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New government legislation contains definition of social enterprise

Finance | Vibeka Mair | 7 Jan 2013

New regulations recently laid before Parliament contain a legal definition of social enterprise.

The definition applies to the appointment of new Healthwatch bodies under the NHS Bodies and Local Authorities (Partnership Arrangements, Care Trusts, Public Health and Local Healthwatch) Regulations 2012.

The regulations, from the Department of Health, state that new Healthwatch organisations, which champion the rights of health service users, must be social enterprises.

It defines a social enterprise as a charity or community interest company; or an organisation which has provisions in its constitution which ensure that it distributes less than 50 per cent of its profit to shareholders, states that it is a body carrying out activities for the benefit of the community and has clauses that require it to pass on its assets to another social enterprise if it dissolves or winds up.

Lucy Findlay, managing director of the Social Enterprise Mark Company, has criticised the definition as too vague: “Broadly, the Government’s new legal definition of social enterprise fits with the criteria of the social enterprise mark and I feel some clarification is better than none. However, it has two significant weaknesses: no requirement for independence and vagueness on ‘social purpose’.

Any company or organisation could potentially set up a social enterprise under this definition and they could still remain in control of it (sometimes known as the golden share) albeit with limited profit distribution and a lock on residual assets (if the company closes).  This allows for ‘sham’ social enterprises – being used as a front for potential bidding for health contracts and will further blur the lines with regards to the privatisation of the NHS.  We have seen this in other externalisations such as leisure trusts where a local authority has overall control of the company.

"In addition, the definition does not provide much guidance to those looking for clarity and direction in setting up or converting to social enterprise models – which is a key strength of the work we are doing.  This vagueness is illustrated when trying to interpret how ‘a person might reasonably consider that it acts for the benefit of the community. 

Who will assess and verify this?” she asks.

However, Ceri Jones, head of policy and research at Social Enterprise UK, has said the new regulations should not be viewed as a definition of social enterprise as this would be likely to come from the Cabinet Office: “This is simply the Department for Health defining the structure of Healthwatch bodies,” she said.