Charities should welcome the proliferation of non-charitable social enterprises because growth in the social enterprise market is the only way to combat the takeover of public services by corporates, according to charity lawyer Stephen Lloyd.

In his plenary speech to the NCVO Trustee Conference yesterday, Lloyd, a senior partner at Bates Wells Braithwaite, considered the question 'Social enterprise: friend of foe?' and began by acknowledging that many charities viewed social enterprise as a wolf in sheep's clothing, and hence a foe.

But Lloyd, the architect of community interest companies, sought to convince the audience of trustees that they should see social enterprises - even those that are non-charitable - as "comrades-in-arms", because even self-accredited social enterprises are more palatable than commercial service providers.

He accepted that there is a big difference between the government's rather loose definition of social enterprise and that used by Big Society Capital, but even so, around 45 per cent of all registered charities identify themselves as social enterprises, according to NCVO's latest Civil Society Almanac. This equates to 81,000 charities.

"So it looks like most social enterprises are charities, so how can it be a foe, unless you don't like yourselves?" he said.

Even NCVO is a social enterprise, he said. Ten years ago grant funding comprised 60 per cent of its income; now that is just 3 per cent.

So if the charity sector regards social enterprise as an enemy, it must mean the non-charitable section of the market, Lloyd said. And this fear is heightened by the recent prospect of tax breaks for investment into social enterprises, as charities worry that their brand will be tainted.

But the sector should step back and consider the bigger picture, Lloyd urged. The government's move to open up huge swathes of the public sector to market forces has, it is clear, been "as much of a false utopia as Stalin's communism".

It has reached the point where the government is in danger of creating an oligopoly of suppliers who are able to enter the market by offering low prices and then raise them as soon as they have seen off all their competitors and "have got the government over a barrel", he said.

Counterbalancing corporate power

The scaling up of charities and social enterprises is the only hope of counterbalancing the power of these corporates, Lloyd contended.

To put it into context, he asked the audience to consider that if Manchester United FC were a charity, it would be the 9th largest in England and Wales with turnover of £363m.  Yet it would also only be as big as a single branch of Tesco.

Charities, Lloyd said, are brilliant at mobilising public opinion for one-off causes and motivating people to volunteer, and that role should be commended and encouraged. But if corporate influence is to be challenged, scalable public-purpose organisations need to be created too to take on the running of public institutions - and that's where social enterprise is needed.

"I believe that non-charitable social enterprises are a valuable addition to society," he said. "Charities should see the rise of non-charitable social enterprises as fellow comrades-in-arms."

But those organisations must be subject to a proper legal definition with appropriate asset locks or companies that adopt those principles within their governing documents and can't easily change them.

They also ought to adhere to high standards of governance:

• They should appoint an independent director whose role is always to speak for the social purpose
• They should set and publish fair salary ratios, and
• They should carry out rigorous impact analysis of their activities, above and beyond what is required by regulation

"We need to combat marketisation and the stripping out of profits for private gain," Lloyd concluded. "Public services should be operated in the spirit of public benefit. There is inherently a conflict in private companies running public services.

"We need a vibrant social enterprises sector many of whom will be non-charitable because they may find access to capital easier because they can offer a financial return, albeit limited, to investors.

"We need as many charities and social enterprises as possible and should encourage them as much as we can."