Building Community Wealth in Scotland: consultation analysis

6. Inclusive Ownership Pillar

The inclusive ownership pillar aims to develop models of ownership that enables the wealth generated in a community to stay in that locality, including:

• promotion of more generative forms of business models including locally- owned businesses, employee ownership, co-operatives, social enterprises and community enterprises;
• transition of existing companies to employee ownership;
• transition of existing companies to asset or mission locked social enterprises;
• encouraging citizens, communities and the third sector to play a greater role in ownership and control of assets within the economy;
• public ownership for public good as appropriate.

A number of areas regarding the ownership and taxation of companies are reserved to the UK Parliament, constraining what the Scottish Government can do in relation to tax policy. In addition, company law is a reserved area as part of the Companies Act.

The consultation paper explains that, as part of early engagement on CWB legislation, stakeholders have suggested a focus on the following areas:

• greater recognition of the role of inclusive business models in the economy;
• availability and accessibility of start-up support for the establishment of inclusive business models;
• greater acknowledgement of the role of support organisations and the need to ensure they are adequately resourced to maintain and grow outputs;
• a duty for business support services to consider the distinct needs of inclusive business models and to promote these models;
• preparatory work with public sector bodies to improve understanding of inclusive business models in advance of supporting the development of CWB plans and their subsequent implementation;
• a need to increase the knowledge and improve the culture around co-operatives to support new co-operative enterprises or transitions across Scotland;
• supplier development support for inclusive business models including social enterprises to build capacity;
• explore incentives to encourage the establishment of inclusive business models.

There were also proposals about which the Scottish Government is limited in terms of where it can act given they cover reserved matters:

• an 'employee right to buy' when a business is put up for sale which allows a window for employees to consider developing a bid and raising the finances;
• a 'Marcora law' which would give workers support to organise a co-operative buyout or rescue when a business is up for sale or under threat.

Question 6: Are there ways in which the law could be changed to advance the inclusive ownership pillar of Community Wealth Building?

Responses to Question 6 by respondent type are set out in Table 9 below.

Percentages may not sum to 100% due to rounding

A majority of respondents, 63% of those answering the question, thought that there are ways in which the law could be changed to advance the inclusive ownership pillar of CWB. This rose to 73% of organisations.

Please provide a reason for your answer. In your response you may wish to consider the stakeholder suggestions outlined above which have arisen from early engagement.

Around 125 respondents provided a comment at Question 6, although some referred to answers at earlier questions, including Questions 1(a) and 5.

Views on the inclusive ownership pillar

There was broad support for encouragement of inclusive ownership and the areas of focus suggested by early engagement activity although, as at previous questions, some respondents did not see a requirement for any changes to existing legislation.

Comments on the topics suggested by early engagement activity tended to concentrate on the role of support organisations and on issues associated with employee right to buy.

Views on stakeholder suggestions from early engagement

Greater recognition of the role of inclusive business models in the economy

General comments included that benefits of different models of ownership should be explored on a case-by-case basis, rather than an assumption that some are intrinsically better than others, or that private ownership is inherently a bad thing. However, a more frequently expressed view was that local social enterprises, co-operatives and community owned enterprises will need to be the most common business models in Scotland if CWB is really to succeed. Some respondents highlighted the benefits or particular characteristics of individual models of inclusive ownership including co-operatives, social enterprises and development trusts.

One proposal was for a statutory commitment to a long-term objective of re-orienting the Scottish economy towards a significantly greater proportion of inclusive ownership models, supporting ambitions on employee ownership, social enterprise growth and other models.

It was also argued that a range of models of community ownership should be encouraged, with no one-size-fits-all approach, or that the focus should be on outcome not structure. It was reported that many organisations have models that deliver increased community wealth but do not fit within existing definitions. Specific suggestions included recognising credit unions as democratic, community-based organisations.

Some respondents saw raising awareness of inclusive ownership as a priority, and there was a view that this pillar is less well understood than other aspects of the CWB agenda. Suggestions included:

• Funding and support for public information campaigns across all media with prominent messaging around the features and benefits of various inclusive ownership models.
• The value of showcasing examples of successful projects that could be replicated.
• Encouraging wider education on inclusive ownership models including in schools and in further/higher education.
• Creating a local register to highlight individual community owned enterprises to the public in the same way as a directory of approved traders might do. Such a register could also assist public sector organisations in identifying local suppliers and allowing supplier engagement work.

