The (New) Enterprise Allowance Scheme – good but could be better

In the UK, the 1980s were a difficult decade for many people – unemployment was increasing, key industrial sectors were shut-down and the livelihoods of many people were in jeopardy. Nonetheless, a key policy which was implemented then should be even more successful now and we should welcome it back.

In 1983 the Enterprise Allowance Scheme (EAS) was introduced which allowed those on the dole to sign off and begin to run their own business. With £1000 as personal capital needed, the scheme would then give £40 per week for a maximum of one year. Amongst a backdrop of scepticism the scheme funded hundreds of thousands of people and often allowed those in training to continue what they were doing and to run their own business.

In 2010, Ian Duncan Smith and the coalition government have decided to bring this proposal back under the cunning name of the ‘New Enterprise Allowance’. The measures will allow up to £2000 to be taken as a start-up grant, access to a loan, a business mentor and guidance in writing the business plan.

This seems to fit extremely nicely with the promotion of the private sector and the drive towards localism making regions more responsible for their own economic growth and development. Micro businesses are where this coalition government feels it can boost employment, decrease benefit claims and revitalise the local economy.

Having said this, the target of 40,000 new micro businesses may be a little optimistic as the scheme is only open to those who have been on Job Seeker’s Allowance for 6 months or more. What would boost the local economy further would be to scrap this requirement and allow anyone to start a business under this scheme so long as they do not claim an employment income from elsewhere. Clearly this stipulation is in place to minimise risk and justify spending a little extra then JSA. The Government has even stated that given the changes to quangos and the closure of key services such as Regional Development Agencies there will be many professionals looking to start their own business; unfortunately, having to sign on for 6 months beforehand is not appealing and misses the point.

NEA also falls short a little because it is not dissimilar from the scheme that Labour had implemented (and is still available) which allows £50 per week for 16 weeks.

As with any form of grant, the donor wants to minimise the risk of ‘default’. Here, a legitimate case could be made to incorporate the microcredit model as a different strand of NEA.

Microcredit is a loan given to a group of people within a community predominantly in developing countries (pioneered by the Grameen Bank). In developed countries the risk is minimised in a myriad of ways: collateral, credit rating, relationship with the lender etc. Within developing countries the risk is managed by self-regulation of the group of people – if one person defaults then no other member can receive another loan.

If we take the microcredit model and actually make it a ‘microgrant’, i.e. there is no personal burden of a default, but retain the self-regulation principle then this strand could have very large effects incorporating self-employment, entrepreneurial spirit, a sense of community and the possibility of anyone from any income background to take control of their own lives.

What we should be mindful of is that some people will always default and it shouldn’t be to the detriment of the others within that group; here, the less risky individuals would only join with the other less risky individuals thus further isolating those considered more of a risk. Perhaps this could be counterbalanced by microgrants being awarded to those groups of individuals wishing to start a social enterprise together – an enterprise whose surplus is reinvested into the service it provides or other community/charity based projects. This would create the sense of ‘community’ which could outweigh individual default.

Overall, the NEA should be welcomed and embraced. It goes a little further than the previous government and the political landscape is far better suited to starting a business now than it was previously. Having said this, the policy doesn’t quite go far enough – either curb the necessity of signing on for 6 months or include a different strand of microcredit, a ‘microgrant’, which could either encourage many individual projects within a group or one community-based social enterprise for the group as a whole.

Enterprise has the power to change lives and revitalise communities further putting people’s destinies in their own hands – this is what the localism agenda should seek to achieve.

This article can also be found on the World Entrepreneur Society website:


One thought on “The (New) Enterprise Allowance Scheme – good but could be better

  1. The new Enterprise Allowance Scheme will only work if it comes with high quality training. That’s how the old scheme was successful, not so much because of the £40 a week allowance, but because those interested in becoming self-employed obtained comprehensive training by the UK’s 82 Training and Enterprise Councils – which sadly no longer exist.

    In the 1990s I produced video films that promoted and explained the original Enterprise Allowance Scheme. They were shown at Job Centres across the country and featured successful businesses started by people who had previously been unemployed. I believe the scheme was an innovative way to encourage and assist self-employment as a viable alternative to unemployment. My Enterprise Allowance videos can now be freely viewed on my YouTube channel:

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