It seems you can’t open a paper or check your smartphone without reading a review of Thomas Piketty’s economic blockbuster Capital in the 21st Century. Piketty’s revolutionary message is that capitalism inevitably breeds inequality as, over time, returns to capital exceed growth and so wealth accumulates with the 1%. The rich get richer faster than the poor get richer. Or, in short, r > g.

Piketty’s answer is for greater tax on wealth, which he also acknowledges is utopian and unlikely to ever happen. Does this offer us any guidance for social investment?

At the ill-fated Futurebuilders (phase 1), one of our core principles was that the investee must remain the principle beneficiary of any investment. This seems to resonate with Piketty’s insight – if the investor is the principle beneficiary of an investment then we’re probably not helping create a fairer society. Similarly, the CIC model ensures that 51% of dividends are directed to a social purpose, not for private profit and the consolidation of private wealth in the hands of the few. Piketty would love CICs.

What would Piketty make of SITR? At a recent conference session on SITR, one esteemed uncle of the social enterprise movement was enthusiastic about how this new tax break could open the doors for rich people to lend at 0% interest to social enterprises, thus relieving HMRC of – and pocketing - 30% of the value of the investment off their tax bill. The social enterprise could stick the money in the bank for 3 years, earn a bit of interest on it and pay back the capital. In this scenario, the investor would benefit far more than the investee, say sixfold - assuming, say, saving rates of around 5% over 3 years.

As David Floyd and Jeremy Nicholls have both pointed out, any analysis of social impact is incomplete if it doesn’t take into account the impact of returns accruing to investors. Today, perhaps following some hurried weekend reading of Piketty, a few sector experts have come out against SITR - criticising it as another tax break for the rich. Indeed, HMT’s own analysis acknowledges that the benefits of the break will accrue disproportionately to rich white men in the South East of England. (Meanwhile under Gift Aid, by contrast, the tax relief goes to the recipient not the provider.) 

So can we be both delighted that SITR has levelled the playing field for investment in social enterprise vis-à-vis 'conventional' businesses whilst also regretting a policy which helps the rich get richer and so breeds further inequality? Maybe we should ask ourselves - what would Piketty do?