Greater acknowledgement of the role of support organisations and the need to ensure they are adequately resourced to maintain and grow outputs

Several respondents referenced the work of existing support organisations, particularly Co-operative Development Scotland (CDS) which was reported to provide a valuable service in supporting growth of employee ownership and co-operative business models. It was also suggested that:

• Along with other development agencies, CDS should be reviewed to ensure they are doing all they can to promote inclusive ownership and particularly the development of co-operatives.
• The remit for CDS could be enhanced and that it could be put on a statutory footing as a stand-alone agency.

A requirement for increased resources for both CDS and other support organisations including TSIs and Business Gateway teams was highlighted. Respondents also referenced:

• Support on procurement and tendering processes available via the Supplier Development Programme.
• Advice on Fair Work available from the Citizen's Advice Bureau/South of Scotland Enterprise Fair Work project.
• The importance of support organisations that can provide a route to engaging specific, potentially hard to reach communities with the CWB agenda.

In terms of types of support that might be required, respondents identified the need for further information, guidance material and advice in relation to employee ownership, co-operative models, social enterprises, community ownership and community asset transfers. However, it was also reported that the support landscape varies across Scotland and can be fragmented, cluttered and difficult to navigate, with some duplication between services. It was suggested that more cohesive a business support is required, and a review of existing services was suggested.

A duty for business support services to consider the distinct needs of inclusive business models and to promote these models

There was support for the proposed new duty for business support services and it was reported that some business support services are not fully aware of their role in promoting inclusive models. It was suggested that:

• Mainstream business support should be required to promote social enterprise and similar business models at every opportunity when providing business support to start-ups, as well as established businesses.
• Scotland's enterprise agencies should be mandated to put a stronger emphasis on CWB, including the promotion of plural ownership models.
• There should be specialist business support for co-operative formation and conversion and that mainstream business advisers should be trained to support co-operative development.
• Public bodies should have a duty to promote inclusive ownership models in economic development and business support activity.

It was also reported that specialist support to promote and develop differing ownership models is not widely resourced and that it would be helpful if a legal duty for national agencies to consider and provide resources for the promotion of alternative models of ownership could be implemented.

A need to increase the knowledge and improve the culture around co-operatives to support new co-operative enterprises or transitions across Scotland.

It was argued that the proposed statutory duty to advance CWB should be an explicit duty to advance the growth of inclusive business, including explicitly co-operatives, and that public bodies must be provided with guidance, resources and toolkits to do this effectively. Equal prominence for multi-stakeholder co-operatives and employee-owned co-operatives was also suggested.

With specific reference to increasing resourcing and capacity for co-operative development in Scotland, suggested actions included:

• Support for existing co-operatives to thrive and reach their potential in terms of both size and impact.
• Enterprise finance interventions that cater to co-operatives.
• Awareness raising, outreach, supported exploration and pre-technical development.
• Development of peer support and mentoring among co-operatives.

Supplier development support for inclusive business models including social enterprises to build capacity

There was a view that the contribution of businesses operating as social enterprises should be considered as a priority, recognising the impact of social enterprises in terms of value added/economic contribution, and varied social impacts across the CWB pillars. It was argued that this approach would reflect commitments within the Social Enterprise Action Plan, one priority of which is to support the development of market opportunities for social enterprises, including access to public procurement opportunities.

It was also suggested that it would be helpful to provide a legal definition of 'social enterprise' and that local authorities need to do more to support the social enterprise sector.

Explore incentives to encourage the establishment of inclusive business models

Incentives to bring co-operatives together and stimulate opportunities were proposed, for example by ringfencing or reserving a number of local and/or national contracts for collaborative or co-operative models of ownership. It was noted that Regulation 7 of the Public Contracts (Scotland) Regulation 2012 allows public bodies to make a decision to reserve public contracts for supported businesses. Related issues concerning procurement were also raised in comments on the spending pillar.

With respect to business rates, there were calls to support inclusive ownership models by bringing them into scope for exemptions and reliefs through the NDR system and in the reclamation or retention of taxation, in a similar way to the third sector. It was also suggested that reducing NDR for small businesses and third sector businesses could encourage them back into town centres. Further suggestions with respect to business rates discounts or reliefs are discussed under the finance pillar.

Reserved powers-related early engagement stakeholder suggestions

An 'employee right to buy' when a business is put up for sale which allows a window for employees to consider developing a bid and raising the finances

While there was acknowledgement of the difficulties in legislating on reserved matters, some respondents indicated their support for an employee right to buy, calling on the Scottish Government to work with the UK Government to enable its introduction or to investigate the extent to which powers could be used within devolved competences. Another view (raised also in relation to the land and property pillar) was that existing Scottish Community Right to Buy legislation could be augmented to give the right to buy, including land and property, to co-operatives formed by employees, and by employees and local communities, without amendment to reserved matters such as corporate, insolvency or employment law.

