A report to the UK government from its influential Strategy Unit has recommended a major overhaul of legal forms for charities and social enterprises. Entitled Private Action, Public Benefit. A Review of Charities and the Wider Not-for-Profit Sector, the report addresses the entire social economy, including co-operatives.

For social enterprise, the report proposes creating a Community Interest Company (CIC). CICs would have objectives that passed a community benefit test and could seek to limit liability either by guarantee or by shares, being allowed to issue preference shares as a form of fund raising. CICs would be prohibited from being converted to private ownership (as has happened with a number of UK mutuals).

The recommendation is designed to facilitate the emergence of social enterprises, particularly at a local or regional level.

The report also recommends a new company form for charities - the Charitable Incorporated Organisation (CIO).This form is designed to ease the current regulatory burden on charities, which must satisfy both the Charity Commissioner and also, when they incorporate (usually as a company limited by guarantee), the companies regulator.

The report argues that existing legal forms and their regulation are not well suited, either to charities, or to social enterprises and that new, appropriate forms are required. What the social economy requires is "a sound legal and regulatory framework which encourages entrepreneurialism and growth".

Co-operatives

The report also proposes refurbishing the existing Industrial and Provident Society form, including a change of name to Cooperative and Community Benefit Society. It would have two distinct groups - co-operatives that would act exclusively for the benefit of their members and meet the current ICA definition, and Community Benefit Societies, that could have several distinct classes of members (such as workers, clients/tenants and community members). These would resemble the southern European "social cooperative" and our own non-trading co-operatives. Both groups would be required to have a higher threshold of support for demutualisation and Community Benefit Societies could choose to protect their assets in perpetuity for a public purpose.

Charities

A major reason for the review was the need to modernise charity law. To this end the review proposes an expansion of the four heads of charity to ten. In a challenge to the exclusive public schools and hospitals, it proposes that each charity be required to demonstrate that its activities are accessible to all or most of the public. It moves towards Australian practice by allowing charities to generate income from unrelated activities, without having to set up a separate company.

In order to improve public trust and confidence in the social economy, the report makes a number of suggestions to improve public accountability, but with the level of accountability proportionate to the size of the organisation.

Part of a larger framework for building the social economy

This report should be read in conjunction with three other important reports generated by the Blair government over the past two years. The first, Enterprising Communities: Wealth Beyond Welfare was presented to the Chancellor of the Exchequer by the Social Investment Task Force in 2000. Many of its recommendations to direct more investment into the social economy have already been implemented. The second, the Department of Trade and Industry White Paper, Social Enterprise…a strategy for success, was released in June 2002 (see Accord Newsletter no 7). A fourth, dealing with relations between government and the social economy in delivering public services, The Role of the Voluntary and Community Sector in Service Delivery was released by the Treasury and the Regional Coordination Unit at the same time as this paper.

It is interesting to reflect on the reasons for this concentrated attention by the Blair government on improving the social economy. Clearly it fits very squarely into the third way agenda. The third way approach seeks a way between state socialism and unbridled market capitalism. At the organisational level, that means finding a third alternative to the dichotomy of government or business as the preferred form for the delivery of public services. The social economy is that third sector. In Australia, by contrast, the Hawke/Keating government, which pioneered many of the reforms subsequently embraced by British Labour was unable to think outside the simplistic government/market dichotomy and in their embrace of the market, did much to weaken Australia's social economy.