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.

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