take the question asked by the noble Lord, Lord Haskel, about how one defines the extent of this large and rather amorphous area, but the estimate that the social enterprises employ 800,000 people and generate 1.5 per cent of GDP is a fair rough estimate that suggests, as we expand this sector, how very useful it can be.

We are supporting social enterprises as far as we can across the whole of government, from pushing through mainstream reforms to recognising the potential of social enterprises, by making it easier to start up and run social enterprises by leveraging resources, by increasing the opportunities and support to help social enterprises grow and by promoting social enterprises in the public sector and beyond. We all recognise how large a task this is and we also recognise how diverse a sector we are talking about.

Some of us have been talking about community assets-local shops, pubs, community halls and grounds. I can think of at least two Members in this Chamber whom I know well who are involved in the setting up and management of community shops. I am very sorry that the noble Lords, Lord Morris of Handsworth and Lord Jay of Ewelme, are not here to take part in this debate today. I have enjoyed talking with them about how they have got involved in regenerating that sort of local community asset. We are also talking more about community interest companies and non-profit organisations which are providing employment and socially valued services. I am familiar with the Cellar

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project in Shipley, which helps to provide a route back to employment for people who have suffered mental health problems and, in the process, generates a certain amount of income for itself and gives people confidence back in their ability to work.

We are also talking about mutual providers of public services. I have spent some time during the past year with an excellent charity in Yorkshire, Together Women, which has been dealing with first-time women offenders and has had enormous success in reducing the rate of reoffending among women. However, it is dependent on grants from central government and has not yet been able to move, because central government is not doing it yet, into the social interest bonds where it can say, "We are saving you money, so let's have a different sort of contract from being dependent on central government grants"

We recognise the enormous obstacles that we are facing. Many of our citizens are still very passive. They talk about their rights; they expect services to be provided; but they do not understand that they need to take a much larger part in providing those services among themselves-sometimes preferring to complain rather than to share public responsibility. The government documents that I have been reading as I have read myself into my new responsibilities talk a great deal about encouraging a widening of neighbourhood councils. I am conscious that neighbourhood councils are not easy to set up in some of our cities and in a number of our smaller towns. Regenerating the self-confidence and self reliance of local communities is itself a long-term project. The previous Government did some work in that area; we are continuing it. It is a long-term task.

We are talking about a wider attitude change towards public life, public responsibilities and public engagement in self-government at the local level. Having said that, we are also talking about a broader attitude change. Central government, as a number of people have remarked, often resists the idea that you can really trust local people to run things in their own way. The national media lumps the term postcode lottery on anything that appears a little odd, a little more diverse. Business, especially in the financial sector, should not simply be thinking about its responsibilities to shareholders on a quarterly and annual basis. They should also be thinking about people in local authorities and citizens.

The noble Lord, Lord Wei, and others, have talked about the problems of commissioning. The assumptions underlying commissioning showed that there are real problems with people in central government not yet having thought through what sort of different approach we need.

Increasing investment under the big society capital approach is part of how we are attempting to change the way in which the sector is funded and to transform its relationship with government and public services. The Big Society Capital Group will be an independent financial institution that aims to increase investment in social enterprises. It will do that by supporting organisations that invest in the sector and will be a champion for social investment with policy-makers, investors and stakeholders in the sector and the public at large.

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Of course, this is not the ideal time or circumstance in which to encourage new enterprises to grow, so provision of diverse sources of funding is extremely important to all of us. The national survey of charities and social enterprises last year showed that just over one-third of those charities and social enterprises surveyed received some form of funding from central government. So this is not a universal problem for the sector. Community foundations have been mentioned and other sources of funding are also important. Too much dependence on the state and on the central budget has not been good for the voluntary sector. Our aim is to reduce that over the long term, to move towards local contracts and contracts for services provided, and as far as possible, to foster self-generating and self-funding activities where appropriate.

We thoroughly agree with the noble Baroness, Lady Wheatcroft, that business is generally a force for good, but there are issues when one is also looking for a culture change. I am conscious that in the pub sector, for example, the role of the pub companies and of some venture capital trusts has been very much to damage the provision of the availability of community assets for local communities and indeed, to attempt to buy up small breweries for their property assets and then close them.

I am happy to say that my pension fund, the University Superannuation Scheme, is actively taking part in seeing how far pensions can provide social enterprise funds. We all need to be thinking about that sort of thing, or those of us who are a little involved in what our pensions should be doing. The noble Baroness, Lady Randerson, talked about other forms of providing financial social capital, so to speak. We want to encourage closer co-operation between business and social enterprises and between business and the whole voluntary non-profit sector.

The noble Lord, Lord Mawson, talked about the barriers to entry. That again is an area that we need to keep pushing to ensure that central government does not go for the easy aim. Nearly 300 welfare-to-work contracts have been awarded to voluntary sector providers. Of those 300, two have been large-scale contractors, and the other 289 are subcontractors. So we have been making some progress in this regard.

On the question of red tape we are also moving ahead. The noble Lord, Lord Hodgson, has made some 17 regulations in his report, some of which we can do something about. The Association of British Insurers has now moved on the question of ensuring that volunteers do not have to pay more for their car insurance if they are using their car to assist in voluntary activities. That is a useful, small but important step forward. The Payments Council has similarly announced that cheques will now be retained for as long as they are needed. There are a number of small things like that that can make a difference to local enterprise activities.

On the social impact bonds experimentation in Peterborough, the Government intend to build on that with four more pilot social impact bonds that aim to help troubled families in four local areas. We are moving forward on that and it is seen as a success. We

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are therefore pushing forward on a range of different fronts: social investment; the new big society capital enterprise; and other means of support for this very important sector. It will take some time and means a whole range of changes at different levels. The most important level is to get more back down to the local level, to get more local engagement. Social enterprises, the Government believe, are vital in their contribution not only to economic growth and employment but to a fully participating society.

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We have made our support for social enterprises a key element of different parts of this Government's programme and we have a strong package of market and individual enterprise-level policies that we hope will help social enterprises to start up and grow. I finish by again thanking the noble Baroness, Lady Andrews, and to say that we all need to keep pushing on this. We all recognise the cultural and mindset obstacles that we face at all levels of government: the economy, business and ordinary people themselves.

House adjourned at 5.44 pm.

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