This blog discusses statistics and research showing the third sector’s contribution to Scotland’s economy. It is intended to support committee work and other parliamentary business, for example the various Member’s debates on the third sector that take place throughout the year. The main author, Natasha Lee, is a final year PhD student working at Northumbria University. She spent three months in SPICe as part of her UKRI Internship.
The third sector – valued but hard to measure
The importance of any economic sector is usually seen in terms of turnover, profits, gross value added (GVA), employment levels, tax contributions or exports. But in most of these indicators, there is a real lack of government-produced data when it comes to the third sector. Many of the statistics that are available are collected and published by the sector itself, for example SCVO’s Facts and Figures publication or the Social Enterprise Census. These are seen as useful, trustworthy, and authoritative sources. But the lack of official statistics means that comparisons with other parts of the economy, or any understanding of how the third sector fits into the wider economy, are near impossible without some degree of statistical gymnastics.
These challenges were discussed by the Fraser of Allander Institute (FAI) in a 2022 blog. They note that the impact of the third sector is difficult to estimate when the sector does not have its own separate identifier within UK national accounts. Organisations are categorised by the services they provide – social care, housing, training, etc – rather than by their ownership or governance structures. The FAI is therefore taking steps towards developing their own estimates of GVA for the sector. The Institute provided a further update in summer 2024, but as yet no research outputs have been published.
Overlooked as a source of wealth generation
The Royal Society of Edinburgh believes that the third sector is often overlooked as “a source of wealth generation”. But some income and employment indicators show the third sector to be larger in these areas than a number of Scotland’s most celebrated industries. SCVO data uses the OSCR Scottish Charity Register and a sample of financial accounts to show that turnover for the sector was £9.2 billion in 2022. This is significantly higher than agriculture, forestry and fishing (£2.3 billion combined) and higher even than the accommodation and food services sector (£8.9 billion) (source: Scottish Government 2024). (As highlighted above, the figures for the third sector are not official statistics and so will not have been compiled using the same approaches used to calculate the size of other sectors.)
SCVO statistics also estimate that the sector employed 133,000 people in 2022, around 5% of the Scottish workforce. Scottish Government data allows us to compare for illustrative purposes, showing that this is more than the financial services sector (83,000) and the transportation and storage industries (105,000).
The third sector spent around £2.9 billion on wages which is just slightly below the accommodation and food services sector (£3.0 billion). And while median hourly pay in the “non-profit” sector (£15.13) is below that of the all sector median (£16.56) it is still above the median hourly pay for the private sector in 2023 (£14.41). These figures are clearly just for paid work. Volunteer Scotland estimates that formal volunteers – ie. those providing unpaid help through an organisation or group – contributed 122 million volunteering hours in 2022, benefitting the economy to the tune of around £2 billion.
Looking at one specific, and growing, part of the third sector, the Social Enterprise Census shows how social enterprises and their 90,000 employees are distributed across Scotland. A relatively high number of social enterprises are in remote rural areas where well-paid jobs may be difficult to come by. Highlands and Islands Enterprise describe the range of activities social enterprise engage in across its area: “[they] own and manage land, including whole estates and islands, harness renewable energy technologies, create employment, undertake infrastructure projects and provide an increasingly diverse range of essential services”.
What the available data doesn’t show us
In some fundamental ways, the third sector is different from other parts of the economy, most obviously in the areas of social mission and volunteering. But these also provide economic benefits. The problem is, we just don’t know how to measure them! Professor Mairi Spowage asks us to imagine our economy without the third sector – all those opportunities, vital services and support structures either not being provided, or being delivered primarily for profit by the private sector. Without going too much into this It’s a Wonderful Life-type scenario, it is obvious that Scotland’s economy would be significantly poorer should the third sector somehow cease to exist.
Even if an official GVA figure did exist for the third sector, it may not capture the full economic value of the many third sector activities that go beyond financial transactions (indeed this is one of the major criticisms of GVA/GDP). For example, how would the value of volunteering be calculated when by its very nature it is provided below market price or free of charge. The third sector contributes to community, individual and environmental wellbeing in a multitude of ways which are perhaps difficult to put a pound sign on. Contributions may not have a market price, but they most definitely benefit our economy. To capture these, the RSE’s Ray Perman argues for a “systematic means of measuring social return on investment”.
Example: a charity supporting offenders to rebuild their lives. A GVA figure would capture the cost of delivering that support, but it wouldn’t tell us anything about the investment in human capital and potential returns this could deliver for the individual and the state over time.
Fifteen years ago, the UK Cabinet Office published its Guide to Social Return on Investment, in partnership with the Scottish Government. This was aimed at helping individual third sector organisations demonstrate their added social and economic value. What is preventing Government statisticians and economists from estimating the social return on investment of the third sector as a whole? It would undoubtedly be a challenging and time-consuming project. However, with Scottish Ministers stressing the importance of the third sector’s role in Scotland’s wellbeing economy, should this now be a priority for Scottish Government analysts?
Natasha Lee, UKRI Intern, and Greig Liddell, SPICe Senior Researcher, October 2024