HC Deb 13 April 1984 vol 58 cc635-43 9.35 am
Mr. Lewis Stevens (Nuneaton)

I wish my hon. Friend the Under-Secretary of State for Employment a happy birthday, and I apologise for calling him in on his birthday to answer the debate.

I asked for this debate to bring attention to the success of the enterprise allowance scheme, which is relatively new and which, by its success alone, was finding itself in trouble, and to request that the efforts and the expenditure which will be necessary to bring it to fruition will be forthcoming from the Government.

Of all the schemes that have been introduced, this scheme has possibly had the greatest success. The uptake by people has been such that, instead of a two-week period approximately from when people apply to when they start on the scheme, we have now moved to far longer waiting periods of 15 weeks on average. In my area, the period of waiting approaches 24 weeks. That is of considerable concern with something as successful as this scheme.

It has been called rightly a very imaginative scheme, and I shall deal later with some of the successes that have shown how imaginative the people involved have made the scheme. First, I wish to consider the origin of the scheme, and why it was introduced. A few years ago, when one went round one's constituency, people made the point that they would like to do something for themselves, but said that, immediately they started on a scheme, they lost the employment benefit or the social security benefits that they had hitherto received. That was a great deterrent. Having been made redundant, and, in many cases, having received only a small amount of money in redundancy payments, they had a little money in the bank. At the start of a venture, when even the smallest businesses have a period in which they need support, these people felt that they could not afford to put their families—particularly if they were young married couples with families—in jeopardy. It was the support in the early days of the business which was so important to them.

It was a tremendous step forward, therefore, when the scheme was introduced first as a pilot scheme. Five areas, including my neighbouring town of Coventry, took part in the first pilot schemes. They involved some 3,300 people. From that the scheme was developed.

On 13 November 1981 the then Under-Secretary of State for Industry, my hon. Friend the Member for Norfolk, South (Mr. MacGregor), said that one of the reservations of people wanting to go into business was: They would have little to live on during the early stage, and, by determining to set up their own business, would lose their entitlement to benefit. It is increasingly put to me by many small firms' counsellors and at many BOP sessions that that is proving a real and psychological barrier to the unemployed taking such a step."—[Official Report, 13 November 1981; Vol. 12, c. 769.] The scheme developed successfully out of the initial 3,300, because in August 1983 the scheme became nationwide and the Government set aside the money to fund 25,000 places up to the end of March. The former Secretary of State for Employment, my right hon. Friend the Member for Chingforcl (Mr. Tebbit), said: This decision underlines the Government's commitment to encouraging initiative and stimulating new business. I am confident that there is sufficient flair and entrepreneurial talent amongst unemployed people for the scheme to be a success nationally … The potential benefits are great, not just for the person who manages to set up a successful business but also for others who may subsequently secure jobs in that business and for the community as a whole. We have seen since just how true that statement was and what an opportunity the scheme has given to many people.

The scheme has been welcomed more and more as the months have passed. I have to confess to being a reader of The Guardian. Just occasionally it prints items with which Conservative hon. Members can agree. It reported: Enthusiasm for the scheme has been widespread since it was introduced on a pilot basis in 1982. It described the scheme on Friday 9 December as an imaginative idea which was quickly developed from a pilot scheme in five areas to be extended this year to the whole country because of its success. Perhaps the only real criticism which can be levelled at it is that insufficient funds have been allocated to it, which limits the numbers that can benefit. For that to be the only criticism by The Guardian suggests that it must have been a great success. The success of the scheme has brought with it a difficulty in allocating places to those now applying.

Many people have gone into conventional manufacturing businesses and enterprises supplying the general services that we expect. But there have also been some remarkable attempts by people to consider ventures which no one could have expected. For example, one person went into business with a breathable cushion. It occurred to him that in summer car seats could become extremely hot and uncomfortable, so taking advantage of the enterprise allowance, he developed a cushion that would breath. We have people making snooker tables. Other people have gone into the textile industry which, as we all know, has many complaints about competition.

