The Entrepreneurial Audit: Business support and employment services
If welfare is the safety cushion for the self-employed, then business support is the springboard
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This is the fourth article from our report The Entrepreneurial Audit which offers 20 policy ideas for government strengthen self-employment and micro businesses in the UK.
From breadth to depth
If welfare is the safety cushion for the self-employed, then business support is the springboard. The term itself — ‘business support’ — is fittingly vague, and tells us something about the array of options open to people who want to start, maintain or grow a business. From advice and mentoring through to coaching and voucher schemes, there are hundreds of initiatives operating in the UK, delivered from across the public, private and third sectors.
But what works best? And how many of these schemes are really helping the self-employed to survive and thrive? Our review of the literature — mostly evaluations of government or quasi-government initiatives — shows there are few simple answers. For example, the What Works Centre’s appraisal of business support programmes found inconclusive evidence regarding whether private-led schemes are better than public-led ones, and whether locally-led solutions are more effective than centrally-managed ones. This runs counter to what we might expect, and shows that common sense is not always the best guide to follow.
Where there is more consensus is in the relative merits of programmes that prioritise depth over breadth. An evaluation of the old Business Link service shows that those offices that used so-called ‘managed brokerage’ schemes — which involved homing in on fewer clients with more intensive support — tended to be more successful in improving at least one business outcome than offices which ran on a lighter touch model, delivering simple “MOTs for businesses”. The ability to foster a close relationship between clients and advisers, and to hold robust early assessments of client needs, appear to be particularly important features of successful programmes.
This raises questions about the government’s recent move to axe the Business Growth Service (BGS) and replace it with Local Growth Hubs (LGHs). While the former channelled intense support to businesses with growth potential, the latter is more akin to a ‘one stop shop’, and is delivered locally rather than administered centrally. As the business support expert Kevin Mole argues, whereas the BGS was built on evidence that intense managed brokerage works, the same cannot be said for the light touch model of LGHs. He also reiterates that there is “no evidence” that support is best provided at a local level.
Mole and other critics may turn out to be wrong about Local Growth Hubs. But how will we know? The planned evaluation of LGHs scores only 1 out of a possible 5 on BEIS’s own impact evaluation measurements. Rather than be based on a randomised control trial, it is likely that LGHs will be assessed predominantly using self-reporting and general key performance indicators (KPIs).
This speaks to a broader issue of limited or low quality evaluations across the business support world. A study by the Enterprise Research Centre found that there are “very few robust studies of the long-term impact of non-financial support”, while the What Works Centre noted in their analysis that of the evaluations that do exist, few consider cost-effectiveness (hence their difficulty in reaching firm conclusions). A government intervention that bucked the trend was the recent Growth Vouchers scheme, which was underpinned by a randomised control trial and shows promising results.
It is not for this report to try and spell out the individual features of successful schemes. However, we would recommend that the government create an ongoing What Works Hub for Business Support that is tasked with this responsibility. Such a Hub would analyse patterns in independent evaluations, champion and help to coordinate new evaluations in the public, private and third sectors, and disseminate the findings throughout the expansive business support network. Alongside this, the government would be wise to undertake randomised control trials on any business support initiative with a budget above a given threshold. BEIS is steadily making progress in the area of impact assessments, but could benefit from a more systematic approach.
Recommendation #11 — Establish a What Works Hub for Business Support Evaluation
The government should fund the creation of a permanent evaluation centre to monitor, coordinate and disseminate the results of evaluations of business support schemes. In addition, the government should commit to underpinning all new major business support schemes with a randomised control trial.
Breaking through the awareness barrier
It is one thing to have an effective support ecosystem in place, but it is another for the self-employed to then use it. According to the Small Business Survey, just 19 percent of non-employing businesses sought advice or information in the prior 12 months to questioning. Although some will refrain simply because they feel no need for assistance, others may be unaware of what is on offer. The same survey found that only 17 percent of non-employing business owners had heard of Tools for Business (on the Gov.uk website) and just 11 percent were aware of Local Growth Hubs.
The solution is not necessarily to crank up the noise and increase the amount of information channelled to the self-employed (although every robust scheme needs a proper marketing budget). Rather, it may be more effective to think about how existing support is framed. There is evidence that structures for government provision that cover the whole country, and which use ‘simple and single branding’, can be better at capturing people’s attention and managing expectations. The Business is Great campaign exemplifies this approach with consistent branding and simple messaging.
