Developing Scotland's Economy: Increasing The Role Of Inclusive And Democratic Business Models

4. Current Landscape and Future

4.1 The Scottish economy has faced a succession of shocks in recent years, from EU exit and the pandemic to the ongoing cost-of-living and climate crisis. The growth of IDBMs is important in this context, where there is a need for greater resilience, business action on climate crisis, wealth retention and circularity. Qualities which IDBMs possess.

4.2 Social Enterprises

Current Landscape

4.3 Social Enterprises can play a pivotal role in delivering on key outcomes as set out in the National Performance Framework, making Scotland a more successful country, with opportunities to create sustainable and inclusive growth, reduce inequalities and increase wellbeing for all. Over the past 10 years Scottish Government policies have actively supported the development of social enterprises through the Strategy (Scottish Government, 2016) and relevant action plans.

4.4 The 2021 Social Enterprise Census is the fourth census, led by CEIS and researched by Social Value Lab (CEIS, 2021). The census was completed as part of a 10-year commitment to track the development of the social enterprise sector nationally. The 2021 census found 6,047 social enterprises operating across Scotland, contributing £2.63 billion (Gross Value Added) to the economy and employing over 89,970 FTE people. 82% of social enterprises are selling directly to consumers and 7% exported goods within the preceding 12 months.

The Future

4.5 The Scottish Government has committed to supporting the development of social enterprises since the launch of the Social Enterprise Strategy (Scottish Government, 2016). The Strategy set out long term programme to develop the potential of Scotland’s social enterprise sector. The latest Action plan (Scottish Government, 2021) was published in March 2021 covering the period 2021-24. Work has commenced on the new action plan for 2024-26.

4.6 Scotland is perceived as world leading in Social Enterprise policy mainly through the Strategy mentioned above and the dedicated support programmes. The potential exists to create large scale social enterprises that could be used as a means to manage some of Scotland’s most economically, culturally and environmentally important assets. We are seeing social enterprises from around the world wishing to partner and be based in Scotland through initiatives like Climate Change Litigation Initiative (University of Strathclyde) and the export of some of our most successful enterprises through the International Social Enterprise Observatory (ISEO).

4.7 Social Enterprise Scotland have highlighted the need to give social enterprises a greater voice to highlight the business development opportunities, challenges and solutions that both public and private sector procurement could offer in assisting social enterprises to thrive.

4.8 According to the latest Social Enterprise Census (CEIS, 2021), in terms of a “public contract win” over the past year, 15% of social enterprises reported success in 2017, with an increase to 18% in 2019 (CEIS, 2019) but down to 15% again for 2021 (4% in a consortium, 11% bidding alone), albeit within a lockdown context. Most social enterprises are not involved in bidding for contracts, 82% reported as not bidding for public contracts in the year up to Oct 2021. In this regard, social enterprises share similar challenges to those faced by SMEs in access and winning public contracts, making public procurement a “hot topic” for the future as reported in the joint Social Enterprise Scotland and Scottish Council for Voluntary Organisations survey (Social Enterprise Scotland, 2023). Public procurement and commissioning of services with Social Enterprises is an opportunity to support local wealth creation and retention and supporting the achievement of wider economic, social and environmental benefits.

4.9 In recognising the importance of social enterprise and the contribution the sector makes to the economy, Scottish Government has moved Social Enterprise policy to the Economy Directorate. This provides an opportunity for further alignment with wider economic development policy and interventions.

4.10 Community Owned Enterprises

Current Landscape

4.11 Community owned enterprises (such as Development Trusts and Community Cooperatives) are recognised for their distinct community-led, place-based and enterprising nature. The recent Development Trusts Association (DTA) member survey (Development Trusts Association Scotland, 2023), reported 349 DTAS members operating across Scotland, contributing to the local economy and employing local people. Community owned enterprises often work in areas where there has been market failure, for example, the local shop closing and bringing it back to life.

