‘We don’t know how we are expected to survive’: Social enterprises at risk as they fall through gaps in support

When Samantha McReynolds learned that the government had ordered all hospitality businesses to close on 20 March, her first reaction was relief. McReynolds is the founder of Enterprise East, a community interest company based in Cambridge that helps people with barriers to employment find work in hospitality. Since October 2019, Enterprise East has run The Tea Leaf – a community tearoom in Great Dunmow, Essex, offering training and work experience to refugees, care leavers, people with disabilities, and ex-offenders.

“As you would expect, we adhered to the government mandate [to close] and, to be honest, we were somewhat relieved by the decision, given that some of our team members do have ongoing, underlying health conditions,” McReynolds says. She was reassured by advice that businesses would be eligible for support from the government’s £12bn Small Business Grant Fund, which offers one-off £10,000 grants to firms operating from properties that are eligible for small-business rate relief.

When McReynolds applied, however, she discovered that although Enterprise East employs staff and pays rent, tax, service charges and other core costs, it was not eligible for the grant because it rents space from the mental health charity Mind, in a building exempt from business rates.

“We are now in a difficult and quite unexpected position,” McReynolds says. “We have used most of our reserves and really do not know how we are expected to survive.”

Half of the UK’s 100,000 “social” businesses could run out of money by June without intervention from the chancellor, according to business leaders from the sector. In a letter dated 27 April, the heads of eight national bodies supporting social enterprises, social entrepreneurs and cooperatives called for a suite of measures, including the extension of business grants to include social enterprises, changes to the delivery of loan finance, the opening up of emergency financing for public services, and business support.

Peter Holbrook, chief executive of Social Enterprise UK, says “red tape and penny pinching” are killing off thousands of social enterprises, risking another decade of unequal economic recovery. “Those places that are most at risk are, as always, our poorest communities and the most vulnerable in our society,” he says. “These are the places and the people that social enterprises are based in and trying to help.”

As many as half of the 2 million jobs across the UK’s 100,000 social enterprises and cooperatives are at risk, threatening the future of a sector that contributes £60bn a year to the economy, the leaders say in the letter.

Businesses in this sector report that they cannot get access to business grants because of restrictive eligibility criteria. At the same time, the Coronavirus Business Interruption Loan Scheme is not appropriate for many of these businesses because they work in markets where they cannot afford to repay commercial interest rates.

The furlough scheme has proved problematic for some social enterprises whose staff want to continue helping people, with social entrepreneurs who have not been paying themselves in line with the market, in order to invest more in their businesses, standing to lose out. “If they’re running on a shoestring and paying themselves as and when they can, that will not work with the furlough system,” says Simon Boyle, founder of the Brigade Bar and Kitchen in Bermondsey, which trains and employs people with barriers to work. “I know people paying themselves dividends at the end if there is anything in the pot and paying themselves nothing. That is an issue. And if you have to prove what profit you make, well, social enterprises don’t make much profit because they are spending what profit they make on their social outcomes.”

Paula Gamester is the co-founder and director of the Sewing Rooms, a social enterprise in Skelmersdale, Lancashire, that helps women build confidence through sewing. In 2019, the Sewing Rooms took out a social investment loan after securing a commercial contract to make bedding and curtains for a hotel chain. The business moved to new premises and Gamester invested in employing new staff who specialise in furniture and design.

“Six weeks ago we had a thriving social business that was really starting to build traction,” Gamester says. “It was doing well and the profits were going into our community work, working with people who are lonely. Then this happened and within a couple of weeks we had no orders. It knocked me for six.”

Initially, Gamester was left with no choice but to furlough her staff to preserve the business. But like many social businesses, she wanted to help. She answered the government survey calling for manufacturers to help provide personal protection equipment. When she didn’t hear back, the Sewing Rooms started a Crowdfunder to do the work anyway. With help from a small amount of funding from the Community Foundation of Lancashire, the Sewing Rooms is producing face masks to sell to local businesses and to give to local vulnerable people who can’t afford to buy them. “Social businesses have struggled for the last 10 years of austerity and, despite that, most are doing a great job and continuing to be sustainable,” Gamester says. “But the government needs to help us with grants and by looking at the tax system to support us.”

One in five social enterprises are based in the UK’s poorest communities, making them more likely than other businesses to work with vulnerable people. People living in the more deprived areas of England and Wales are more likely to die from the coronavirus than those living in more affluent places, according to the Office for National Statistics. The data showed that there were 55 deaths for every 100,000 people in the poorest parts of the country, compared with 25 in the wealthiest areas.

“Social enterprises are part of the glue that holds our society together,” says Lucy Findlay, chief executive of Social Enterprise Mark CIC. “They will now be needed more than ever to help rebuild a more resilient economy moving forwards. To not invest in them now risks huge holes in getting back to normal and will leave the most vulnerable without the support that they so desperately need.”

As well as seeking support from industry bodies, McReynolds has appealed to her local MP to lobby for a change in the qualifying criteria for the business-rate grant scheme, or independent funding to support Enterprise East’s work in the community. Without imminent support, she says, the business will have to close. “We have worked tirelessly for two and a half years to build this community interest company, while creating jobs and supporting over 80 participants to find work placements,” she says. “Surely organisations like ours, who support those most vulnerable and furthest from employment in finding work, will be needed more than ever?”