It was argued that an employee right to buy would allow employees as a community of interest the same rights as are afforded to communities of place. Hybrid ownership models encompassing communities of both interest and of geography were also referenced.

Suggestions included that an employee right to buy could be triggered when a business comes onto the market, subject to its public interest or cultural significance as a community asset, or where an employee buy-out would improve economic resilience, regeneration, social and environmental wellbeing or reduce inequalities.

A 'Marcora law' which would give workers support to organise a co-operative buyout or rescue when a business is up for sale or under threat

There was also support for the equivalent of a 'Marcora law', with specific suggestions including that:

• As in relation to an employee right to buy (above), a co-operative formed by employees should be given a preferential option to buy the business they work for, or to buy parts of the business or its assets when the business is put up for sale. Employee ownership could be key to succession planning, for example allowing employees to take a stake in the business or transition to employee ownership on the retirement of existing owners.
• Redundant workers could be facilitated to use accumulated unemployment benefit to capitalise a buyout co-operative.
• There could be a presumption for transfer to employee ownership of businesses in trouble and requiring financial support, allowing employees to grow a greater stake in their own employment and future prospects.
• A state holding company could hold assets of distressed businesses to be acquired through a debt-for-equity approach to business support.

Other reserved powers-related suggestions

Respondents also suggested a number of actions that would require work with the UK to amend reserved powers. These included:

• Considering tax exemptions – for example with respect to corporation tax – for alternative business models.
• Using taxation to incentivise employee ownership models relative to shareholder models, particularly where employees may have concerns about facing additional tax burdens.
• Developing a replacement for Social Investment Tax Relief, that was designed to encourage investment into social enterprises and charities by offsetting the risk to investors, but ended on 5th April 2023.
• Amending the Co-operative and Community Benefit Societies Act 2014 that enables co-operatives to issue equity shares that are repayable at their option and tradable, subject to protections of co-operative purpose, ownership and control.
• Reviewing individual investment limits that place a ceiling on the amount that can be invested in co-operative projects.
• Giving worker co-operatives the same tax rebates or refunds that employee-ownership currently enjoys. It was suggested this would allow a 'Marcora law' to empower both employee ownership and worker co-operative models, allowing new start or buyouts of existing businesses to choose the right model for them without either having a significant advantage over the other.

Other suggested changes

Reviewing Community Right to Buy and Community Asset Transfer

As referenced above in relation to employee right to buy, and at Question 5 with respect to the land and property pillar, there were calls for amendment of existing Community Right to Buy provisions and simplification of asset transfer processes. Specifically in the context of inclusive ownership it was suggested that Right to Buy provisions could be extended to include the right to buy a business to increase community ownership of local businesses and preserve employment in a community, whether urban or rural. Such a business could be owned by the community as trading subsidiaries of development trusts to generate income, or 'spun out' into social enterprises or community co-operatives, broadening the base of ownership in particular places.

Capacity building and skills development

Capacity building in communities was again highlighted, with a requirement that this must be underpinned by resources. It was also thought important that all the responsibilities and liabilities, advantages and disadvantages need to be set out to potential community or employee owners. Both the importance of developing inclusive businesses in Scotland's most deprived communities and the barriers that will need to be overcome in excluded or under-represented communities were highlighted.

In terms of particular skills that may be needed by those starting inclusive businesses, suggestions included:

• Training in leadership and business development.
• Knowledge of up-front finance options and of negotiating taxation.
• Understanding of HR and Fair Work considerations, and of ethical and regulatory issues such as on modern slavery.
• Governance and scrutiny skills, including for volunteer board members and trustees.
• Practical skills, such as maintenance of physical assets.

It was suggested that some element of skills provision could be achieved by partnership working with large community organisations or businesses.

Funding and investment

A number of respondents highlighted requirements for improved funding streams to support public ownership, with suggestions including that funding bodies should understand and be open to awarding grants to all types of alternative business models, including social enterprises. It was also argued that longer term funding is required to allow organisations to plan and develop their businesses. Specific suggestions for sources of funding, which might or might not require legislation, are noted briefly below, and finance issues are covered in more detail at Question 7. There were references to:

• An increased Scottish Land Fund to support communities in developing, community assets.
• An Affordable Credit Fund to make it easier for start-up social enterprises that are unable to demonstrate income streams or prove sustainability. Alternatively – and also for start-ups unable to demonstrate income – it was suggested that small funding pots and 'general all-encompassing' support for social enterprises should instead be devolved for use by local authorities to provide procurement engagement services to the third sector through the existing Supplier Development Programme.
• A fund set up as a National Advisory Board with private sector, public sector, funders, family trust and philanthropist investment. It was suggested that many examples of such funds could be explored.
• A Community Wealth Fund set up by the Scottish Government.
• A dedicated fund to support CWB initiatives set up by the SNIB.
• A Scottish peer-to-peer lending platform to enable support to SMEs and social enterprises.
• Incentives and funding streams linked to conditionality including Fair Work Principles.
• Subsidies that match funds raised in community share models of fund raising.

