Social Enterprise Project – Greater Manchester (GM)

Context

Greater Manchester’s has committed itself to achieving the ambition of pioneering a new model for sustainable economic growth based around a more connected, talented and greener city region by 2020. This will be achieved through the twin track approach of growing the economy and reforming our public services to enable all the citizens of the city to participate fully, contributing to and benefiting from Manchester’s progress and prosperity.

The success of the strategy is reliant on the fortunes of local businesses working in competitive global markets to deliver growth. These firms will in turn be supported by public services, providing the services to enable people and businesses to prosper.

The issue that has been apparent in recent years is that, even as the economy starts to show real growth, there are limits on the ability of growth to deliver prosperity to all parts of our conurbation and the limited role that public services can play too. The period from the early 1990s to 2008 was the longest period of economic growth within GM since records began. It coincided with the biggest ever peace time increase in public spending and a wholesale renewal of the nation’s social infrastructure of schools, hospitals and the like. Yet, as the Manchester Independent Economic Review found, the evidence is not strong that the inclusive growth we wish to see was delivered at scale in all parts of the conurbation.

So, whilst we must continue to develop our business base and ensure that every pound of public funding is spent to best effect, we must also consider the role that all sections of society play in contributing to and supporting inclusive growth. What is society besides the market and the state? It is community. And in the context of our growth and reform agenda, one key role for community is in social enterprise.

It was with this in mind that New Economy commissioned this social enterprise project: to take stock of the community enterprise sector in Greater Manchester as the first part of a wider project to enable GM to take the steps needed to grow the sector more effectively, to allow it to deliver successful social businesses at scale and operate both in the market and to deliver more effectively on parts of our twin objective of reformed public services.

While social enterprises are one of the keys to social innovation, and a critical part of the social economy in leveraging private enterprise and capital for the benefit of our communities in Greater Manchester, this report shows that they are a small and possibly an under-utilized part of the GM economy. It certainly doesn’t appear to be the case that GM – the city that spawned the cooperative movement – has the social economy at the leading edge of its modern renewal. This is likely due in part to the unique characteristics of these businesses that see them work in the blurred boundaries between enterprise and the charitable sector. Therefore, social enterprises face all the challenges a traditional business does, with the added challenge of satisfying their social mission and transforming their communities.

The Social Economy Sector

Offering wider access to a good or service, being more responsive to market need and more nimble in delivery to meet needs, equipped with the ability to innovate and provide holistic solutions whilst focusing on developing capacity and resilience in our communities, creating economic and social capital over and above what is created by the private sector. These features mean that GM cannot afford to not harness the power of social enterprises in the delivery of the Greater Manchester Strategy (GMS) and endeavours to deliver prosperity and improvement of the quality of life for everyone. Social enterprises combine social purpose, trading, entrepreneurship and voluntary effort to deliver a very different blend of social and economic impact in comparison to traditional businesses.

The interest in social enterprise and measures to promote social entrepreneurship, social innovation and the interest on building a social economy across the world, including at European and national level, have resulted in a suite of policy tools which, underpinned with investment, bring the promise of collaboration between different stakeholders in the pursuit of solving social problems.

The introduction of new procurement legislation that sees social value as a source of competitive advantage both at the European Union and national government level signals that governments are ready to legislate in order to transform social and economic relations after the disasters of the global financial crisis. The report shows that the GMS can do more to enable the creation of a social economy, reframing the relationship between GM, local authorities and social enterprises if the latter is to play full part in the mix of how services are provided in our communities.

The Social Economy Sector in Greater Manchester

The sample of social enterprises gathered and analysed during the first quarter of 2014 has revealed that median income (where available) for the North West of England (NW) dataset is just over £230,000, median net profit is around £700 with median net asset value of £43,000. For the GM sample, median income for social enterprises is just over £175,000, median net profit is less than £250 and median net asset value falls just short of £8,500.

In other words based on this sample, GM social enterprises appear to have median income around 60% of the rest of the North West. Clearly this is an important finding. But we wanted to look at how effectively the sector is growing, establishing new social businesses and ultimately at how effective policy has been at supporting this. To do so, analysis was done of smaller social enterprises.

