Social Enterprises in Scotland
What is a Social Enterprise?
The Scottish economy has a thriving third sector with social enterprises at its core. A social enterprise is an organisation with a social or environmental goal whose profits are re-invested back into achieving their goals. Social enterprises support and empower communities whilst also addressing a broad range of challenges including housing, health care and fuel poverty.
The social enterprise field also overlaps with the charities, 72% of all social enterprises are charities but only 18% of charities are social enterprises. Despite the positive title, only 55% of all social enterprises use the term “social enterprise” to describe their organisation; 41% use “voluntary organisation” and 19% use “community enterprise”.
Sector Performance to 2019
In 2019, Scotland was home to 356,515 private sector businesses and 6,025 social enterprises; clearly there was significantly more private businesses than social enterprises but what is interesting is the rate the social enterprise sector had been growing; there are several key performance indicators that demonstrate the sector’s strong performance.
The number of social enterprises in Scotland grew constantly at a compound annual rate of 3.8% from 5,199 social enterprises in 2015 to 6,025 social enterprises in 2019. Over the same period the compound annual growth rate (CAGR) for the number of private sector businesses was 0.05%. This indicates that the social enterprise sector is preforming well compared to the private sector in Scotland, although it is important to note that even with a growth rate 76 times higher than the private sector, the number of social enterprises is still far off the number of private sector businesses.
These figures must also be taken with some caution, the growth in the number of private sector businesses was particularly sluggish over this period which may prove to be an unfair comparison. From 2000 to 2020, the number of private sector businesses increased by 53.1%, with a CAGR of 2.2% which is significantly higher than during 2015-19, although still lower than the CAGR of number of social enterprises from 2015-19.
The total income of all social enterprises in Scotland grew from £3.6bn in 2015 to £4.4bn in 2019, which is a CAGR of 5.1%. This percentage is higher than the growth in number of social enterprises which shows that in general individual social enterprises are also growing their income at a strong rate. More specifically, between 2017 to 2019, 57% of social enterprises reported increased income with 43% reporting a decrease.
Total income from trade has increase from £2.3bn in 2015 to £3.1bn in 2019, trade income is all income generated from selling a good or service and excludes other sources of income such as grant funding. This gives a better indication (than total income) of how the social enterprise sector is preforming. These figures indicate that social enterprises are becoming more self-sufficient and less reliant on external grant funding or other fundraising sources.
Further evidence for this is shown by grant dependency which has fallen from 32% to 20% between 2015-19, an average of 3% reduction per year (note that this doesn’t include registered social landlords or credit unions). In this case grant dependency has been calculated as a proportion of grant funding to total income and so is calculated on a general level rather than a case-by-case level. However, there could be other reasons for this - some economic fields have a higher portion of trading income and lower grant funding than other fields (such as education, childcare, and health & social care), if these fields have income growing faster than other fields then it might give the impression that social enterprises are becoming more self-reliant and less reliant on grants when it may not actually be the case.
Self-reliance is very important for the growth of the sector as over-reliance on government funding could become a problem if such funding dries up (as it did following the 2008 financial crisis), if policy change makes previously eligible organisations ineligible or if there is increased demand for a finite pool of funding.
The impact of Covid-19
There is little doubt that social enterprises have suffered as a result of the Covid-19 pandemic and its effect needs to be considered. A survey by Social Enterprise UK found that 59% of social enterprises that responded to their survey said they expected demand to decrease, while only 36% expected demand to increase. Unsurprisingly hospitality was the area with the highest expected drop in demand, followed by consultancy and business support. Health care was the field with the lowest rate of expected drop in demand. Smaller social enterprises without adequate support may have been particularly at risk from a sudden drop in cash flow.
Social enterprises whose primary source of revenue is the public consumer were most concerned about the stability of their revenue streams, whereas social enterprises more reliant on government grants or trading with the public sector had less to worry about. This is unfortunate as the sector had been increasing self-reliant and less dependent on government grants.
In response to the pandemic, the Scottish Government introduced a £350 million emergency communities fund including funding for social enterprises. This was welcomed but a continued focus on self-reliance is needed if social enterprises are to become truly sustainable.
Prior to the pandemic, the social enterprise sector had seen strong growth – the sector demonstrated its ingenuity and competent and showed its potential to achieve positive social change. Although the sector has hit a rough patch during the pandemic, this has been the case for large swaths of the British economy and recovery, rocky as it may be, it is looking better than initially expected. Whilst government support has been important throughout the pandemic, and continued support will help the sector to bloom, striving towards self-reliance in the long run may allow the sector to realise its full potential.