As well as reframing messages, it is also worth thinking about the appropriate messenger. While both state and non-state schemes can struggle to win over an audience, there is one group to which the self-employed turn on a regular basis: accountants. Of the non-employing businesses who sought advice in the last year, 25 percent approached accountants, versus 19 percent a general business adviser, 9 percent internet search and 5 percent a family member. This raises the question of whether accountants could expand the existing role they play in advising clients on business matters, such as on marketing and exporting. Accompanying this could be a broader communications exercise, possibly led by ICAEW and ACCA, to raise awareness of these opportunities.
Recommendation #12 — Expand and raise awareness of the business coaching role of accountants
The ICAEW, ACCA and other accountancy trade bodies should look at how accountants might deepen their existing business advice and mentoring role, while ensuring that more of the self-employed are aware of these opportunities.
Coordination in the service of clarity
Another potential reason for the limited take-up of support is the degree of churn in government initiatives. The Business Growth Service barely lasted four years before it was disbanded for the Local Growth Hubs, while the Growth Vouchers scheme came and went within the space of two years. Such ‘big bang’ changes — as the ex-political adviser Tom Gash puts it — take time to bed in and become noticed by would-be clients. They also create uncertainty for providers in the supply chain. It is telling that in Scotland, which has not experienced the same degree of flux as England and Wales, awareness of support schemes is very high.
As the FSB has highlighted, the picture is markedly different in the United States where there is a Small Business Administration (SBA) orchestrating government initiatives. Part of the reason for its success is that it has been in operation since 1953, giving the support ecosystem years of stability and continuity. The UK set up a similar body called the Small Business Service in the early 2000s; however it was disbanded shortly after its inauguration — reportedly because it had limited power across central government and its objectives were too broad and nebulous.
Is there an argument for creating a UK version of the SBA? One might argue that the localisation of government support through the Local Growth Hubs, and before that through Local Enterprise Partnerships, makes this a redundant question. Yet central government is still an important provider and funder of business support, with activities spanning Business is Great, UKTI and Innovate UK, to name a few. Moreover, with the recent and rather curious termination of the Enterprise Directorate in BEIS, there is a gaping void of leadership and vision for business support in central government.
BEIS should conduct a public consultation on the merits of a UK equivalent to the Small Business Administration, including its potential objectives and powers. The FSB previously suggested it focus on access to finance, however this seems less of an issue today than it was at the time of the economic downturn. The self-employed may be better served were the SBA to look at coordinating business support in its various guises. It should not interfere with the delivery of private support, but it could provide a forum for shared learning and priority setting. The aforementioned What Works Centre, for example, could be hosted under the umbrella of a UK SBA.
Recommendation #13 — Consult businesses on the creation of a UK equivalent to the Small Business Administration in the US
The government should consult businesses on the merits of creating a UK Small Business Administration that would co-ordinate state-led business support, as well as provide a forum for shared learning across the public, private and third sectors.
Taking a fresh look at co-operatives and unions
So far we have considered the nature and delivery of generic business support, which aims to develop broad skills such as marketing and cash flow management. But we also need to consider training that upskills people in their particular sector or occupation, whether that be construction, graphic design or personal fitness.
It is concerning that the self-employed are considerably less likely than employees to access training, with 19 percent vs. 33 percent taking part in the past year (see Figure 7). The reasons are likely to be the same as those for why people do not access general support: a lack of time, money and awareness. These might be thought of as demand-side problems. Indeed, one of the biggest issues is a lack of recognition among business owners that they could benefit from training.
However, there are also supply-side issues in the form of limited adult learning opportunities, particularly in further and vocational education, which should be a source of ongoing support for self-employed tradesmen and women and other independent professionals. One solution is for large businesses to open up their employee training programmes to the self-employed in their local area, possibly as part of their corporate social responsibility (CSR) initiatives. Local Growth Hubs could be the broker, connecting their network of business owners with ‘anchor institutions’ that have the requisite training programmes.
