Whilst the government continue to promote the third sector as an innovative/efficient alternative to public sector service providers, the reality is somewhat different. The case below highlights the fundamental flaws in their plans. If the third sector cannot raise capital whilst awaiting payment then does this not just open the door for the likes of G4S to consume these bodies with their financial might and hence take on contracts by default.
Is the third sector reference merely a government smokescreen to hand public services to the private sector? We think yes.
The government’s controversial welfare to work initiative has suffered another blow after it emerged that a social enterprise firm hired to get the long-term jobless into employment has gone into liquidation, claiming banks refused to lend it money to stay afloat because they considered the work programme to be too financially risky.
Eco Actif, a community interest company based in Sutton, Surrey, closed suddenly on Friday morning. It provided employment support for around 500 people in the south-east of London, operating as a subcontractor in a regional supply chain headed by the welfare to work company A4e.
Its chief executive, Amanda Palmer-Roye, said Eco-Actif had performed well in getting people into work and had a £1m order book but had been unable to raise the capital to sustain itself under the government’s payment by results system, under which firms must wait 18 months between delivery and payment.
In a letter to staff, Palmer-Roye said Eco Actif had approached both conventional banks and social finance providers for backing but had been refused on the grounds that the work programme was too high-risk and that “prime contractors are not passing sufficient funds to the ultimate delivery organisations to make sufficient surplus to finance any loan”.
The letter added that its association with A4E had been a matter of great concern to potential investors. A4e has been in the headlines in recent months over allegations of fraud, and because of the furore over the £8.6m dividend payment made to its former chair, Emma Harrison.
Palmer-Roye has in the past been an enthusiastic champion of the coalition’s approach to welfare. She supported the Centre for Social Justice thinktank set up by the work and pensions minister, Iain Duncan Smith. Eco Actif was preparing to for a visit next week by Duncan Smith’s special advisor, Philippa Stroud. But Palmer-Roye told the Guardian she had become disillusioned by ministers’ refusals to listen to her complaints that the work programme was not working in the interests of charities and social enterprises, or the vulnerable people they worked with. “I realised I have been beating my head against a brick wall,” she said.
Before the last general election Palmer-Roye had helped host a meeting in Sutton at which the then leader of the opposition, David Cameron, outlined his plans to give charities and social enterprises a bigger role in the provision of public services. She said: “I believed it when Cameron said all that ‘the third sector should be the first sector’ stuff. I really did believe all that crap.”
Separate to its south-east London contract, Eco Actif had been signed up by three prime contractors – A4e, G4S and CDG – to provide ad hoc specialist work programme support to ex-offenders. But Palmer-Roye said it had not received a single referral under these arrangements, putting its finances under further strain.
Eco Actif, which had a turnover of around £700,000 and employed 14 people when it closed, was established six years ago as one of the earliest social enterprise “spin outs” from local government, delivering training in horticulture and construction to disadvantaged young people. It also holds a European Social Fund contract to provide support to workless families.