ERSA Manifesto Blogs: Benedict Dellot, RSA, time for a Universal Self-employment Service?

This piece of writing is part of a series of blogs designed to stimulate discussion around the five key elements of the ERSA Manifesto: commissioning, complex needs, skills, employer needs, youth employment. Any opinions represented within this blog are the authors and do not represent the views of ERSA.

Last month the RSA published a new report looking at the living standards of the booming self-employed community.

The central message is that, while the vast majority enjoy working for themselves, they face numerous perils and pitfalls that we cannot continue to ignore – not least because they now account for 1 in 7 of the workforce.

Part of the problem relates to insufficient income. The full-time self-employed earn a quarter less than their counterparts in a typical job, and their income has fallen in real terms by 12 per cent since 2008. But equally troublesome is income volatility, which is often brought about through late payments, sickness and general market fluctuations.

Unlike employees, the self-employed have no one to protect them from unforeseen events. They have no recourse to Statutory Sick Pay should they fall ill, nor to Statutory Maternity Pay should they become pregnant. Moreover, they have no employer who can top up their pensions and pay for their training.

All of which presents a compelling case for the government to do more to assist the self-employed. In our report we set out several policy recommendations, touching upon issues such as welfare, mortgages, pensions, insurance and taxation. However, unlike many studies on self-employment, we also take time to examine the state of employment services.

Put simply, there are two main sources of support for unemployed and inactive groups that wish to move into self-employment: the New Enterprise Allowance (NEA) and the Work Programme.

Under the NEA, jobseekers are given a modest Allowance of around £1,275 over 6 months, as well as business mentor support and the opportunity of a loan. The offer of the Work Programme is harder to discern, since every private sector provider is free to determine the type of activities they offer to clients. A key distinction is that the Work Programme caters only to the long-term unemployed.

So do these initiatives work? The evidence is not convincing. Looking first at the NEA, we know that it has struggled to retain people enrolling on the scheme. Only about half of those who signed up to the NEA between 2011 and the end of 2013 made it past the initial business planning phase. The NEA also suffers from several design flaws, such as the way that people’s allowance is abruptly cut in half mid-way through the programme, rather than being tapered down over time.

The Work Programme has its own drawbacks. Because the private providers are able to determine the nature of their service, they may not choose to offer support for people wishing to start up in business. The result is a postcode lottery of support, with someone at one end of the country being given more enterprise support than someone at the other end. Plus, participants on the Work Programme aren’t able to access an allowance like the NEA participants.

All of these flaws could be addressed through several tweaks. For example, the government could make it mandatory for Work Programme providers to offer at least basic self-employment support to their clients. But what we have in mind is something more substantial: the creation of a new universal self-employment service.

The basic idea of this is that every jobseeker in the country would be able to access help from a qualified business support adviser, regardless of where they are based. More than this, it would be geared towards helping people sustain their business and to progress within self-employment. We know that more than 25 per cent of new business owners fail to make it past their first year, yet many could arguably have remained in business with more guidance.

A third and final component of the service would involving helping business owners operating in the informal economy to move into legitimate self-employment – a major gap in the current system. A previous RSA/YouGov poll found that 1 in 5 business owners had traded informally at some point in the past, with most seeing this as a temporary solution to getting their business up and running.

Let’s be honest: this will cost a great deal more than the current patchwork offer. But if experience in the employment services industry has told us anything, it is that you get what you pay for. And with 1 in 7 of the workforce now answering to themselves, isn’t it about time they were accommodated?