With enterprise allowances, people have been prepared to tackle these problems. Another example is of a firm making hand-made paper which has managed to be successful. We have people engaged in sports coaching, sound engineering, a telecommunications agency, and even a man who went in for aerial advertising by blowing up balloons. In my constituency a 55-year-old man has set up a business manufacturing cycles. He is now taking on apprentices, which is a real step forward. All this has developed quickly from very small beginnings. It is clear that the enterprise allowance is creating a lot of initiative.

One gentleman in my constituency who has complained about the waiting period wants to go into business as a curative hypnosis practitioner. I do not know whether that is a common trade, but it is an example of people using their imagination.

The problems which come with the increasing waiting period are considerable. The very people who have the initiative and want to go into business but who have not the financial support to go into much larger enterprises, having got the idea that they want to start a business, find it quite a blow to discover that they cannot receive the support that they need very quickly. As I said earlier, two weeks was the original time between applying and getting under way. Today the period is much longer. That in itself is discouraging. People start thinking of all the snags, and the impetus and enthusiasm that the scheme is meant to develop drains away. That is very unfortunate.

It also has more practical disadvantages. When people apply to join the scheme they must be in receipt of unemployment or social security benefits. If they have to wait too long—in the west country and in my area as long as 24 weeks—they may go out of benefit and no longer be eligible.

The Manpower Services Commission, quite sensibly, allocates allowances in monthly blocks across the regions. It is possible to transfer any surplus from one region to another. But, fortunately in one sense and unfortunately in another, the take-up is so good overall that there is no surplus to distribute. At the moment the MSC is allocating about 600 places a week. But the demand rate is about 1,000 a week. We are desperately short of places for people to take up. If the national average delay is 15 weeks—and some areas run to 23 and 24 weeks—people can easily drop out of benefit in that period.

The scheme has had a snowball effect. As it becomes better known—and it has been in full swing only since August last year—people will see friends and acquaintances succeeding in small one-man businesses, and that in itself will generate an increasing number of people wanting to take up the scheme. That is what we want, of course, but we must be able to meet the demand much quicker than we can at present.

Whenever a new scheme is introduced, there is always an initial demand which is larger than we can expect to continue. It will reach a peak, but we are a long way from that peak. It will occur in the months ahead, but it is not with us yet. That again means that the delays could get longer, and that would be counter-productive to the scheme.

It is not possible for people to be given the opportunity to go ahead until the necessary money is available. They go on a waiting list. They attend information sessions or seminars. It is only then that applications are considered and accepted. From then it is only a short time, perhaps a couple of weeks, before they are given the go-ahead. Before that happens, there is a long period of delay and uncertainty.

The success of the scheme is demonstrated by the fact that, so far, 27,600 have been able to take advantage of it, of whom some 26,000 are still in business. The dropout rate has been about 10 per cent., which is fairly small compared with the business enterprise sector as a whole. On 6 December last, the Minister referred to a three quarters survival rate, which compares very favourably with other small businesses.

For the people who manage to set up businesses in this very small way there is the great satisfaction of doing something for themselves and a great restoration of confidence. One must accept that redundancy involves a kind of sickness and that after the minimum qualifying period of 13 weeks people may become quite depressed about their future. The scheme therefore provides a great boost to their confidence. Although the minimum qualifying period is 13 weeks, about 30 per cent. of applicants have been unemployed for more than 12 months. Few other schemes—the community programme is one—provide such opportunities for older people and the long-term unemployed. The considerable take-up by the long-term unemployed and its availability to the unemployed of all ages up to 65 is another reason for requesting additional support for the scheme.

The scheme is now receiving better publicity as people begin to understand its advantages. Moreover, the cost is not as heavy as it seems. The maximum allowance is £2,000 over 52 weeks and the applicant must have £1,000 backing for the business. Those are relatively small amounts, but they are not small for the people needing them. Few people receive redundancy payments of £10,000, £15,000 or £20,000, as provided by some large organisations. For many people, payments are just a few hundred pounds. When companies go into liquidation, many people made redundant receive only the relatively small amounts guaranteed by the statutory scheme.

