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A review of the Scottish Executive's Policies to promote the Social Economy
2. KEY ISSUES
2.1 Given that the focus of this review is particularly on social economy organisations' capacity to deliver public services and to assist community regeneration, the following key issues arise:
- why and how the Executive and the wider public sector should be seeking to engage social economy organisations more in public service delivery and in support of its policies for the regeneration of communities;
- the obstacles to achieving that; and
- actions for overcoming those obstacles and for achieving greater involvement.
Taking each in turn:
Why and how should the Executive and the wider public sector be seeking to engage social economy organisations more?
2.2 The first reason is simply the size and spread of the social economy in Scotland and thus its importance to the country's overall economic performance. Though numbers depend on the definition of the social economy, the best estimate is that a definition which covers all organisations which engage in some form of economic activity will include a significant proportion of the 44,000 voluntary organisations in Scotland, (the higher the level of economic activity set in the definition, the smaller the number of organisations that would be included in it). These organisations employ 100,000 paid workers and mobilise 600,000 plus regular volunteers. They generate an annual turnover of 2 billion representing 3% of Scotland's GDP. They include charities and non-charities, some with limited company status many without, social firms, community enterprises and other community-based organisations, self-help groups and other mutuals which satisfy the public-benefit principle, housing associations and campaigning groups. They are active in every area of policy interest - community care and children's services, housing, community regeneration, education and vocational training, research, health, transport, rural development, the environment, arts, cultural heritage and sports, overseas development, religious activities, civil rights and animal welfare. The sector is a dynamic one accounting for a significant proportion of new business starts and of employment opportunities.
2.3 The second reason for seeking an enhanced contribution and performance from this sector is the extent to which it is already a major and effective player in delivering public services. Within the last four decades the voluntary sector has evolved from a charitable 'add-on' to the welfare state to being a major provider of services in selected areas, a key player in Government social inclusion strategies, and an important vehicle of civil society as partner or interlocutor with the state. In Scotland today the social economy is a major contributor to a number of important publicly- funded services including community care, children's services, housing, vocational training, and arts and sports, as well as a contributor to health, education, environmental and conservation services. While it remains a junior to the public sector as a service provider except in some highly specialised areas - for example services for residential care for people with severe learning disabilities, counselling and hospices - its contribution is substantial. A rough measure of its significance is that its paid workforce of 80,000 (full-time equivalent) is almost one third of the workforce of all Scotland's local authorities. In rural Scotland, its contribution is proportionately larger. A recent survey of the social economy of the Highlands and Islands carried out for Highlands and Islands Enterprise estimates its paid workforce at 8,500 (full-time equivalent), 60% of the combined workforce of the four local authorities in the area.
2.4 This demonstrates that the model can and does work (and is therefore potentially expandable to new organisations and new policy areas); it suggests capacity to develop further the role of existing successful organisations; and it gives credibility to the analysis coming from established social economy organisations of the obstacles currently being faced in developing the social economy's service delivery role. The sector is well equipped to extend its contribution to at least four of the Scottish Executive's strategic priorities - social inclusion, strengthening communities, improving public services and making Scotland a competitive place. It is also active and capable of making a significant contribution to key target areas including employment, education, health (including the free personal care agenda), closing the opportunity gap and sustainable development.
2.5 A third reason for building the sector's role, is that having invested significantly in the sector's infrastructure in recent years, the Executive should be seeking opportunities to derive benefit from the improvements in the sector which have resulted. Over the last five years the Scottish Office and the Scottish Executive have significantly extended central Government support for the social economy as part of their policies for the voluntary sector. Those policies have included the agreement and implementation of The Scottish Compact with the sector as a framework for the sector's relations with Scottish government and its agencies; a commitment to reform Scots law on the regulation of charities backed by the establishment of the McFadden Commission to recommend a reform package; the doubling of funding for the voluntary sector's local support infrastructure (including Councils for Voluntary Service); major investments in the promotion of volunteering and in the voluntary sector's IT capacity including the development of a voluntary sector Portal; and support for the establishment of Social Investment Scotland as a source of loan funding. Direct central government funding for the sector grew from 22 million in 1997 to 39 million in 2001. A range of other Executive programmes delivered through public bodies or partnerships, notably those supporting its social justice objectives, have also provided additional funding for the sector in one or other of its roles. Funding to the sector from all Executive sources totalled 360 million in 2002-03 - an increase of 17 million over the previous year.
2.6 Taken together, Scottish Office and Executive policies over the last five years represent a major investment in the capacity of Scotland's social economy, with expenditure on the sector's infrastructure in the current year rising to about 10 million. The present challenge for the Executive is to ensure that it obtains the best possible return on its investment by ensuring that the actions it takes are such as to allow the sector to contribute to its full potential to Executive priorities.
2.7 The remit of the newly established Communities Scotland, the successor to Scottish Homes, includes promotion of the social economy alongside community regeneration and housing regulation. Beyond central government, most local authorities have developed and to varying extents formalised their relationship with the social economy. Their role, as major commissioners of services and as funders of the voluntary sector/social economy, is critical to the future development of this sector.
2.8 In the same period some categories of social economy service providers have derived particular benefit from Government spending priorities, notably Housing Associations and community care organisations whose share of the mixed economy of community care introduced in the 1990s has grown to around 200 million a year. Among central government's public bodies in the same period Highlands and Islands Enterprise has substantially extended its support for the social economy as part of its social remit and Scottish Enterprise has developed support for the sector as part of its social inclusion commitment.
2.9 Partly as a result of this investment, the social economy has, over the last decade, experienced rapid growth. Since 1995 its paid labour force has nearly doubled and income has grown by around 40%. However, recent survey evidence suggests that in the last three years the sector's income has not kept pace with the continued growth in its service activities, as indicated by annual growth in employment of nearly 10% a year in those organisations with incomes over 500,000. While income over these years has grown by 10%, expenditure has grown by 13% cutting the surplus available for the further development and forcing some organisations to dip into their reserves. Reports from social economy organisations including service organisations support the survey evidence of narrowing financial margins. This suggests that the time is ripe to re-examine the investment that has been made already with a view to ensuring that it continues to deliver the outcomes that were intended and that new opportunities are explored.
2.10 A final reason for seeking greater engagement of social economy organisations in the delivery of public services is the potential which exists to exploit the unique qualities which social economy organisations are able to bring to service delivery. Much of the work carried out by social economy organisations directly contributes, by virtue of the markets in which they operate, to the Executive's agenda for closing the opportunity gap. Furthermore, as has been discussed above, voluntary organisations (which comprise most of the social economy) have as their distinguishing features their independence from the state, their commitment to public benefit, their unpaid volunteer leadership, and the fact that they reinvest any surplus that they make - all factors which can bring added value to public service markets.
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