The New Enterprise Allowance: can employment services begin to accomodate a more enterprising nation?

The New Enterprise Allowance scheme deserves some praise. For those who haven’t heard of it, the NEA helps unemployed people who have been claiming benefits for 26 weeks or more to start up their own business. Anyone with a robust enough proposition is provided with mentorship support, a weekly allowance of around £65 and access to a start-up loan of some £1,000. The employment minister Chris Grayling revealed last week that in just over a year, this NEA support package has already been used by around 4,500 unemployed people to kick-start their own business. According to DWP, this includes film makers, child-minders, hairdressers, web designers, language tutors, plasterers and gardeners, to name but a few.

What is great about the NEA is that it doesn’t assume unemployed people are entirely without entrepreneurial spirit. It recognises that there are many people out there who have lost their jobs but who have the drive and determination to start their own firms and who are willing to take all the risks and difficulties that come with that decision. This is something that the Federation of Small Businesses has long been campaigning about. According to their research, there are some 400,000 50-64 year olds who are out of work and who wish to start their own businesses.

The problem for these people is that they are often refused start-up loans by high street banks. Indeed, the same FSB research reveals that 1 in 3 entrepreneurs who apply for finance from conventional sources are refused credit (the news that Wonga are now offering small business finance loans is testament to the poor state of the credit market). By stepping in and offering start-up finance and support, the NEA helps entrepreneurial types circumvent many of these barriers. Moreover, it keeps them in the formal, tax-paying sphere. Research by Community Links shows that people who are refused credit through conventional avenues often turn to family and friends as an alternative source of finance, thus creating opportunities for them to start off on an informal footing and increasing the likelihood that they will do most, if not all, of their work off the books.

All of that said, the NEA isn’t perfect. The All Party Parliamentary Small Business Group has most recently argued that the NEA should be available to unemployed people as soon as they begin claiming Job Seeker's Allowance, not just after 6 months which is the current stipulation. This is based on the belief that people who start an enterprise in the first six months of unemployment are more likely to still be in business compared to others who wait longer to enter into self-employment. Others have raised concerns that the loan provided as part of the NEA simply isn’t enough to pay for all the necessary sunk costs that come with starting a business. The FSB claims that for 14 per cent of small businesses, start-up costs range from £2,500 to £5,000, a significant amount more than the £1,000 currently offered by the scheme.

Notwithstanding these practical difficulties, I get a sense that perhaps a bigger challenge to the success of the NEA, as well as to any other schemes supporting people to start up their own business, is an institutional culture that is not supportive of, or at best indifferent to, entrepreneurship. By this I mean that we have a system of unemployment support that seems to be heavily geared towards getting people into wage-work for large employers, rather than to assist them into self-employment. If you were unemployed and went into your local Job Centre Plus centre, it would be genuinely surprising if the officer handling your case were to ask you if you had thought about starting up your own business. Starting up an small enterprise just isn’t seen as the done thing for unemployed people to do. Put simply, entrepreneurship isn’t mainstream enough.

In The Road to Wigan Pier Revisited by journalist Stephen Armstrong (a great anecdotally-rich account of poverty in 21st century Britain), there is a story of a 28 year old would-be entrepreneur called Norman Charles who describes the ‘impossible’ task of trying to get some support to set up his own company whilst unemployed:

“At Seetec, I was met by a Mark Smith, from the Seetec office in Birmingham city centre. I explained all this to him – that I am keen on setting up a business and need some help finalising the plans – particularly in regards to VAT and all the rest of it. He checked my Jobseekers agreement and said that they can only help me find work that I’ve stated I’m looking for on that – and that the only help they could give me in regards to setting up my own business is £300 that they have sitting around the office. For one thing, I didn’t ask for any money… and for another, £300 is quite a laughable amount to offer somebody setting up a business... Then he went on to tell me that I will have to do four weeks’ work in a factory, for free… that’s going to keep me on benefits when all I want to do is set up my own business. I declined to sign his Action Plan committing me to work experience in a factory and I was then, of course, instantly sanctioned… All I want to do is get a little help setting up my business, just some professional advice is all I need and I will sign off within a month. But it’s impossible. It’s crazy.”

The same sentiment is borne out in the aforementioned research undertaken by Community Links. Their interviews with entrepreneurs reveal that Job Centre Plus outlets don’t have the wherewithal or inclination to support people setting up their own businesses, and while Business Link do, they don’t cater particularly well to micro-entrepreneurs. Given that we are entering a new era of employment where people increasingly want to work for themselves, this is a major issue we need to contend with. To take a couple of revealing figures, over 75 per cent of 11 to 18 year olds say they would like to start their own business when they get older, and the proportion of the workforce now in self-employment is the highest it has ever been.

We’re clearly taking great steps towards becoming a more entrepreneurial nation, but it doesn’t feel like current employment services are able to keep up. The NEA is a great example of what is possible when policy recognises the ambitions of job-seekers, and no doubt we need to see similar efforts made in the future. Yet what is perhaps more important is inculcating a new attitude within our employment services which appreciates that being your own boss is not the preserve of a few individuals but rather an aspiration for increasing numbers of people.