The Government has called on local authorities in the West Midlands to cut back on public spending and turn to social enterprise instead.

Phil Hope, Minister for the Third Sector, made the call to more than 200 business leaders and policy makers at a convention in Dudley yesterday.

And he said that promoting social enterprise would be a good way of encouraging more people into starting wealth-creating small businesses.

Mr Hope said: "One area of growing opportunity for social enterprises is in public services. I want to see more social enterprises in the provision of public services. They bring innovation to community services that sometimes the Government finds quite hard to deliver.

"From a local authority perspective using social enterprises can also make a tangible difference for the council's bottom line."

The minister also unveiled a Government initiative to raise a new £10 million fund for investment in social enterprises.

He said social enterprises - not-for-profit companies with altruistic goals - were a very effective way of drawing many people into business who would not normally be interested in the idea of enterprise as a career choice.

He said: "As social enterprises they tackle some of our most entrenched and difficult environmental and social goals in some really innovative and sustainable ways and in doing so I think they shake up the Government as well as the private sector.

"They challenge, they help Government to design and compare the way we deliver public services. I think they also raise the bar for ethical business and corporate social responsibility."

The convention, at the Copthorne Hotel in Dudley, was sponsored by Advantage West Midlands, which has plans to invest more than £20 million in Midlands social enterprises by the end of 2009.

Marie Greer, director of sustainable communities at AWM, said social enterprise was a big part of its regeneration strategy.

Ms Greer added: "By investing in the social enterprise model we do feel that we can reduce unemployment significantly by employing members of the community that may not have been employed for a long time, particularly those with disabilities and those from other disadvantaged groups.

"Support for sustainable social enterprise is a key element of the Agency's overall approach to improve the competitiveness and growth of existing businesses and encourage the creation of new businesses throughout the region."