I’m no economic forecaster, but the latest unemployment figures and inflation data suggest that there may be some storms – or at least some drizzle – on the horizon. Britain’s official unemployment rate rose to 4.7% in the three months to May, up 0.1% from April to reach the highest level since June 2021, while last month inflation rose to 3.6%.
This concern for the wider economy was reflected in the results of our inaugural Entrepreneurs Survey (though, true to form, entrepreneurs were bullish about their own businesses’ prospects).
The unemployment increase is the result of the £25 billion increase in Employer National Insurance Contributions and a 6.7% rise in the National Living Wage. As Richard Parrington writes in The Guardian, “the evidence would suggest a clear impact from the chancellor’s tax-raising measures. Figures released on Wednesday showed inflation rose by more than expected in June as firms passed on higher employment costs to the price of restaurant meals, hotel stays and supermarket groceries.”
Some entrepreneurs may feel temporarily emboldened by the shift in power between employers and employees, and by easier access to talent. But more importantly, rising unemployment reduces demand across the economy. While we may see more necessity entrepreneurship, opportunity-driven entrepreneurship – the real engine of innovation – tends to decline.
The key under these circumstances is turning necessity into opportunity.
That’s why the government should consider reinstating a form of the Enterprise Allowance Scheme (EAS), which supported unemployed people who set up their own businesses. While it was an initiative devised by the late, great Lord Young for Margaret Thatcher’s Conservative government to try to temper high unemployment at the time, it’s very much ‘left coded’ and was embraced by creators who were otherwise not fans of Thatcher (to say the least).
As I wrote last year in Empowering the Future, written in partnership with Youth Business International, the original EAS was instrumental in supporting now-renowned entrepreneurs such as Superdry’s Julian Dunkerton, Creation Records’ Alan McGee, and the artist Tracey Emin.
Nearly two-thirds of EAS participants continued to run their businesses 18 months after enrolling, and one-fifth of these businesses employed at least one additional person. According to World Bank analysis, the cost per job created under the EAS was approximately £1,729 at that time, equivalent to around £6,000 today. That’s remarkably good value compared to paying benefits and other interventions.
The EAS was eventually replaced by the much less generous New Enterprise Allowance (NEA), which has also been discontinued.
It goes without writing, I hope, that there are many more policy interventions – indeed, some more urgent – needed to fight unemployment. Not least, we must decrease the taxes on employment, not bring in regulations to disincentivise hiring, liberalise planning to increase labour mobility, and ensure job-creating immigrant founders can continue to stay and thrive in the UK.
But if unemployment returns to levels seen in the early 1980s, early 1990s, or late 2000s, the umbrella of a revamped EAS could be essential.
In the Works
Are you a student or recent graduate excited to break into public policy work? Or perhaps you’re working in another field and are just curious about entrepreneurship policy? If so, we have formalised work experience opportunities that give highly motivated people a front-row seat to how entrepreneurial ecosystems work and how evidence informs policymaking. You may even get the chance to write something for us, as Florian Gosler did in this week’s Three Big Ideas. Find out more here.
It’s a Feature
Regular attendees of our events won’t be surprised to hear that around half our network is made up of female founders. Much of this is a result of our Barclays-supported Female Founders Forum.
At the forefront of this work are the 100+ featured members who have contributed to our events and reports over the years. As I’ve shared previously, this year’s report will focus on university spinouts, so it would be great to get requests for interest and nominations for female-founded spinouts we should speak with and feature as case studies in this new report and featured as members on our website. Let us know.