Opinion: Why restoring the Enterprise Allowance Scheme would be a renewal of Liberal principles

It is one of the great battles of 21st century Liberalism to balance the party’s commitment free trade while not damaging the foundations of the welfare state which were established by previous Liberal governments.

But the point at which both sides of the debate come together can be summed up in a single word: ‘Employment’, as both sides search for efficient and equitable ways to create sustainable jobs and aid Britain ’s economic recovery.

When casting his eye across the various options open to Britain , new Business secretary Vince Cable should perhaps look at renewing the Eneterprise Allowance Scheme which was created by the Conservatives in the 1980s.

This scheme provided an allowance of £40 per week to unemployed people who wished to start their own small business.

The effectiveness of the scheme can be gauged by the surge in new small business start-ups during the period of the scheme there was an average net increase of 500 new companies started every week during the period of the Enterprise Allowance scheme.

In the new millennium £40 may not act as the incentive it did in the 1980’s, but the Coalition should look at claimants being allowed to keep benefits for a fixed period after the start-up.

From a Social Justice point of view this initiative has the benefit of maintaining the ‘safety net’ for those most in need of it, while from an economically Liberal point of view,, it fosters the creation of new business,, increasing competition and innovation, while challenging the big corporations(in several sectors of the economy) who stifle competition and whose near-implosion has a major detrimental effect on the regions in which they operate. This relates specifically to finance houses, law firms and the insurance sector.

In could also be argued that introducing this scheme in areas of high unemployment, but with a single major employer, such as the Dagenham in East London with its Ford Plant, or Sunderland with Nissan, both of which firms required state aid to remain open recently. The Enterprise Allowance would allow new business to thrive in these areas with that create less reliance on the single major employer, benefiting the whole community.

Another area around which there is much debate relates to the economic, if not the social, value is in the ‘green economy sector’.

It is a manifesto pledge of the Liberal Democrats to develop jobs in the green economy, but with the world economy in such an uncertain place, it is more likely that will be a flight of capital to traditional sectors, rather than into the new, and relatively untried green energy market. But due to the way Capitalism has been allowed to develop by the Tories and Labour,, it is the traditional sectors of the economy which a person starting up a business would find it hardest to brake into, but more importantly hardest to get help from, as the banks and venture capital firms concentrate on moving money around among themselves rather than on expanding the economy through genuine wealth creation.

Focusing the Enterprise Allowance Scheme particularly on energy efficient start-ups would allow the Liberal Democrats to rebalance the economy, reduce unemployment and tackle the cartel culture which has gone some way to placing Britain in the economic mess in which it currently finds itself.

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12 Comments

  • Andrew Suffield 6th Jun '10 - 6:06pm

    An increase in the number of new businesses is one thing. Was there a corresponding increase in the number of businesses over 12 months old, one year later?

  • EAS had about 95% deadweight. Most of businesses started sinmply led to an existing business going bust. If you subsidise one person to become a minicab driver, then, by and large, another minicab driver in the area goes bust. Ditto haridressers, florists, car repairers.

    The exception for EAS was east end leather jacket makers, almost all immigrants. These garments replaced imported jackets. But the wages were very, very low, and the hours long.

    It was worse than a waste of money, because it unfairly put out of business people who did a good job.

  • We know that the only long term answer is to ensure that people have real skills. That is why the pupil premium is so important – if I were in government I would have found £20bn by now to fund it to the extent that it would definitely work. Second, we need to increase the numbers going to univ, and doing masters degrees. Every single expansion of education has worked (so long as people are not forced to do it). There is huge evidence from the US that increasing univ numbers (inc. 2 year foundation degrees) increases growth and reduces inequality. For others, the only thing we know is that people with high skills are almost always in work, and people with low skills are much less likely to be. It is pretty doubtful that the latter group have the skills set – on average – to become entrepreneurs and make a go of a business. But we do know that in areas in which the economy is doing well, this group are much more likely to be employed. In the last 10 years 9 out of 10 new private sector jobs were in the South (Centre for Cities – Private Sector Cities report, launched today). Connectivity and scale matter, and the best policy for the unemployed is almost certainly to let prosperous, connected areas expand, so that more people can move to areas with more opportunities, just as people migrated to the ship yards in Glasgow and the textil mills of Burnley a century and a half ago. It is not painless, but it is possible even in an age of austerity. And it is more likely to work than any other policy proposed, including green jobs, taper changes (all significant benefits are tapered already), EAS, workfare, new deal training, better transport links, etc.

  • Andrew Suffield 7th Jun '10 - 7:31am

    Second, we need to increase the numbers going to univ, and doing masters degrees

    Ah yes, masters degrees. I looked into those recently, and discovered that there is not really any kind of funding for students who want to do them, aside from whatever the universities can scrounge up from donations, which is never enough.

