Sam Burne James: It might be time to rationalise the regulation of social enterprise

With regulation so piecemeal, the third sector could benefit from a more focused regulatory regime for this complex beast

Sam Burne James
Sam Burne James

The UK’s third sector is a complex beast. Alongside registered charities – and their excepted and exempted counterparts – community interest companies are becoming a prominent sub-sector, while social enterprise in its broad form is also on the rise and the rules around cooperative and community benefit societies (also known as bencoms) have recently evolved.

When I was researching the growth of CICs for a feature on page 32 of the new June edition of Third Sector, out next week, one question kept cropping up: is it time to rationalise the regulation of social enterprise?

This regulation is currently piecemeal and unfocused – the many charities that consider themselves social enterprises are of course regulated as charities, CICs have their own regulator, a much lighter-touch one at that, and mutual societies, including coops and bencoms – which can be exempt charities – register with the Financial Conduct Authority, alongside credit unions and building societies.

Meanwhile, organisations such as Social Enterprise UK and B Corps provide what could be seen as voluntary self-regulation, although many social enterprises are housing associations regulated by the Homes and Communities Agency (and, in some cases, also by the Charity Commission), and the higher education sector is grappling with the role of "alternative providers", a sector whose main players – the universities – are charities, with the exception of those in Wales, Scotland and Northern Ireland, and Oxbridge and Durham colleges. Social enterprises in health, social care and medical fields are also overseen by sector regulators regardless of their legal form. I could go on.

For once, I’m quite happy with the idea that my readers should be thoroughly confused at this point.

It doesn’t need to involve red tape, registration and enforcement, but at the very least some modernisation, a bit of legal thought or the creation of a statutory concept of what social enterprise means – something proposed last year by Labour – could, if done well, be a real boon to social enterprise, and to society itself.

It won’t be easy, and I’m not sure that it’s likely to be feature anywhere high on a list of the new government’s priorities. But Nick Temple, deputy chief executive of Social Enterprise UK, told me it needs to be considered, at least, and the issue also came up at a session I attended last week at which charity lawyers discussed the Law Commission’s charity law project. The Law Commission, alas, says this is outside the scope of its project on charity law. The question also came up when I spoke to Luke Fletcher, a partner at the law firm Bates Wells Braithwaite, for the CICs feature. He suggested that the government should consider whether exporting social enterprise could be just as important a part of the UK’s overseas development programme as regular aid work, and said that this would be well served by better regulation.

There is no consensus over the true nature of social enterprise, no golden rule to balancing profit and purpose. If social enterprise is ever to look charity in the eye as an equal partner in the third sector, there needs to be serious discussion about what regulatory framework there should be for social enterprise. Even if they spawn no legal changes, the conversations could prove fruitful in themselves.

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