Accelerating the Social Economy in the North East

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North of Tyne Combined Authority and Power to Change are working together to invest in and grow the region’s social economy, responding directly to the sector’s evidenced needs for finance and support. But what could this support look like?
12 Dec, 2022
Martin Wood

Martin Wood

Policy and Economy Adviser, North of Tyne Combined Authority

Communities across the North of Tyne are taking back control, tackling a range of social problems and taking steps to address the climate crisis by establishing socially trading organisations, which includes social enterprises, community businesses and co-ops. Across the North East there are 5,400 social enterprises employing around 29,000 local people.

The activities of all socially trading organisations in the region are varied, ranging from childcare to community arts, with a recent increase in local food and community energy initiatives. However, they all share some key features. They are generating most or all their income through trading activities, they exist to have a positive social impact, and, in the case of community businesses, they are rooted in and accountable to their local neighbourhood. Instead of exporting value, the surpluses are recycled back into the local economy. Power to Change’s research shows that 56p of every £1 spent by a community-owned organisation stays in the local economy, compared with just 40p for large private sector firms.

These socially trading organisations, which together make up the social economy, have the power to improve places through increased community wellbeing and economic development focused on delivering value for people in the region rather than exporting profits. At a time when communities are facing both economic and social challenges, a strong social economy provides community resilience, offering services that address local social and environmental needs while reinvesting in the local economy. They also support those furthest from the job market and tackle the growing problem of social isolation by bringing people together – improving people’s quality of life and boosting community wellbeing.

Understanding the needs of the sector

Early on in our journey to invest in the region’s social economy, we recognised that to maximise the impact of our investment we would need to work in partnership with organisations that are keyed into the sector. That’s why we are working with Power to Change, the community business champions, to understand what the social economy sector needs to grow.

Together, we conducted a call for evidence in spring 2022 to gain a better understanding of the state of the sector and to gather views on the opportunities and barriers for growth in the social economy. In particular we wanted to understand the sector’s appetite for innovative financial products including loans and equity to support start-up, innovation, and scale-up. In doing this, we sought out the views of socially trading organisations, infrastructure and business support agencies, social finance fund managers and grant making organisations.

This summer with Power to Change, we shared the initial findings with stakeholders at an event hosted by Newcastle University’s Insights North East. The discussion explored how we could co-design a new and innovative finance initiative for the social economy, together.

Funding alone isn’t enough

The responses to the call for evidence confirmed that the sector is growing across the North of Tyne and is optimistic in its outlook. We are committed to supporting and maintaining this progress.

The evidence shows that socially trading organisations, including community businesses, can make a major contribution to the wellbeing of our local communities. They present opportunities for boosting local productivity while meeting a range of social, health and environmental objectives. Values-driven operations and shared ownership models also, by their nature, address inequality and exclusion, and spread opportunities throughout our communities.

But we also know that in North of Tyne we have a vibrant group of small organisations who often struggle to realise their potential. There is an opportunity to support these small organisations to scale up, and to build a sector that is better-connected.

The call for evidence revealed that some socially trading organisations lack confidence and awareness of their social investment options and consider current social finance options prohibitively expensive. They are not mistaken in this regard. The relatively small scale of these funds and the more tailored due diligence required to get deals over the line are necessarily more expensive. We need to address this circular challenge.

The need for targeted business support

Responses revealed that the need for finance and the need for business support are very closely linked and should be considered in tandem. Socially trading organisations need support as well as finance to scale up. They want this support to be tailored to their needs and to include peer support, support for worker-owned cooperatives and guidance on legal forms for start-ups.

While some respondents believed that finance and support for the social economy should not be considered separately to the rest of the economy, socially trading organisations pointed out that there is a lack of specialist business support that should be delivered alongside a range of finance options. While there are a range of social investment products available in the market nationally, take-up has been slow and awareness in the region is low. We believe that with the right kind of localised and bespoke support, and the right financial products, we could support the sector’s growth and increase the uptake of the available options.

Investing in North of Tyne

We are now working with Power to Change to co-design interventions to ensure that our programme meets the needs of the sector. We are responding to the lack of appropriate, tailored support to start up and scale up that was identified in the call for evidence and working with strategic partners to develop an appropriate social finance fund.

Our Social Finance Fund has an initial commitment of £4million from the NTCA Cabinet. Through this vehicle we hope to provide the much-needed patient and flexible capital at manageable rates of interest alongside alternative sources of grant funding as required for socially trading organisations at different stages of development. This fund will build on existing work of North of Tyne Combined Authority to expand the social economy as part of its drive to create an inclusive and more equal society. We have, for example, supported the development of the EduCo Supply Teachers Cooperative and continue to give local people the opportunity to create and fund projects which celebrate and improve our local areas through our Crowdfund North of Tyne scheme.

Promoting socially trading organisations in the North of Tyne is also a key plank within NTCA’s Shared Prosperity Fund investment plans. We are looking to work with strategic partners to deliver a Social Economy Accelerator which will ensure that funds are also allocated to support early-stage capacity building and business support tailored to the needs of socially trading organisations. We will continue to support community projects through our portfolio of work, including the Social Finance Fund. We anticipate that programmes and projects like these will become a springboard for a locally led recovery.