Report: Number of social enterprises greatly inflated

Report: Number of social enterprises greatly inflated
Sarah Townsend, Regeneration and Renewal


An annual government survey into small businesses could have greatly inflated the actual number of social enterprises, according to an analysis by a third sector think-tank.


An analysis of the Government’s annual Small Business Survey by the Third Sector Research Centre (TSRC) think-tank found that 89 per cent of the 62,000 small businesses that described themselves as social enterprises when responding to the survey were private sector companies. But the proportion of these private sector firms that are also social enterprises is unclear, the report claims, because the Government survey’s definition of social enterprise is "loose".


Social enterprises, according to the Government’s survey, "should never pay more than 50 per cent of profits to owners/shareholders". The report argues that this is too loose a definition, as many private sector businesses might meet it by reinvesting in their own firms to increase their value, rather than by spending it in pursuit of social or environmental objectives.


A "common", and more rigorous, definition of a social enterprise stipulates that at best 50 per cent of these profits must be reinvested in the business in order to be ploughed back into activities with a social or environmental goal, the report argues.


Fergus Lyon, associate director at TSRC and co-author of the report, said: "The challenges in measuring and defining social enterprise in many ways reflect the contradictions within social enterprise as a movement. What might be considered a social benefit by one person may not be by others, such as sports or social clubs.


"The lack of a legal definition of social enterprise makes it vital to clarify what is being measured and why."


The report said: "As the sector gains increasing attention from politicians seeking to encourage a greater range of organisations to deliver services through the Big Society agenda, there is a need to clarify what we mean by social enterprise."


Peter Holbrook, chief executive of umbrella body the Social Enterprise Coalition, said: "The predicted massive growth of the social enterprise sector in the coming years will demand a much stronger identity and infrastructure. This will be even more important if individual social enterprises are to play a bigger part in the UK economy – not just in the delivery of public services but across all areas of business.


"In order to monitor the growth and impact of the sector it is also vital that there is a collective effort from government and from those with social enterprise to commit to improved research and tracking. Only then will we really be able to measure our success."


Earlier this year, the Social Enterprise Coalition launched the Social Enterprise Mark (SEM), a Fairtrade-style quality mark awarded to organisations that meet certain criteria.


To gain it, an organisation must demonstrate that it is working primarily for social and/or environmental goals and if it reinvests at least 50 per cent of its profits in activities to support these goals.