Is ‘Social Enterprise’ A Stealth Tax?

Where does a social enterprise get its start up capital from?


I understand that they may get it from a wide range of sources – but in essence where is that value created before it is made available to a social enterprise?

If I am right then it comes from:

  • involuntary or voluntary taxation on ‘for profits’ (which may or may not themselves already be providing positive social outcomes)  
  • gifts or
  • other forms of voluntary taxation such as the national lottery, foundations etc

But ultimately the source of nearly all of this cash is the ‘for profit’ sector*.  In essence money is taken from, or given by, those who have created profits to invest in ‘social enterprise’, including public services, that have little realistic potential for generating sufficient profit to make the risk of private investment worthwhile.

The extent of the ‘stealth’ in the ‘taxation’ varies widely in different contexts.  For example if I buy fairtrade chocolate I know that I am paying a premium to provide a social good.  The chocolate bar is clearly labelled and I can easily find out more about how my premium is used to derive social gain. 

However if I rent an office in a managed workspace provided by a ‘Community Interest Company’ am I equally clear on the premium that I will be paying to enable them to generate a profit in order to re-invest back into the community? 

Is the product clearly labelled in the same way that my fairtrade chocolate bar is? 

Are the mechanisms for re-investing my taxation clear and transparent? 

I can see lots of salaries that need to be covered from my rental.  I can see additional overheads (atria, gyms, cafes, sexy furniture, light fittings etc) that need to be paid for before any profit is created for re-investment.  And I can see prices that are significantly higher then the local market rate.   I can’t clearly see how my premium will be used to benefit the local community.  It feels like a stealth tax!

Even if the labelling is transparent and the mechanisms for re-investment are clear then I still have a problem with this model.  While both service provider and service user are engaged in a fair exchange from which both gain, I am not sure about what drives excellence in the service provider in the long term.  It feels a little like any other subsidised public service – and these have been notoriously difficult to manage efficiently and effectively.   As much energy goes into maintaining the subsidy as into generating value.  The ‘taxation’ gets locked in.

So is social enterprise just another stealth tax?  Well that would explain the massive extent of political interest.  But social enterprise can and must be so much more than this.  It can be the genuine organisation of a community around the concept of using enterprise to create social value.  It is this vision of a genuinely ‘social’ approach to enterprise that I believe we are at risk of losing. 

*I believe that there is a tiny venture capital movement developing to invest in social enterprise – but I am not sure what the return on investment is that these venture capitalists seek.  If it is a true VC model then it will be a substantial profit on their risk capital.  If they just want to see social good then it is not venture capitalism as I understand it – but just another form of giving.


  1. Nice writing. You are on my RSS reader now so I can read more from you down the road.

    Allen Taylor

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