Once larger social enterprises (Registered Housing Providers, Charities and Public Sector Spin-outs) are stripped out, the gap appears to be even wider with median income just over £16,000 and negligent assets suggesting the majority of social enterprises in the NW and GM are very much smaller than the headline figures which are often assumed. Regarding the age profile of social enterprises in GM, 54% of our sample is aged 5 years or younger vs NW (excluding GM at 48%). Half of the overall NW dataset have been in existence for 5 years or less compared to 38% in the Social Enterprises UK The People’s Business State of Social Enterprise Survey 2013 and there are considerably fewer social enterprises that are aged 20 years or more.

The above findings present us with significant implications for the ability of social enterprises in GM to support the delivery of the Greater Manchester Strategy. The sector looks smaller and weaker than might have been expected. If so, it would not be surprising if social enterprises were to fall through the cracks of existing policy given their limited resources. In many cases they do not have enough spare capacity to navigate a complex system of business support and a market designed to favour scale over bespoke tailored solutions that can have a sustainable impact in our communities.

Policy Implications

Social enterprises generally face difficulties accessing public sector contracts – procured by Local Authorities or nationally – due to their size, capacity and limited resource. Barriers to investment include both the ability to make a profit sufficient to repay a loan with procurement driving down costs and lack of certainty about services tendered in the future which prevents even the larger of social enterprises to produce a forward cash flow which demonstrates financial stability.

Excluding larger social enterprises which have particular characteristics (charities, RPs and PSOs) from the NW dataset, with median income from the sample decreasing to £36,600 and £16,578 for GM we look to have found a GM-specific reason why social enterprises are unable to take on social finance to cash flow delivery of services or invest in infrastructure to deliver services. The vast majority of funds available through the social investment market according to 2013 research[1] were in the form of secured lending. GM social enterprises do not have collateral to provide for loans and have hardly any reserves to fall back on in the event of a sudden drop in business. Moreover, the number of new fund launches aimed at increasing the supply of unsecured debt offer minimum loan sizes of between £50,000 and £250,000 with repayment periods up to 5 years. Modelling shows that in order to afford a £50,000 loan, social enterprises will need turnover of £400,000+ to have a realistic chance of meeting repayment terms. A significant majority of social enterprises in GM are locked outside the social finance market and unable to service loans the size that are currently being offered by the social finance market, according to our estimates, 75-90% of the social enterprise ecosystem in GM is, in effect, frozen out of the investment market.

From our work to identify the existing business support offer which social enterprises can access in GM we found that support is fragmented, of mixed quality and generic. Our SWOT analysis revealed GM social enterprises often lack the capability to spend time developing business strategies and products when seeking new clients and services which makes the availability of timely and high quality business support a critical success factor in the development and ability of social enterprise to grow and develop scale. But the provision of timely business support in its own right will not see the sustained expansion of social enterprises in GM. If GM social enterprises are to be used as part of the approach to achieving inclusive growthin GM and as a partner in the delivery of social change, bringing innovative solutions to GM’smost pressing social challenges, it will require deliberate political support underpinned by policy objectives to create the conditions for growth for social enterprise.

As policy actions are increasingly characterised by a greater emphasis on evidence-based interventions, in a rigid siloed system that focuses on interventions and coordination, there is need to fundamentally rethink how our endeavour to meet social need needs to change and evolve in adopting and responding to new challenges.

Next steps

The research report described above is the first output of the New Economy Social Enterprise project. It is not the conclusion of the project but an important milestone. There is a great deal of work ahead to ensure that we take further stock of the sector, the opportunities in the market, how other cities have looked to grow the sector and at the policy levers open to us.

A number of streams of activity are now underway to consider and from our European Partners we would like to see exchange of best practices, light touch research, cities surveys, etc. around social policy innovation through social enterprises:

We are particularly interested in the following areas:

  • Best practice/research on what works linking in social enterprises to sustainable supply chains – best practice examples and/or research on how to move beyond corporate social responsibility, building and encouraging business to business relationships between the private and social enterprise sectors rather than relying on CSR or grants - developing future markets for social enterprises;
  • Scaling up, franchising and replicating social enterprise – what works, what models are replicable, where are successful models of replication between member states and how can we stimulate replication across Europe – best practice examples;
  • Supporting social enterprise – what models work, models of best practice in developing social enterprise business support solutions – examples of (replicable) good practice ecosystems of support across Europe;
  • Good practice of supporting cross-collaboration of social enterprise and private sector – supply chain integration and also good examples/info exchange on building a civil (social) economy across EU member states.

[1] Growing the Social investment Market: The Landscape and economic Impact ICF GHK July 2013