As a general point, it was argued that any reform of subsidies or tax exemptions must be aligned with delivering the full range of Government objectives.

With respect to issues around the time required to raise funds, a Public Body respondent highlighted their own partnership in an initiative aiming to support communities in acquiring high value land or assets by acquiring the assets on an interim basis, with the aim of selling at market value to a community body once it has been able to raise funds.

Funding issues being experienced by existing community organisations as result of Covid and the cost-of-living crisis were also reported, and there were calls for more and longer-term funding to third sector organisations.

Focusing on essential sectors

Some respondents argued that actions to develop more inclusive business models should have a particular focus on essential sectors including food and energy where, it was suggested, inclusive businesses could become an increasingly mainstream element of the local economic landscape. With respect to food production, the Community Supported Agriculture approach was highlighted as providing an opportunity for people to invest in their local food supply, either financially, or by volunteering time. There was also support for efforts to create community owned, or community driven co-operative models of food access, such as community food pantries.

With respect to renewable energy there were calls to support community-owned renewables co-operatives in order to encourage community renewable energy investment, and also to develop mechanisms to allow renewable electricity to be used at source for the benefit of communities that may be at high risk of fuel poverty. Energy projects were also noted as an area where shared ownership investment models could be appropriate for some communities, provided that they receive appropriate information and support. It was suggested that renewables developers should be required to ensure that all community bodies, not solely community councils, are made aware of a shared ownership opportunity.

Influencing business culture

It was argued that the recommendations set out in the SCDI's Business Purpose Commission report^[9] should be implemented, to ensure that all types and sizes of businesses across Scotland record, measure and improve their social and environmental impacts and prioritise the needs of local communities and local economies.

Attention was also drawn to a campaign calling on the UK Government to amend Section 172 of the Companies Act to ensure every company in the UK aligns their interests with those of wider society and the environment. ^[10] It was argued that a national campaign to encourage Scottish businesses to amend their Articles of Association in a similar respect could help to ensure that the interests of wider society and the environment are advanced equally alongside those of shareholders.

Development of a new Social Enterprise Strategy

It was noted that the NSET committed to 'undertake and publish a review of how best to significantly increase the number of social enterprises, employee-owned businesses and co-operatives in Scotland, supporting regional regeneration and the wealth of local communities.' To this end, it was argued that a new Social Enterprise Strategy should be developed to increase and maximise opportunities for social enterprises to participate in the local economy, thereby enhancing CWB outcomes.

Other legislative areas where action could be taken

One general point was that the Scottish Government should make sure that any legislative changes relating to inclusive ownership are drafted to ensure that women are able to be part of and benefit from opportunities involving community owned businesses. Respondents also proposed a number of specific ways that legislation could be changed to advance the inclusive ownership pillar.

A duty for officials to consider impact of policy and legislation on co-operatives and other inclusive business models

It was suggested that there should be an explicit duty for public officials to assess the impact of a policy, programme, legislation or regulation under consideration, on co-operatives and other inclusive business models, with the duty applying where it is reasonable to believe there could be such an impact.

Review the Power of General Competence

It was argued that this power, available to local authorities in England, Wales and Northern Ireland but not in Scotland – should be considered. It was suggested that this would bring Scotland more in line with the rest of the UK and remove uncertainty surrounding legal obligations under the Supply of Goods and Services Act (1982) and the Local Government in Scotland Act (2003).

Review Common Good legislation

As referenced at Question 5 with respect to the land and property pillar, there were calls for review of existing legislation to ensure that assets and resources held under the legislation are directed for the purpose of CWB. A need for greater clarity around management of Common Good assets was also highlighted.

Amend the Waste (Scotland) Regulations 2012

It was suggested that the Waste (Scotland) Regulations should be amended to incentivise a view of waste materials as valuable assets and encourage communities to aspire to a stake in the value derived from these assets. Local planning and community development plans could consider how capital investment can be used to support and create community owned facilities to promote resource recovery.