How we can knock down the barriers to entrepreneurship in deprived communities

Knocking Down Barriers, our new report (in partnership with Sage and Portland) found that within deprived parts of the UK, there is a massive appetite to start a business. But their ambitions are held back by a range of barriers.

Some of the barriers are financial, while others come from attitudes, a lack of confidence and possessing the know-how to run a business from an administrative perspective.

Sometimes the concerns overlap. It is easier to take a risk when you are fortunate enough to have built up savings. If you’ve been unemployed recently, it’s understandable that you might not want to go months without an income before making that crucial first sale. Taking on debt through a startup loan is likely to seem daunting.

In the past, we stumbled upon a good way of supporting entrepreneurship for those without substantial savings - the Enterprise Allowance Scheme. Pay the unemployed to start their own business.

It is fair to say that is one of the few policies of Margaret Thatcher that is looked upon fondly from across the political spectrum. 

Yet, it’s descendant the New Enterprise Allowance has failed to replicate the success of the 80s era policy. In the 80s, 100,000 people were enrolled on the scheme at one time. By contrast, the NEA’s only seen 131,000 people enroll over the past decade.

The key problem is that while the original scheme paid more than Job Seekers Allowance, the new scheme is worth 25% less and only lasts for six months.

There’s evidence that a more generous approach represents value for money. The World Bank estimated that the old scheme cost about £5,000 in today’s money to create a new job. Few job creation schemes come close to this level of success.

So we suggest enhancing the NEA in a few key ways.

First, today’s payments are simply too low. We suggest doubling it to £100 per week. It’s also key that this money isn’t clawed back when they start earning a salary through UC.

Second, six months support is not enough. We propose moving back to a year’s worth of support.

Third, entrepreneurs need money the most in their first few weeks. So we propose allowing recipients to receive up to 50% of the last six months entitlement up-front in a lump sum on the condition that their mentor and work coach agree.

We also want to expand the eligibility of the scheme to include people who have been furloughed in the past 12 months and under 23 year olds earning less than the National Living Wage. 

This, we believe, would help many overcome the financial barrier. But that isn’t the only barrier. We also need to build confidence and expand access to advice. And this needs to happen at many levels.

We support the Government’s lifetime skills guarantee but many courses lack a real enterprise element. That’s a problem when self-employment and entrepreneurship will be a path that many choose to take. If we can demystify tasks, such as applying for finance, managing business taxes, and creating a company website, then it will build confidence and increase the likelihood that someone takes the initiative to start a business.

But formal education has its limits. We know that business owners, new and old, learn best from other business owners, who can draw from real-life experiences. That’s why the new Peer Networks programme for SMEs is exciting and has the potential to boost productivity.

But that scheme is only available for established businesses. So we propose trialling a Peer Networks style initiative aimed at new businesses. Pilot schemes could work with business support organisations, such as Enterprise Nation, and enterprise software providers, to develop a rounded mentorship programme designed to be scaled.

We also need to reduce the administrative burden on businesses and make it easier for business owners to navigate.

There are a range of models to pursue on this front, but one startling finding from the polling was that many would-be business owners from deprived backgrounds look to social media for advice and inspiration.

So we suggest that new courses and information should be marketed primarily through new media as this is a more effective way to reach deprived communities compared with LEPs or other business support organisations.

Government in general could be simpler if it used technology intelligents. Adopting the Once-Only Principle, the idea that businesses should only have to provide key information to the Government once. The aim should be to reduce administrative interactions to a minimum. 

We have got better at doing government online, and recent projects such as the GDS’ work on mapping out the journey of business owners through gov.uk are valuable. We believe they should be prioritised.

Eliminating these barriers will allow more people to take the leap into entrepreneurship. It is not for everyone and will be hard work, but for many people it represents the opportunity to find work that is not only higher paying, but also more fulfilling.