16 March 2009

Can we learn from history? That we are in difficult times is obvious to all but apart from policies designed to meet day to day problems as they occur has anyone given much thought to how we will extract ourselves from this recession? We are entering a new world – one far removed from Whitehall and I believe that the ruling classes have misunderstood the prevailing mood “on the street”. Even today, from very senior personnel, I have heard predictions that we will all be back “to normal” in 18 months time. But exactly what is normal? Certainly not the unrestricted consumer borrowing and spending of the last 10 years. That was an artificially created boom built on sand and which will take far more than 10 years to correct.

Patterns of behaviour are changing as jobs are lost and more importantly the fear of losing your job increases. This caution and desire to restrict and repay borrowing will – hopefully – lead us back to a more sustainable way of living within our means. But who is it that will lead the comeback; be the driving force for future growth and job creation? Not, in my opinion, the large multi national firms. Many of these resemble the last days of the dinosaurs – large, unwieldy creatures unable or unwilling to adapt to the quickly changing climate. Real growth will occur from the small business sector, new start ups and enterprising individuals with the ideas, passion, belief and knowledge to exploit the rapidly changing market.

So what are we doing to encourage these future “white knights” to ride to our rescue? Not a lot as far as I can see. Central government still fails to understand the significance of this sector of the business community and caves in to sophisticated lobbying by “big business” with handouts remarkable in their size. As usual politicians want an immediate headline, an easy solution and fail to show the leadership and vision necessary to safeguard our future.

History can teach us lessons and help us in determining our future. So let us look back 30 years to the recession of the early 1980’s. Then an innocuous, low cost and unheralded scheme had perhaps the largest influence on providing 20 years of prosperity. The Enterprise Allowance Scheme. Much derided, it acted as the catalyst for literally tens of thousands of new businesses to be created, hundreds of thousands of new jobs and lifting millions out of disadvantage.

A simple scheme it offered a meagre allowance of £40pw to unemployed individuals to start up in business. Combined with training and support it spawned an increase in entrepreneurial culture at a rate not seen before or since. Of course some people played the system just to get an increase in benefits but these were a minority and due to the amount of work required to start up in business were soon identified. But it gave just enough support to encourage those who would otherwise have not taken the plunge and started their own business, it allowed the family to survive in those first few crucial months as the business was created and more importantly than ANY other benefit it gave the prospect of helping others with no cost at all as employees were taken on by these fledgling businesses.

The time is right for a new Enterprise Allowance Scheme to combat what may become the worst downturn in living memory. Taking into account inflation since 1980 offer say £100pw to anyone who is unemployed undergoing training to start in business. Guarantee this for 12m and watch the number of starts rocket and revenues increase. Without putting exact figures on the benefit to the UK it can be seen that this is a true “win-win” situation. Jobs are going to be harder to come by and so people will sit on unemployment benefit for longer without this positive action. Whilst the allowance would be c£5k pa extra the number of people coming off benefits will increase as they start up in business, making a positive contribution by paying taxes and creating more jobs via their growth.

The benefit to society would be immense and I would estimate that the cost to the public purse would be negligible. What is there to lose? If no-one starts in business then there is no cost to the exchequer, for every business that does start there is a £5k pa cost but savings on benefits as they come off these quicker than would otherwise be the case and the added benefit of new jobs being created. This is the kind of solution that we need in these troubled times, but who has the vision to make it happen?

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