The case against tax incentives for social enterprise

The new Chancellor of the Exchequer has spoken. Our fiscal crisis is severe and deep cuts are required to restore our national finances.  Failure to do so, the government claims, will imperil our nation and risks a funding crisis a la Grecque.

Whether or not one shares the assessment of our predicament this is the context against which we must measure our reactions as a sector.  To listen to the comments of my peers it would seem that our present mission is to shout for our share of dwindling government resources.  This approach is seriously flawed for several reasons.

First, there is very little convincing evidence that the myriad of incentives already allocated to this sector have done much good.  The recent report by the Social Investment Task Force laid out progress since it was set up in the early years of the Labour government.  Causality is always difficult to determine, but the report’s claims in this regard are appropriately modest.  Although much has happened since that time the unavoidable observation is that this was merely contemporaneous with government tax incentives, rather than as a result.

In areas was where government has been particularly generous, such as in the area of Community Investment Tax Relief, its take-up has been noticeably disappointing.  This is partly due to the unnecessary complexity and restrictions of the scheme, but not only.  In fact, most of the exciting activity in social investment has happened in the unsubsidised market.

This is not dissimilar to the venture capital arena where tax credits have failed miserably to create an enterprise culture in the UK—generous treatment for VCTs has only served to depress already pathetic UK venture capital returns.

Second, the incentives are too complex, as an excellent report co-sponsored by the CSFI and NeSTA and written by Vince Heaney and Katie Hill has pointed out.  Indeed the cover of the report shows a maze—this is apt.  When structures are this Byzantine they are hard to effectively exploit.

The third and final reason to be opposed is the current environment.  We exist as a sector on the premise that social objectives matter, and are at least as important as financial or corporate goals.  Our mantra is that of the “triple bottom line”, or “people, planet and profit”—society is at least tied for first with our personal and corporate interests.  At a time when across the country the most severe budget cuts are underway, it is callous, if not unseemly to be lobbying for more.

Our sector has been the recipient of extraordinary largesse over the past decade.  Private sector money has begun to come in increasing amounts—with interest accelerating.  Hundreds of millions more are promised via the Big Society Bank or the Green Investment Bank.  In such an environment it strikes me that the socially positive action could be to make a point of asking for no more cash, so that it can be spent on those who really need it.  Perhaps we should consider asking the Government to use the money from unclaimed assets to pay down the national debt as a gesture?

Until we demonstrate that we are truly different from the rest, we can hardly claim to be.

First Published in Third Sector in June 2010.

Can Social Enterprises be Commercial?

“Oh that’d be a bit corporate, don’t you think?”  This I was recently told by a social entrepreneur, following a suggestion I thought would improve their performance.  It was not just the reply I found troubling, it was the face the respondent made.  He sort of scrunched up his face the way you might at the smell of rotten eggs.  I also felt that feeling I feel many times working in the social enterprise sector—“whose side are you on, mate?” they seem to ask.  “I thought you were one of us but when you talk like that it makes me think you never left the City/Wall Street”.

In so many ways I find a real distaste for what I would consider good corporate practice.  Another social entrepreneur is always late.  Meeting always begin 20 minutes after they were meant to.  I feel emotionally unable to just start arriving 20 minutes after the official start time, although others do—so my time is wasted and I quietly (generally) fume.  It is not that mainstream entrepreneurs are by nature any more punctual—of course not.  But when they arrive late, they apologise, and there is some recognition of the fact that this is unacceptable behaviour which needs correcting.

Another example is the mess in which I find some of the offices.  Don’t these companies have customers, I think.  What are they to make of the state of this room/office?

This is not to suggest that social entrepreneurs go to the expense of creating lavish offices which seek to impress—surely a waste of scarce resources.  But tidiness and order are not evidence of moral turpitude or corporate sell-out, just of an organisation in good operating condition.  Again, it is the attitude rather than the reality which grates; the sort of nonchalant acceptance that a mess is one quaint aspect of running a social enterprise, especially an early stage one.

Nowhere is this more harmful than when it comes to fundraising.  Where traditional entrepreneurs strive hard to hone their pitch, the social entrepreneur acts as if he/she is somewhat “put upon” but the unnecessary and tedious demands of the potential investor to get an earth-shatteringly important story into a mere few minutes.  We find this sometimes at our Social Investor Speed Dating events from social entrepreneurs.

Not all are this way, and I exaggerate (as ever) to make the point, but I contend that there is nothing harmful in operating to the best standards of commercial behaviour.  It does not undermine but rather enhances the social mission.  It does raise questions:

  • How far can a social business or enterprise go in becoming commercial before it ceases to be social?
  • Which corporate traits are best avoided?
  • When we at ClearlySo host our annual Social Business Conference, and focus on just the financial and performance issues, are we undermining the social ethos? Should we not be including sessions on furthering the social mission?
  • Is the nonchalance I mentioned above just an essential characteristic of the visionary social entrepreneur which we need to accept and celebrate?

First published in The Social Edge in June 2010