Those taking part in the scheme receive £40 per week for 52 weeks, but they are no longer eligible for unemployment or social security benefit. The net cost to the Exchequer is thus probably no more than £1,000 per year. In some cases, because the applicant was receiving more in benefits, the result would be a net contribution to the Exchequer. Therefore, despite the administrative costs, I believe that the scheme may even be of benefit to the Exchequer. The profits made are taxable and people are brought back into tax and national insurance contributions far more quickly. Money is not being doled out in huge amounts. A certain amount of money is, as it were, borrowed from the Exchequer, but the scheme is almost self-financing in the return that it generates.

The scheme also discourages that nasty animal the black economy. People are working honestly in business and following the normal tax procedures. It encourages people to take the first important step to create something for themselves. That is why it is important that it should receive full financial support. People should be able to start their own businesses as soon as possible after coming up with a viable idea.

The scheme does not conflict with the Government's financial constraints and the attempt to hold down public expenditure but is complementary to them. Resources may need to be switched from one part of the MSC or some other pocket of the Exchequer, but it is well worth while because the return is so important not only for the Exchequer but for the community.

The scheme provides jobs not only for successful applicants but for the people whom they later employ. It has been estimated that for every 100 new enterprises 40 additional jobs may be created. That, too, is highly valuable. Another attractive feature is that most of the initiative takes place locally and is not taken away to other areas.

The scheme has been very popular and a great success in every way but one. The only failure is the delay which now threatens the reputation and effect of the scheme. I hope that the Minister will take that seriously and will try to influence those who dole out the money so that full financing is available to meet the demand as it arises. The scheme provides great encouragement and costs almost nothing compared with the estimated £30,000 per job in some regional aid schemes. We must not pour cold water on people's initiative by the present limitations.

9.56 am
Mr. D. N. Campbell-Savours (Workington)

The hon. Member for Nuneaton (Mr. Stevens) has initiated a very important debate. I hope that the Minister will take the point about the comparative cost of regional aid. We should like to know the off-the-register cost of the scheme, as we believe that it is very small.

I have consistently supported the Government on the scheme since its inception, even when that was not popular among Opposition Members, because I have always believed that the scheme had an important part to play in creating employment, especially in the peripheral areas with very great unemployment problems.

The Government should now review the operation of the entire scheme and consider increasing the allowance by at least £10 per week as well as substantially increasing the number of places so that the scheme can work even more effectively. It already makes a major contribution to the reduction of unemployment not just through the direct off-the-register cost but through the spin-off effect of new employment created by those who set out and succeed in business as a result of the scheme.

In areas such as mine and that of the hon. Member for Nuneaton, there are long waiting lists of applicants. I have written to the Minister about this. I appeal to him to increase the allocation to my region and certainly to my constituency because we cannot afford the current delays. I hope that he will press the Secretary of State to argue in the Cabinet for a greater allocation being made to the Manpower Services Commission for all the related schemes so that they can be made to work more effectively. We desperately need those jobs now. I appeal to the Minister to take action on this.

9.59 am
The Parliamentary Under-Secretary of State for Employment (Mr. Alan Clark)

I warmly welcome the chance to echo the welcome that both sides of the House have given to this excellent scheme. My hon. Friend the Member for Nuneaton (Mr. Stevens) has done the House a service by using his Adjournment debate to draw our attention to it. I should also like to pay tribute to the hon. Member for Workington (Mr. Campbell-Savours) who has always been a staunch defender of the concept behind the scheme, even when some of his hon. Friends regarded it with a good deal of scepticism. It is one of the most imaginative and purposeful of our special employment measures to help unemployed people. No one is more delighted than me that it is proving so popular and successful. It is helping unemployed people to create their own jobs by encouraging new small businesses and it is helping to stimulate local initiative and create additional employment opportunities. The really constructive element of the scheme is that, as an applicant's business takes off and becomes viable, he often generates employment, first part time and then full time. I know of cases where as many as 14 additional jobs have been created by a beneficiary of the scheme.

