Social enterprises and AI: what’s going on in UK?

Social enterprises described as “investing in the future” with widespread adoption of artificial intelligence, as pressures to maximise efficiency mount in dire economic landscape, according to latest report published today by Social Enterprise UK.

Almost half of UK social enterprises report using artificial intelligence (AI) technology in some way, according to a new report published today by network organisation Social Enterprise UK (SEUK).

The latest Social Enterprise Barometer, published quarterly to provide a ‘snapshot’ of the social enterprise landscape in the UK, surveyed a sample of 136 social enterprises and for the first time asked them to report on their use of AI.

The most common AI tools used by the social enterprises surveyed are text generation using large language models (used by 17% of respondents), visual content creation and data processing through machine learning (each used by 10% of the sample).

“Social enterprises are embracing innovation, investing in innovation, investing in the future,” Dean Hochlaf (pictured), head of research and policy at Social Enterprise UK, said.

He added that many social enterprises were small organisations which needed to be “well aware” of new technology that could help them be more efficient.

AI had the potential to help them across all their activities, from producing goods to writing funding applications, he explained – and this was even more important in a mission-driven business.

“When social enterprises are trying to address systemic social issues, it is very important that they are working to the absolute maximum capacity so that they can get more done, bring more profit and invest more in their social missions,” Hochlaf said.

According to a dataset published by the Office for National Statistics this month, 85% of businesses reported not using AI technology, while the SEUK study found that just 49% of social enterprises do not use the technology. Hochlaf however warned against comparing both figures like-for-like, as the samples for the two studies might not be representative enough to draw conclusions.

The report, however, raises concerns about the broader impact AI could have, such as the loss of jobs or the concentration of power in the hands of larger companies. ‘We know that the acceleration of AI has the potential to cause social disruption,’ Hochlaf said.
Optimising the ability to fulfil its mission with limited resources is essential because social enterprises are going through a ‘perfect storm’. After a solid recovery following the shock of the Covid-19 pandemic, the financial performance of social enterprises is now declining, according to research.

The report shows that 50% of social enterprises surveyed increased their turnover in the past year, down from 65% in 2023, and the share of social enterprises reporting a loss has gone up four percentage points to 30% since last year.

“It’s disappointing to see,” Hochlaf said. “I think we have to recognise that the last year has been challenging economically.” The cost of living crisis due to high inflation led to a reduction in trade for social enterprises, while demand for their services increased, he explained.

“More support to help social enterprises get through this challenging time will actually, I think, be very beneficial to the wider economic conditions of the country.”

“As economic indicators were beginning to improve” Hochlaf said “social enterprises could play an important role in driving economic recovery”.

Another element of the ‘perfect storm’ social enterprises are having to navigate is the uncertainty over the finances of one of the sector’s biggest partners: local authorities.

More than half of the social enterprises surveyed report generating some income from local authorities, but they are themselves facing a dire funding crisis.

Councils have seen their budgets squeezed in the past decade, and recent economic factors have led to a funding crisis so stark it has seen several councils effectively declare bankruptcy in the past year, including Birmingham, Nottingham and Woking – with fears that many more local authorities could soon be in the same situation. More than a quarter of social enterprises currently generating income from local government are expecting it to fall in the next year, according to the report.

“The impact of inflation and rising demand for the services that local authorities are expected to provide has seen a rising number of local authorities issuing notices of severe financial distress,” the research paper states.

Social entrepreneurs interviewed in the survey said the risk of seeing their contracts with councils cancelled was leading to “a lot of anxiety”. Meanwhile, other social enterprises report simply no longer seeking contracts with local authorities.

Despite this context, the social enterprises surveyed remain positive overall, with more than half of those in business with local authorities expecting their income from local government to increase or remain the same.

Hochlaf said: “Many social enterprises operate at the local level. They invest locally, they create entities locally. So for many local local authorities, the success of social enterprises can have huge benefits for their local communities.”

Torino Social Impact will soon launch a programme for the digitisation of social enterprises, use of data and innovative tools such as AI, in continuity with I3S, thanks to a recently approved 24-month European project that will start soon, Digital and Data-Driven Opportunities to strengthen the Social Economy Impact (Do Impact) funded under the call SMP-COSME-2023-SEED-01 – [Proximity and social economy industrial ecosystem: boosting the digital transition of social economy enterprises and SMEs].

Report Social Enterprise UK

Social Enterprise Barometer – Financial Performance