The British economy has always been characterised by being open to a large number of forward-thinking and adaptive initiatives. As a result, the United Kingdom has a dynamic business culture, and this fact has certainly played an important role in the country’s post-recession economic recovery. A growing number of business startups is considered one of the most important characteristics of a healthy economy, so it should not come as a surprise that many governmental schemes are geared towards facilitating the appearance of new business ventures. According to the Federation of Small Businesses, during the first two quarters of 2013, more than 90,000 business were launched across the UK, the majority of which were small ventures. But the UK has potential for much more than that, and it is precisely due to this reason that the British executive has made a special effort to revive the Enterprise Allowance business scheme. Take a look at how this initiative can help new business startups in the UK.
An introduction to the New Enterprise Allowance
What exactly prompted the development of this business scheme? In the first place, we must clarify that the New Enterprise Allowance is not exactly new. In November 1981, the Thatcher government launched the Enterprise Allowance scheme, which aimed to tackle high unemployment levels and to boost entrepreneurial culture across the country. Therefore, the objective of this initiative was two-fold: first, it hoped to get people back into work; and second, it aimed to improve the country’s economic indicators by offering financial support to entrepreneurs. The original Enterprise Allowance consisted of weekly payments of £40, an amount that was certainly much more desirable than the £26 per week paid to those on unemployment benefits.
Over the years, the scheme’s popularity seemed to drop, until in October 2010 the Department for Work and Pensions announced the approval of the New Enterprise Allowance. We can draw several parallels between both schemes. First of all, they both appeared following a particularly critical period of economic stagnation. We must remember that in 2009 the British economy experienced a sharp contraction at all levels. Both schemes aim to prevent long-term unemployment by offering a way out in the form of self-employment. The New Enterprise Allowance consists of a weekly allowance of just over £1,200 spread over 26 weeks, in addition to a business loan of up to £1,000 that can be used to help with the costs of buying equipment or with other start-up costs. Moreover, the New Enterprise Allowance package includes mentoring services provided by experienced business owners.
Although generally speaking the UK is considered one of the cheapest European countries to set up a new business, one cannot ignore the level of risk involved in launching a new business venture. The most recent statistics have shown that approximately 1 out of every 3 startups fail within the first three years of existence, and nearly 20 per cent don´t even make it to their second year. Therefore, this governmental scheme is clearly beneficial to startups, as it helps them stay afloat financially during a particularly vulnerable period, reducing the risks of business failure.
Who can benefit from the new scheme?
The New Enterprise Allowance scheme is available to any UK resident who is at least 18 years old and who is in receipt of government benefits like Jobseeker’s Allowance, Employment Allowance, Income Support, and Support Allowance. Potential beneficiaries must also show that they have a business plan. After signing up to the scheme, a business mentor will help applicants develop their business idea, and financial help will become available once the business plan is approved. New Enterprise Allowance recipients must work in their business startup for at least 16 hours every week in order to keep receiving financial assistance.
Everything points at the fact that the New Enterprise Allowance scheme has already been successful at helping business startups. According to an Entrepreneurs Index report published by Barclays and the Business Growth Fund, during 2012 the number of startups increased by 3.4 per cent when compared to the previous year. Official government figures have shown that towards the end of the first quarter of 2014, the New Enterprise Allowance scheme had helped in the creation of 2,000 startups per month. Approximately 23 per cent of all new startups were launched by people who were 50 years old and above, an age group that faces particularly tough challenges when it comes to getting back to work.
Although the long-term effects of this governmental initiative remain to be seen, there does seem reason to be positive and to expect that more entrepreneurs will seize this opportunity, fostering a positive economic climate where new business startups can thrive and grow in the right direction.