What is social enterprise?

The growth of social enterprise
Use of the term ‘social enterprise’ has become increasingly common and many organisations now refer to themselves first and foremost as a social enterprise. In June 2012, Baroness Byford, a conservative peer, said to the House of Lords that there were some “62,000 social enterprises in Britain (as of 2010)” which was a sharp increase on the 2003 estimate of 5,300.

At the time, this figure was the Government’s best estimate and it highlights the extent to which this is an expanding and evolving area of business. However, the figure is not accepted by all as being entirely accurate. Academic research published in September 2010, entitled ‘Challenges of Measuring the Scale of the Social Enterprise Sector’ highlighted the fact that approximately 90% of these 62,000 ‘social enterprises’ had no constraints on their ability to distribute profits to external shareholders and could pay all their profits to private individuals – something many would consider a social enterprise should not be able to do. In simple terms, the 62,000 figure had been compiled using a ‘looser’ definition of social enterprise that did not necessarily meet everyone’s approval, and herein lies a potential problem.

Defining social enterprise
The term ‘social enterprise’ can mean different things to different people. A recent study by The Key Fund found that more than three quarters of the British public are supporters of social enterprise but only one in five actually know what a social enterprise is. If you Google ‘what is social enterprise?’ you will find a number of organisations who provide differing definitions. It is, therefore, not surprising that the public may be confused as to what social enterprise really is.

To some extent, the question ‘what is social enterprise?’ has been largely academic. Many feel that a definite answer is not necessary because, however you classify it, an organisation which acts for a social purpose is a good thing and social enterprise is by its nature dynamic and evolving and difficult to define.

Lucy Findlay, the managing director of Social Enterprise Mark, offered an alternative view when she told us ‘definition and certification is necessary as it places boundaries and criteria which develop common understanding of the product, what it does and what it stands for.’ Inspired by the Fairtrade Mark, Social Enterprise Mark was established to provide certification of social enterprises as a means of guaranteeing that their ethics, behaviours and motivations match up to the public expectation. Social Enterprises apply to Social Enterprise Mark for recognition and, if accepted, are able to display the Mark on their website and correspondence.

Whilst Social Enterprise Mark is attempting to provide a guaranteed standard of social enterprise, it is not a compulsory certification. There, therefore, remains for the time being no nationally accepted answer to the question of ‘what is a social enterprise?’.

The Budget and the future of social enterprise
In his recent budget, the Chancellor announced that a new tax relief for investors in social enterprise will be introduced in 2014 and consultation on the detail will be taking place over the coming months.

Whilst up until now some businesses may have been able to benefit from the ambiguity over the definition of ‘social enterprise’, there has perhaps been limited tangible benefit, beyond prestige or goodwill, to being a non-charitable social enterprise.

However, the introduction of a tax relief for social enterprises provides a very tangible benefit. A tax relief also directs the way in which public money can be spent, since the tax saving would otherwise have been available to the Government for other purposes. Certainly there needs to be regulation as to how any public money is to be spent and it would seem that the time has come to bring to the fore, and settle, the question of ‘what is a social enterprise?’.

As mentioned, the Government’s consultation will begin shortly and we would expect, that the key point of discussion will be over which social enterprises should benefit from the relief.

What is social enterprise?
How will the Government therefore define social enterprise for the purpose of the tax relief?

The Government could of course attempt to redefine social enterprise itself and perhaps task HM Revenue & Customs with responsibility for applying the definition and acting as ‘gatekeeper’ to the relief.

An alternative would be for the Government to build upon the work already begun by an organisation such as Social Enterprise Mark, by stating that only an organisation recognised as a social enterprise by the Mark could qualify. An independent certification would help to provide certainty as to what is and what is not a social enterprise. Certainly this approach works well in a fundraising context, with many charities voluntarily signing up to the Fundraising Standards Board’s standards, which have become the generally accepted standard in the UK.

Whether the Government opts for one of these two options or another, there will clearly need to be a means of identifying, and a system for regulating, organisations who are to benefit from the relief. It is likely that in order to qualify organisations will have to adopt recognised community benefit or charitable structures, such as community interest companies or companies limited by guarantee, and have some commitment to preventing profits from being paid to external shareholders.

The growth of social enterprise, and the shifting emphasis of business motivation from profit to social benefit has, undoubtedly, been a good thing. Social enterprises continue to grow and gain notoriety and we would not wish to burden them with unnecessary regulation. However, with the introduction of a tax relief directing the application of public funds, it becomes increasingly important to ensure social enterprises can be identified and are adequately regulated. It would therefore seem that the time has come for the Government to settle once and for all the question ‘what is social enterprise?’.


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