David Cameron's recent unveiling of plans to introduce a New Enterprise Allowance (NEA) demonstrates a shift in the coalition's focus from the public deficit and spending cuts, towards economic growth. Recognising the vast untapped entrepreneurial potential of those unemployed, the government is injecting £50m to offer financial support to people entering self-employment, with up to £2,000 worth of funding and mentoring available for the first 6 months of running a business.

The government estimates that up to 40,000 new businesses will be created by 2013 – providing that the pilot starting in Merseyside this month is rolled out nationally this autumn.

Under the scheme, unemployed people who can prove they have a robust business plan will receive allowances of £1,275 over six months. They will also be connected to volunteer mentors from local business communities who can assist with business planning and, if their plans are strong enough, they may then receive a loan of up to £1,000 from Jobcentre Plus to cover start-up costs.

Independent research commissioned in 2010 by InBiz into the sustainability of self-employment and its benefits to the economy showed that of those who started trading independently, over 90% were still trading after 1 year, over 80% were still trading after 3 years and 78% were still trading after 5 years in business. Additionally, only 10% of those who were not trading had returned to benefits after 5 years.

The report also demonstrated that for every £1 spent on self-employment programmes, £8 is saved through benefit savings and tax paid, and £19 of business turnover is created. With this level of return on investment, there is clear rationale for the government’s introduction of the NEA as a driver of economic growth.

Beyond pure financial gain YTKO’s CEO, Bev Hurley, asserts that there are substantial positive social impacts of reducing unemployment and increasing self-employment. “YTKO’s national Outset start-up programmes support people from under-represented enterprise groups into self-employment. Many of these are disadvantaged in some way, and the social impact of self-employment in these communities is significant. Outset programmes help to reduce worklessness, promote social inclusion, upskill local workforces, and reduce economic disparity,” Bev commented.

“With financial concerns posing significant barriers to many people starting up in business, we welcome the NEA and look forward to its introduction in the autumn. In addition to the work we do to raise aspirations towards enterprise amongst people typically the furthest from self-employment, the NEA will help to offset people’s financial worries in terms of transitioning from benefits towards self-employment and financial independence.”