I must emphasise, however, that the scheme is not intended as a general small business subsidy. It is intended specifically to help unemployed people who want to set up their own business but are deterred from doing so because, as my hon. Friend said, they would lose their entitlement to unemployment or supplementary benefit. It is a big step to discard such entitlement which is often more substantial than an applicant receives as allowance under the scheme. such people's self-confidence might well have been diminished by being made redundant. They might be depressed, uncertain what to do and hesitant to abandon the support to which they are entitled through unemployment and supplementary benefit.

Mr. Gerald Bermingham (St. Helens, South)

Perhaps when the Minister reviews the scheme he will take on board a point that has been raised with me. It is that, when someone applies for assistance under the scheme, and the business depends on the granting of a lease which the applicant firmly believes he has obtained, he is gazumped after starting on the scheme but before taking full possession of the premises and finds that he is without premises. In the service sector, a person without premises has nowhere to go. Such people then find that they must lose their place on the scheme and repay the money that they have received. Moreover, they discover that they are not entitled to apply for the scheme again. That is the sort of tragedy that arises with gazumping which perhaps could be taken on board when the scheme is re-examined.

Mr. Clark

I appreciate the hon. Gentleman's point, but I do not see that the allowance would necessarily have to be repaid. I do not know how the hon. Gentleman has got that idea. Each circumstance is different, but when an applicant has been taken onto the scheme and, for one reason or other, the commercial arrangements that he has made in anticipation of it are vitiated, my advice would be to tell him to stay on the scheme, draw the allowance and post haste see what alternative arrangements he can make. I shall look carefully at the case the hon. Gentleman has raised and will write to him. It is extremely inadvisable to lose a place on the scheme as it is in such demand.

We all know that unemployed people who become self-employed and start their own business lose their entitlement to benefits as soon as the business starts to operate. Even though it may be some months before the new business can develop sufficiently to generate a regular income, applicants will draw the regular but by no means generous allowance.

The hon. Member for Workington asked me to increase the allowance and the amount of money available. In the light of the scheme's proven success we shall do our best to examine all the ways in which we might find scope for adding places to the scheme. He will understand that it would not be proper for me to give specific undertakings about financial provision, but I can tell him and my hon. Friend that we bear the matter in mind and are exploring all the possibilities. I cannot, however, agree with his request that we should increase the allowance. There is far greater demand for the allowance than there are or will be places, whatever provision we might achieve. The popularity of the scheme testifies to the fact that the large majority of applicants accept the scale of the allowance as being perfectly fair and just.

By helping to compensate for the loss of benefit during the first year while the business is being established, the allowance tips the balance of risk a little more in the entrepreneur's favour and makes the decision to go ahead a little easier to make. We are concerned with an incentive, not a subsidy.

This type of scheme is new to Britain and we thought it right to test its effectiveness first and gauge potential demand in a pilot scheme. As hon. Members will know, the trials began early in 1982 in five areas. Three were in England, at Coventry, Medway and north-east Lancashire, one was in Wales, at Wrexham, and one was in Scotland, in north Ayrshire. The response was extremely encouraging and, although the evaluation exercise had not been completed, early results were promising enough to allow us to announce in last year's Budget that the scheme would be extended to the whole country on 1 August 1983 to provide grants for 25,000 people to 31 March 1984.

On 17 November 1983 I was pleased to be able to tell my hon. Friend the Member for Meriden (Mr. Mills) that resources had been made available for a further extension into 1984–85 and an extra 35,000 grants. We have now committed some £130 million to the scheme. To the end of March 1984, a total of 31,000 unemployed people, including 3,331 in the earlier pilot trials, had taken advantage of the scheme to start their own businesses and some 27,000 are now receiving the allowance. That testifies to the high and satisfactory survival rate of those who have been taken on to the scheme.

