Social enterprise structures are unable to maintain their values in a changed funding environment and academic contributions have failed to analyse the social economy as a means to advance alternative forms of local economic democracy. In a major paradigm shift, social enterprise and the wider third sector have been institutionalised as a neoliberal agent for public service delivery, increasingly based on social investment, with a shift from politics to practical solutions. They are now part of the welfare state and no longer necessarily considered as critical to democracy or economic development. UK social enterprises are now fragmented, small and undercapitalised and unable to meet social welfare expectations, with public and social values replaced by value for money and cost of delivery. Further research is needed on the effects of increasing participation in procurement competitions by social enterprises and third sector organisations, which through their dependence on contract funding are being hollowed out. Alternative future policies are suggested including Public Social Partnerships, funding for local economic democracy and public innovation funds for public and third sector partnerships. A new funding focus is needed on community energy, recycling and local co-operative development in an endeavour to restore local economic and social democracy to form the basis of a UK social economy.