    Notably, the student loan program does not extend to masters degrees (why on earth not?). If you want to do one, you have to be rich enough to live without a real job for however long it takes, or take out a commercial loan with no real plan for being able to pay it back.

    Undergrad degrees and doctorates are funded so that basically anybody can do them. Why do we have a gap here?

  • david thorpe 7th Jun '10 - 11:37am

    Thanks all for the replies, have to say Ive learned a lot from them.
    I dont disagree in relation to masters degrees, but thats only looks after a certain segment of the economy, if you are from a former mining community, which are real unemployment balckspots, hearing about masters degrees means nothing to you if you want to stay in the area.
    I dont discount them but they are nothing on their own.
    The increase in apprenticeships announced by this government is important.
    The micro economic factprs which you have mentioned, about thyem replacing the exisiting bsuinesses?i understand, and also the danger of people who have businesses just signing on for the extra money.
    In relation to the first point, as I said in my earlier post, the scheme should only be targeted at areas where there is a labour/business shortage, such as the green sector.
    And the issue of exisitng businesses/surely if you had to be on bebenfits for 3 months to be eleigibel that woulkd solve that problem?

  • There is also a large difference between education, skills and the link to growth. There is also a continuing question about the level of education we are talking about. If memory serves, return to capital accounts for about a third of growth. Human capital adds another sliver onto that, but increases in technological improvement counts for a huge swathe of overall growth. That means spending on primary education (you can’t operate much if you can’t read properly), continuing to support adults to change and upgrade their skills (even when they are already employed; Japan’s tight labour markets gave an incentive to train up workers as they got older; loose labour markets and a large exposure to trade is great for rapid switches and cheap goods, but is really tough on workers trying to keep up without massive financial risk to their families etc)., but also a huge, renewed focus on R&D spending. There is plenty of evidence that the private sector underinvests in R&D, so we really need to spend money keeping the best engineering, biogeneticists etc etc in their country and not losing them all to the Ivy League. We need to dramatically increase the quality of undergrad education in these sectors too.

    We’ve lost a lot of manufacturing jobs to India and China etc but China is now churning out large numbers of scientists and engineers; India can deploy much cheaper software experts through Infosys and Silicon Bangalore. Currently we have free trade for the poor and protectionism for the rich (empty wards because of a lack of foreign doctors, professional qualifications like ACAs a non-tariff barrier to foreign accountants etc). Dean Baker’s free book is on the internet and shows this effect in America quite well.

    We need to not just upgrade our knowledge economy jobs and massively increase govt. R&D spend, we also need to make sure that our manufacturing and other sectors can compete. The large number of pounds pouring into the City and the piss-poor allocation of capital once it got there hardly helped Great Britain plc. Time to set it right.

  • david thorpe 9th Jun '10 - 2:27pm

    I agree steve its about an economy thats balanced between all of the different sectors.

  • I used the 6month Skills Training programme when they were available, to retrain in construction. I couldn’t have done that without the financial support offered. It allowed me to work in the construcion industry for the next 12 years. Physical injuries caused by the demands of the job, meant I could no longer do heavy work.
    I then payed to retrain myself to work in the electronic security industry. At 55yrs I was laid off, and to be honest I was strugling with the demands of the job as my physical health continued to deteriate.
    Having worked all my life I now find myself at 59yrs, unemployed unfit, and untrained for any light duty work.
    There is no training available for me, and if I want to retrain myself or go to colledge my £65 a week benefit will be stoped.
    Now my retirement has been delayed, even if someone would offer me a job, I am sure it would be better to offer it to a younger person, who my never have had a job.

  • Catherine Courte 13th Sep '10 - 8:40am

    The Enterprise Allowance Scheme had one massive downside – no help to start up your own business. No wonder the answer seems to be skills training (a masters for an unemployed hairdresser is overkill – get real with peoples’ abilities). But if you help folk gain good literacy and numeracy, with the goal of success in business, you gain twice over – better basic skills and a job. And more businesses are sustainable if they’re created and grown with support. BTW, government HAS to pay for this – let the accountants and lawyers do it for ‘free’ and you create massively over-engineered little enterprises that will shudder to a halt under all the professionally-recommended overhead. Plenty of facts and figures on self-employment around. The deadweight issue? If existing businesses can be destroyed simply by a new start-up on the block, weren’t they unsustainable anyway? It’s an old chestnut that seems to argue in favour of a static economy, and no supply side influence. If the new biz was going to start up anyway, then why haven’t we got the same start-up rate today as under the Enterprise Allowance Scheme? Hmmm….

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