A review of the Scottish Executive's Policies to promote the Social Economy

4. REQUIRED ACTIONS

4.1 There is no magic wand which can be waved to remove the obstacles described in the previous section of this report. These are difficult issues which will require considerable efforts by a range of different organisations to resolve. But no journey starts without a first step and the following paragraphs, summarised at the beginning of the report in a series of action points, make proposals for tackling the various problems. The proposed actions are set out in relatively general terms, and the next step following publication of this report is for all those involved to develop more detailed action plans based on the broad areas of activity set out below.

Funding

4.2 Across all sectors of the economy, finance is one of the key drivers of the behaviour of organisations. The right financial instruments can encourage, motivate and even compel organisations to plan effectively, to operate efficiently, to experiment and to innovate. And the converse is also true. One of the main conclusions of this review is that much of the financial infrastructure that underpins the social economy fails to encourage, or indeed discourages organisations from developing their potential. Those organisations (and there is an encouragingly high number) which have succeeded in improving their performance as businesses have done so to an extent despite, rather than as a result of, the financial support they have been able to access.

4.3 What is needed to improve the position? The following would, it is suggested, take Scotland several steps along the right road:

examination of ways in which public sector funding of social economy organisations, whether through grant, payments in respect of service contracts or whatever, could be delivered in such a way as to offer greater long-term financial stability. Stability for the longer-term can be enhanced if organisations can access a range of short and longer-term financial products. But stability is also required in the early stages if an organisation is to be able to access those products in the first place;
following on from the point above, increased availability of loan finance and patient capital (equity-type funding) to allow organisations to reduce their dependence on grant and increase their financial independence, and availability, linked to this provision of advice and support to help social economy organisations maximise the advantages to them of the availability of new funding instruments;
improved administration of grants so as to
- simplify applications and allow alignment of timescales; and
- minimise delay in the payment of approved grants;
develop mechanisms to encourage the accumulation of assets by social economy organisations, including the transfer of public assets, and further examination of the obstacles to unlocking the assets already held by the sector; and
investigate the scope for grant-funded organisations to accumulate reserves.

4.4 The establishment of Social Investment Scotland (SIS) is a first step in developing loan finance that is appropriate for the needs of social economy organisations. The inclusion within SIS's initial funding of resources specifically earmarked for market development activity and capacity building is essential. As important as the availability of loan finance is the growth within social economy organisations themselves of a capacity to manage their finances in a business-like way and to make decisions about the optimum finance package that would suit their requirements. Having an intelligent customer for financial services is as important as having the right products on the market.

4.5 It will be important, however, to ensure that the establishment of SIS is not the end of the story. The organisation is currently working to establish a deal flow in respect of its initial resource base. That is a part of its work; providing benefit to organisations in receipt of these loans and demonstrating to social economy organisations and financial institutions the potential that exists for both in developing this market. But of equal importance will be the development work with which SIS is charged, of growing the sources of loan finance available for social economy organisations in Scotland, by promoting the growth of the CDFI sector so as to provide Scotland-wide coverage. SIS will be assisted in this work by the introduction of the proposed community investment tax credit (CITC) - designed specifically to encourage, through accredited intermediaries, greater investment in deprived communities. The precise nature of SIS's role once the tax credit is in place will be a matter for its Board of Directors taking account of the views of key stakeholders.

4.6 The possibilities for the provision of patient capital are discussed in a recent report on this subject prepared by Community Enterprise in Strathclyde ( www.ceis.org.uk ). This includes a range of suggested action points and no further reference is required here.

4.7 The technical aspects of the administration of grants have been examined recently in a review of grant funding undertaken by the Executive. ⁸ The report of this review makes a number of recommendations about the administration of grant schemes that will be of direct relevance to social economy organisations funded by Scottish Executive grants.

4.8 This review of direct grants is to be followed by a further, strategic review of voluntary sector funding to report in 2003. This will provide an opportunity to examine, inter alia, ways in which public sector funders can increase the stability of funding of organisations. It is intended that the strategic review of funding will involve representatives from local government as well as from the voluntary sector/social economy and the Executive, so any findings will be of relevance to both Executive and local government funding sources. But the difficulty of resolving these issues should not be under-estimated. While alert to the wish of social economy organisations for longer-term funding packages and service agreements, public sector funders nevertheless wish themselves to retain a flexibility to redirect resources if new priorities emerge and such flexibility can be curtailed by long-term commitments. Issues of the scarcity of resources and of public sector accountability will have to be confronted and addressed.

4.9 As regards asset transfer, the lack of assets available to act as collateral is clearly regarded by many parts of the sector as being a significant inhibition on their capacity to modernise their financial structures by gaining access to alternative sources of funding, such as loans. While some public sector bodies have expressed a willingness in principle to transfer surplus assets to social economy organisations, the slow pace at which this is happening is indicative of practical problems or counterbalancing disincentives in doing so. Existing rules relating to the use of assets funded by or transferred from central government and certain other public sector bodies are also an issue. The current review has not examined asset transfer in detail. But the forthcoming strategic review of funding of the voluntary sector provides an opportunity to look further at the problems, some of which are being addressed at UK level through the DTI's social enterprise strategy.