As can be expected, a wide range of businesses are being set up with the help of the scheme. Many are in traditional sectors such as shops, general building repair and maintenance, motor repairs, clothing manufacture and hairdressing. When I travel around the country I always make a point of visiting applicants who are taking the enterprise allowance to see how they are getting on. It is encouraging and enlightening to see their enthusiasm and success. It is especially encouraging to discover that hitherto latent craft talents have been discovered and exploited commercially—the people concerned are often surprised by the success of their endeavours. To take examples at random, I have visited brass engravers, jewellery repairers, woodworkers and others who have capitalised on what many, including they and their families, would regard as a hobby and turned it to good commercial account.

The question that I always address to these people is, "How do you think you will fare when the allowance stops?" In 80 per cent. of the cases—I ask it of everyone I visit—I am told that there is no doubt that the person will continue. He will be sorry to lose the allowance but, having been launched, the business is going so well that he will be able to stand on his own feet. Many of these people have been made redundant and have carried forward expertise accumulated over many years to exploit the training that they acquired in the industry that made them redundant. They are showing their former employers how to do the job of selling or producing and are making a great success of it. There are also people who make a success of agricultural smallholdings producing fruit and vegetables, and of new technology ventures such as microcomputer programming.

Our experience in the pilot areas, where we have completed our survey, suggests that only about 12 per cent. of those who join the scheme will drop out over the course of the year on the allowance. We do not yet have full evidence about what will happen in the longer term, but early follow-ups show that about three quarters of those who remain on the scheme for the full 12 months are still in business some months after the termination of the allowance. From my experience, I would put the figure even higher.

One of the most heartening features of the scheme is that not only will it provide worthwhile employment for those on the allowance but that new businesses are generating a significant number of jobs for other workers. This distinguishes the scheme from all other special employment measures, which are essentially on a one-to-one basis. Here we have something that has the potential to make serious, positive inroads into the unemployment total.

Evidence from surveys of those who have been receiving the allowance for nine months suggests that on average, for every 100 firms set up under the scheme, almost 50 further jobs have been created. About two thirds of these are part-time jobs, but as the businesses flourish we can expect the proportion of full-time jobs to increase.

Employment generation among the firms that survive and continue to develop after the payment of the allowance has stopped is showing signs of being even higher. This is natural, because after the difficult trial period has passed and the firm is positively established and ready to cast off on its own it is to be expected that it will be even more capable of generating employment than it was in the rather tentative earlier experimental stages.

The recent increase in demand for places on the scheme confirms our belief that there is no shortage of entrepreneurial spirit even among those who find themselves unemployed. The fact that we are debating the scheme today is ample evidence of its popularity, and my hon. Friend the Member for Nuneaton has vividly described the problems that this popularity is causing in his constituency. He referred to them as problems of success, and that is what they are. The demand is generated purely on a word-of-mouth basis. The Department has spent no money on advertising since September last year and that was with only a short local campaign. The recommendations are done entirely on a personal basis by those who are benefiting and those who are succeeding among their friends and colleagues.

Hon. Members must see in their constituencies that the level of demand is greater than the number of places available, and to stay within the cash limits—the scheme is cash limited—we have to restrict the numbers that we can take on each week. As my hon. Friend has said, this is leading to waiting lists even for those who wish to attend the initial information session. Over the whole country, it is now taking on average about 15 weeks from initial inquiry to starting on the scheme, and in some cases the period has been as long as 24 weeks.

I accept that delay is frustrating and that it is not easy to convince people who have heard about the scheme and who believe that they have a good business and will be eligible for an allowance that they must wait for a further three or four months, and in some cases longer, to secure a grant. This can be portrayed as a period of enforced idleness that is contrary to the spirit of the allowance. Although I regret this, I must emphasise that the scheme is still in its infancy. We are delighted with its success and with the constructive contribution that it is making both to the economy and to reducing unemployment. It has genuine popular support, and on that basis we are doing our best to explore the possibilities of increasing the number of places.

I should like both my hon. Friend and the hon. Member for Workington to know that I attach high priority to the scheme. I hope that in the fullness of time I shall have better news on this subject to bring to the House.

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