4.12 Community owned enterprises have increased the number of organisations raising alternative finance through community shares, bonds and democratic finance opportunities. The Programme Statistics & Impact Report 2014-2023 (Community Shares Scotland, 2023) evidenced £19 million of shares finance raised between 2014-2023.

The Future

4.13 The Scottish Government introduced the Community Empowerment (Scotland) Act 2015, enabling communities to have more control over the decisions that affect them to develop their own economies, wellbeing and environments. The Scottish Government are currently reviewing the Community Empowerment Act to identify further ways of supporting communities through asset transfer. This has resonance with this work, and we expect this work to feed into this review of community empowerment which is due to conclude in 2024.

4.14 Furthermore, the Scottish Government has committed to the Local Governance Review (Scottish Government, 2019) supported by Democracy Matters conversations which are taking place across Scotland. The aim is to facilitate the devolving of more powers to local communities, to help to deliver community, fiscal and functional empowerment for Scotland’s different places and diverse communities of interest and place. This is key to ensuring this subsector matures and can contribute meaningfully to advancing CWB.

4.15 Co-operatives

Current Landscape

4.16 The Co-operative and Mutual Economy 2023 report (Co-Operatives UK, 2023), states the UK’s democratic economy (which includes co-operatives, building societies, financial mutual, and employee-owned enterprises) has 9,113 businesses with a combined annual income of £87.9 billon. They report co-operative numbers in Scotland have increased by 3.16% (602 to 621).

4.17 This report highlights the resilience of co-ops with a survival rate of 83.3% for new starts over 5 years, more than double other start-up businesses, and that the democratic economy employs over 410,000 people across the UK. There are 396 worker co-ops operating across the UK, a reduction from 407 in 2022 (-2.7%) (Co-operatives UK, 2023).

The Future

4.18 Echoing what we refer to above as regards Scotland underperforming in international terms, estimates provided by Co-operatives UK, show that in 2020, Scotland’s ratio of co-op turnover to GDP per capital was 17 times smaller than the UK’s and 130 times smaller than France’s. In 2020 Scottish co-op turnover per capita was 2 times smaller than the UK’s, and 14 times smaller than France.

4.19 The Co-operative and Mutual Economy 2023 report (Co-operatives UK, 2023) highlights that co-operative development in Scotland is enhanced in UK terms, by a more enabling government policy to support co-operative development. The report also highlights the Co-operative Development Scotland (CDS) service as being helpful in Scotland with little comparable support available in England. However, it is recognised that more needs to be done to achieve the ambition of significantly increasing the number of IDBMs operating in Scotland. There is so much potential that could be developed and supported through CDS (Scottish Enterprise Scotland, CDS, 2023) and partners if these models were given greater strategic priority and the resources to match untapped demand and get us closer to the performance levels experienced elsewhere.

4.20 If we were to see an increase in the number of Scottish businesses that were democratically owned, we would see improvements in key economic indicators for Scotland including productivity, economic security as well as a contribution to the achievement of a prosperous, innovative and dynamic economy. Recent modeling carried out by Co-operatives UK, to support the work of the Review Group, found that if 10% of all 2+ employee firms in Scotland were worker co-operatives and employee-owned businesses the impact would be:

• Overall labour productivity (GVA per worker) in Scotland could improve by 20%.
• An additional 25% of 2+ employee firms, and 56% of workers in 2+ employee firms, could have fair pay accreditation.
• An additional 18% of 2+ employee firms would have a decarbonisation plan.
• An additional 22% of workers in 2+ employee firms would enjoy significantly reduced risk of redundancy in a 3-year period.

4.21 If 10% of 2+ employee firms in Scotland were co-operatives, then this alone could reduce Scotland’s mean gender pay gap by 6%. If 5% of Scottish start-ups were co-operatives, then this alone could improve Scotland’s overall 5-year survival rate for start-ups by 2.6%.