4.10 On the issue of full-cost recovery, the Scottish Executive concurs with the conclusions of the Treasury's cross-cutting review of the role of the voluntary and community sector in service delivery. It is therefore content for service providers to include the relevant portion of overhead costs within their bids for commercial service delivery contracts.

Market Access

4.11 As discussed in the previous section of this report, issues around the restrictions to market access for social economy organisations are particularly difficult because they are significantly concerned with attitudes. Specific market interventions to tilt the market in favour of social economy organisations or even to compel public sector providers to open up markets might in theory be possible. They might, though, raise state aid issues and they are potentially at odds with the Executive's overall approach to service delivery which is to encourage what works best. There is no evidence that social economy service provision is, by its nature, intrinsically better than that provided by organisations in other sectors though, of course, as in any markets, different providers are able to offer different products, allowing customers to select that which they think suits their requirements best. The case being mounted by this review is for social economy organisations to be allowed to prove their worth in fair competition with other organisations, not for them to be given an institutional advantage.

4.12 But a potentially significant barrier to access, at least in some markets, is the capacity of some social economy organisations currently to participate in particular markets. The social economy strategy set out in this paper is predicated upon an assumption that social economy organisations can, potentially, add a further dimension to public service provision across various markets. This has already been proven in areas such as community care and homelessness. What is therefore required is an identification of markets in which the Executive or other commissioners of public services consider that a stronger social economy presence would add value, an analysis of those markets and a diagnosis of the potential for greater social economy engagement and then a series of actions (which might include business support, training, mentoring, etc.) directed at particular organisations aimed at achieving that potential.

4.13 Provided the capacity issue is addressed, perhaps one of the strongest cards which social economy organisations can play is to present themselves to organisations responsible for ensuring the delivery of public services as credible - indeed better - alternatives to whatever existing service delivery arrangements are in place. In other words they need to market themselves as a service delivery alternative that cannot be ignored. Social economy organisations themselves, and their support organisations need to address the credibility gap that appears to exist in terms of the perceived capacity of the social economy generally to act as an effective deliverer of services. There are, of course, many examples of good practice both in terms of the performance of individual organisations and the performance of the sector generally in particular policy fields (community care being a prime example). This needs to be 'sold' to potential commissioners of services. The possibility needs to be considered as to whether a central resource to market the sector generally and to support social economy organisations' own marketing efforts is required.

4.14 But, of course, however effectively social economy organisations market their wares, there needs to be a willingness on the part of the organisations responsible for commissioning services to open up their markets. There is only limited gain to be had from social economy organisations sharpening up their performance and offering new and better service delivery options if they are then denied the opportunity to tender for the provision of services or required to tender on unequal terms.

4.15 Opening up new markets to social economy organisations is not going to be easy or achieved instantly. However, the Best Value initiative, already being applied across local government (and shortly to become a statutory duty), and increasingly being employed across the wider public sector in Scotland, offers real incentives and opportunities for the opening up of markets. The requirement to examine both the cost and quality being offered by alternative suppliers of services potentially offers significant scope to effective social economy organisations to demonstrate their capabilities both in terms of their ability to provide services cost-effectively and their capacity to add value through their direct engagement with the communities they serve, and their access to volunteer input and to charitable funding.

4.16 But it may remain necessary, as Best Value develops, to monitor closely the conditions which can be imposed on potential suppliers. There have in the past been examples of public funders discriminating against potential social economy providers and if the social economy is to be given a fair chance to demonstrate its worth, the monitoring structures for Best Value will need to be geared to identifying and eliminating discriminatory practices. The various public sector auditing bodies will have an important role to play and as their engagement with Best Value processes across the public sector develops it will be important to ensure that this fully embraces the need to allow social economy organisations on an equal basis with other potential providers to be given the opportunity to provide services. It is recommended that the Executive should convene a group comprising public sector auditors, officials from the Executive's Local Government and Social Justice Groups, CoSLA and voluntary sector representatives to produce guidance on this issue.

4.17 There is also an important role for social economy organisations to play in community planning. The Community Regeneration Statement sets out the Scottish Executive's policy on the regeneration of deprived communities in Scotland. The Statement identifies two key levers for change: improving core services in deprived areas and building the social capital of individuals and communities in these areas. It identifies community planning as the strategic framework within which the social justice and regeneration needs of communities can be effectively addressed and stresses the need to focus more on outcomes and the interventions most likely to achieve these.

