Appendix 3
The UK Social Economy Sector

The role of the social economy sector has become more important over the last few years in the UK as government (at both national and municipality level) has pulled out of delivering services directly. There is an historical tradition to this, social services such as health care, education and housing were provided by voluntary organisations and the church before being taken over by the state (especially for the poor). For example, the oldest housing association in the UK is a 12^th century almshouse. The welfare state aimed to provide an equality of service for all – e.g. free education, free health, affordable housing - and thought that the best way to deliver this was through state owned enterprises e.g. the National Health Service, or municipality owned and run education, social work and housing. Since the mid 1970s in Scotland, there has been a growth of ‘third sector’ or ‘social economy’ organisations that have first shared the provision of social services with the state, and secondly have taken over the direct provision role with the state (through its agencies – like Communities Scotland and Scottish Enterprise - or municipalities) having a strategic and funding role, and a regulatory role. The role of government agencies is particularly important in the UK; they form a layer of administration between government and organisations.

Some ‘social economy’ organisations are totally dependent on public sector finance to operate – they may have a contract to deliver particular services. Others will operate in a mixed funding regime – they may have a contract to deliver services to certain people (normally people unable to afford to buy the services themselves), and will also market their services as any other private company. Others will get general subsidy support to help them provide services at an affordable cost (but the state may apply conditions as to its use). But the directors of the company will not get any financial reward – either in pay or in dividends. They are the ‘volunteers’ in what is still called in some areas the ‘voluntary sector’. And they carry the risk of failure as they are normally subject to the same regulatory rules as any commercial business, although the financial liability of individual directors may be limited.

For example, a not for profit housing association may get public sector grants from Communities Scotland (CS). These grants count against public sector borrowing by the Scottish Executive (of which Communities Scotland is an agency). But the housing association can also borrow funds from private institutions (e.g. banks, building societies). Responsibility for the association lies with its committee elected by its shareholders, not the government or CS – even though CS as a regulatory body has the power to remove committee members if found guilty after an inquiry. The association is therefore a private sector organisation – even although it is undertaking tasks which a few years ago would have been the responsibility of the public sector.

The kind of services that ‘not for profit’ or ‘social economy’ organisations deliver is very wide. These include:

• Affordable housing (e.g. New Gorbals Housing Association)

• Community development (e.g. Gorbals SIP)

• Economic development (e.g. Gorbals Initiative)

• Education and training (e.g. Glasgow Nautical College)

• Welfare rights and advocacy (e.g. charities such as Shelter)

• Cultural (e.g. Citizens’ Theatre, Scottish Opera (!))

Some of these have a ‘for profit’ trading arm that competes against private sector organisations. However, the profit is not distributed, but mandated back to the original organisation. This approach is necessary to ensure that the original body retains its charity status, which gives it certain tax benefits. UK charities have to have as part of their purpose something like ‘the relief of poverty’ and acting commercially is seen as contrary to that purpose. For example, Glasgow Nautical College runs a nursery charging commercial rates, and Gorbals Initiative has a small business park.

A large amount of the Scottish economy is made up of this sector (it has been estimated that it is larger than the manufacturing sector) It is particularly important in regeneration, where the aim is not simply to improve the physical character and to make the area attractive to inward private investors, but to ensure that the existing residents benefit from the process – improved opportunities, jobs, housing, transport and social services.