4.22 The above would have strong and positive impacts on key measures in the Wellbeing Economy Monitor (Scottish Government, 2022) such as greenhouse gas emissions, poverty, health, educational attainment, pay and inequality.

Employee-owned Businesses

Current Landscape

4.23 The EO Knowledge Programme 2023: People Powered Growth report (Employee Ownership Association, 2023) points to the introduction of the new Employee Ownership Trust Model in 2014 as a key activator of the rise in employee-owned businesses. The Co-operative and Mutual Economy 2023 report (Co-Operatives UK, 2023) details an increase of 37.7% in the number of employee owned businesses in just 12 months.

4.24 Co-operative Development Scotland commissions a biennial census exercise focusing on co-operatives and employee-owned businesses (Co-operative Development Scotland, 2024). The most recent census was undertaken in February and March 2024.

The census reported that as of March 2024, there were 286, employee-owned businesses operating in Scotland, comprising of 177 Scottish registered employee-owned businesses, 25 Scottish registered workers’ co-operatives and 84 EOBs with trading or production operations in Scotland but registered elsewhere. (Co-operative Development Scotland, 2024)^[6].

It also revealed that Scottish registered EOBs and worker co-operatives have a combined turnover of £1.64 billion and employ 7593 people. This is a 113% (£752m) increase in turnover and a 42.5% (2265) increase in employment since the 2022 census.

4.25 The EO Knowledge Programme 2023: People Powered Growth report (Employee Ownership Association, 2023), states that employee-owned businesses are succeeding in many sectors of the economy. The sector grew by over 30% in the last 12 months and at an annual average rate of 16% compared to 2.2% in all active companies in the UK between 2011 and 2023, reporting a sector of over 1650 businesses in the UK in 2023.

The research shows that employee owners are 8-12% more productive, making more money and doing more to recirculate that wealth in the economy by creating more jobs and investing in improving their products and services. Employee-owned businesses are shown to invest more in employee wellbeing, training and flexible working, paying out twice as much in bonuses and dividends to employees, while being 5 times less likely to make them redundant.

In terms of economic contribution employee-owned businesses make up 0.1% of businesses but are shown to drive 0.8% of direct GVA and 1.7-2.1% of overall economic activity, which equates to £32-£41 billion in GVA.

4.27 To illustrate the importance and impact of local employee-owned businesses, the Auchrannie Resort, founded in 1988 became an employee-owned business in 2018, supported by both Highland and Islands Enterprise and Co-operative Development Scotland. In terms of economic impact for the island of Arran, the resort has 45,000 overnight visitors per annum, maintaining an 85% occupancy rate all year round, employs 10% of the islands working age population and saw a 30% increase in turnover since employee ownership.

The Future

4.28 The Scottish Government has committed to increase the number of employee-owned businesses operating in Scotland to 500 by 2030 (Scottish Government, 2021). As detailed above, the latest census, reported an increase from 195 EOBs operating in Scotland in the 2022 census (Co-operative Development Scotland, 2022) to 286 in the 2024 census (Co-operative Development Scotland, 2024). This shows growth of 91 companies, if this trend continues it is expected that the 500 target will be met. The Employee Ownership Leadership group is committed to working closely with public sector partners to create the conditions required for growth in the sector, and this review believes that this should be a minimum, with clear and higher targets set.

4.29 Government and policymakers should work closely with the employee-owned sector to build on the shared policy priorities as articulated on the EOA Policy webpage (Employee Ownership Association, 2024) and which feature in the EOA Manifesto (Employee Ownership Association, 2024), to ensure purposeful and meaningful engagement continues.

4.30 The EO Knowledge Programme 2023: People Powered Growth report (Employee Ownership Association, 2023), points to key actions that should be taken to build on the foundations their research articulates, calling for proactive interventions to support the growth of the sector. The calls to action focus on Investors and providers of finance, policymakers and political decision makers, education and trade bodies and business owners and entrepreneurs.