4.18 The Statement identifies a particular role for the voluntary sector and other social economy organisations in regeneration, especially the delivery of local services and programmes for particularly vulnerable and marginalised people. This accords with the findings of the recent HM Treasury review The Role of the Voluntary and Community Sector in Service Delivery which found that these organisations "may be able to deliver services more effectively to certain groups because their particular structures enable them to operate in environments in which the State and its agents have found difficult or impossible".

4.19 Evidence is beginning to emerge in Scotland, for example through the Better Neighbourhood Services Fund (BNSF) that funding provided to local authorities and Community Planning Partnerships which is based on delivering better outcomes for those receiving services, particularly the vulnerable, is resulting in resources being channelled through voluntary organisations as the most effective way of producing the desired change. We expect to see more of this as the outcome-based approach, under which services are provided by a range of providers, becomes more widespread in regeneration activity.

4.20 This section of the report has discussed how market access for social economy organisations might be improved. While it discusses the issue in general terms, there is, of course, a whole range of different markets in which there are public service delivery opportunities. A general theme running through the report is that the objective for the Executive's policy on the social economy should be organic and sustainable growth of the sector rather than an attempt at a great leap forward. In this context, it would make sense for increased market access to be sought initially in those areas in which social economy organisations are particularly suited to make an impact such as childcare provision or the intermediate employment market, or where there are perceived gaps in the market and where there is scope for innovative new approaches (such as in services for children leaving care).

Support Networks

4.21 It is not the purpose of this review to attempt to dictate in detail which organisation should do what, not least because support is inevitably an organic process, reflecting the changing needs of the sector and it is, to an extent, appropriate that it should be market-driven. The boundaries of responsibility cannot therefore be rigidly defined. It is, however, important that there should be a mixed market of provision, that the large public sector providers should not seek to monopolise that market and that they should themselves play to their strengths. The critical requirements for an effective support market are:

that social economy organisations should be able to easily identify, access and use support bodies that will meet their requirements;
that they should have choice as to which bodies they choose to engage with;
that the people working in the support bodies should have the specific skills and knowledge required for working with the social economy sector;
that support bodies should regularly review the services they provide to ensure that they meet the needs of the organisations for which they are being provided; and
that the overall result of support is to promote a culture of excellence in the management of social economy organisations.

4.22 In terms of the main public sector providers of business support services, work has been carried forward by the Enterprise Networks, Communities Scotland and the Scottish Council for Voluntary Organisations to map out the existing support infrastructure with a view to determining where and how best Scottish Enterprise, Highlands and Islands Enterprise and Communities Scotland can add value. Building on that work, this review proposes:

that the Voluntary Issues Unit within the Executive should retain its overall responsibility for communicating and ensuring delivery of Ministers' overall policy agenda for the social economy;
that given the essentially commercial emphasis of its core business development function, and in line with its new Social Justice Strategy, Scottish Enterprise should establish its position in the social economy market as a provider of services aimed primarily at organisations either already close to commercial viability or with clear ambitions in that direction;
that because Highlands and Islands Enterprise has developed already a distinctive, effective and recognised role in relation to social economy organisations in its operating area, that role should continue;
that, reflecting its delivery role, Communities Scotland should seek practically to encourage and support the growth of an effective, well-organised and efficient market of support services for social economy organisations; that it should undertake work to ensure that all social economy organisations are able readily to access services that meet their business needs; and that specifically, it should support Registered Social Landlords in building an expanded role in regeneration.
that this work should look to capitalise on the potential of other local groups including the Councils for Voluntary Service and Community Planning Partnerships to work together to identify specific needs and priorities and provide support for social economy organisations at a local level; and
that there should continue to be a strong and continuing role, within the overall market of support services, for support organisations from within the social economy sector and also the private sector. There should, in other words, be no ambition among the major public sector players to marginalise these other organisations or to squeeze them out of the market.

4.23 The SCVO portal offers a new opportunity to provide a point of access for social economy organisations to the full range of support services potentially available to them. It is recommended that the portal is developed in such a way as to address the criteria of easy access, and easy and accurate identification of the services available.

4.24 An underpinning requirement for all support organisations is the need to develop a robust intelligence base which enables them to identify and prioritise the needs of social economy organisations, measure their impact in key service areas and develop new and innovative solutions to the various issues identified in this report. There is a clear need for scoping work to be undertaken to identify the current range of, and gaps in, research into the social economy and to develop detailed proposals for future work. The Executive's Voluntary Issues Unit has already begun to address this issue together with other stakeholders.

Conclusion

4.25 The Scottish Executive is committed to supporting the growth of the social economy. Ministers are of the view that the sector has the potential to offer new choices and opportunities and improved outcomes in the delivery of public services. This review has identified a number of areas where action can be taken forward to make real progress towards an investment culture and to improve the opportunities, capacity and performance of the sector. It provides a framework for that action. It now falls to all interested bodies including the Executive, local government, Communities Scotland, the Enterprise Networks and, of course, social economy organisations themselves, to take this agenda forward and achieve the outcomes to which this review has pointed.

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