Yet this relies on the generosity of businesses, depends on their timetable, and assumes that their training programme aligns with what the self-employed are seeking. An alternative solution would be for the self-employed in different occupations or sectors to band together for mutual assistance. There is already much to applaud among long-standing unions like Equity and Bectu, which support freelancers in the entertainment and creative industries. As well as undertaking conventional union activity like collective bargaining, Bectu provides low-cost training courses to its members, while Equity offers career development advice.
Co-operatives take mutual support one step further by bringing the self-employed together under one roof, with each member having an equal stake and say in the collective business. In addition to pooling risk, one of the main advantages of co-operatives is that they foster shared learning and development, with members exchanging advice and ideas safe in the knowledge that what is good for one person is good for everyone. A special type of co-operative in France — BEC Co-operatives — runs an incubation pay-back system, whereby long-standing members who have been assisted in the past contribute 10 percent of their profits to help fledging business owners go through the same support journey.
The business community should explore the relative merits of different grassroots initiatives, and work with Co-operatives UK and existing trade bodies like techUK (technology), ICAEW (accountancy) and CIC (construction) to spread word of schemes with the greatest potential. The government should also look at whether regulatory changes need to be made to remove barriers in the way of innovative schemes. The RSA will shortly begin work with the FSB to capture examples of promising practice from around the world, including the BEC co-operatives in France and Bread Funds in Holland.
Recommendation #14 — Promote co-operatives as a form of mutual assistance for the self-employed
The government, Co-operatives UK and trade associations should work together to champion co-operatives among the self-employed, and consider whether there need to be legislative changes to remove barriers in their way.
Moving from unemployment to self-employment
The final area of support worth considering is that for unemployed people who wish to move into self-employment. There are two main gateways of assistance at present: the Work Programme and the New Enterprise Allowance.
The Work Programme focuses on job seekers who have been out of work for more than a year, with support delivered by private providers on a payment-by-results basis. However, this is set to be replaced by the more specialist Work and Health Programme (WHP), which will have a smaller budget and be geared towards people with health problems or who have been out of work for two or more years. The change partly reflects disappointment in some quarters at the results of the Work Programme, although closer analysis of client outcome data reveals that it achieved similar results to previous employment initiatives but at a much lower cost, and the performance of some providers was strong.
If the new Work and Health Programme is to be effective, it will need to offer a clear route for people who wish to start up in business. Indeed, self-employment may be the only form of work that accommodates the health conditions of some WHP clients. Most providers are likely to recognise this from the outset, but the government should consider mandating that they provide a minimum service offer to clients aspiring to self-employment. This would mark a break from the ‘black box’ approach of the Work Programme, which gave providers the flexibility to run a variety of services of their choosing, but which also resulted in varying levels of support across the country. A 2013 investigation by the All-Party Parliamentary Group (APPG) on Microbusinesses found that only half of Work Programme providers offered specific advice on self-employment to their clients.
Because of the narrower remit of the WHP, it is also likely that more jobseekers will need to turn to the Jobcentre Plus for support. This will create an additional burden on an already strained service, and in the words of a Work and Pensions Select Committee report, will “require significant cultural and practical change”. We are particularly concerned about the capacity of work coaches to cater to the needs of jobseekers wishing to start up in business. Coaches are primarily recruited and trained as generalists, and it is unclear whether (through no fault of their own) they will be able to provide the right advice, for example around business planning, managing cash flow and dealing with expenses. Recall that they will soon also have to administer the ‘gainful self-employment’ test under Universal Credit.
As a matter of urgency, the Department for Work and Pensions should undertake an audit of staff skills throughout the Jobcentre Plus network, and ensure that at least one work coach in every branch is a named and trained self-employment specialist. DWP should also ensure that business basics are introduced to work coaches as part of their training programme.
Recommendation #15 — Ensure the Jobcentre Plus is match fit to support the self-employed post Work Programme, with a specialist in every branch
In preparation for the end of the Work Programme, the DWP should undertake an audit of staff skills in the Jobcentre Plus network, and ensure there is at least one work coach in every branch that is a named and trained self-employment specialist.
The second gateway of support for jobseekers is the New Enterprise Allowance (NEA), which is open to most of the unemployed and offers a £1,274 stipend of financial support over six months, plus support from volunteer mentors. However, this too is coming to an end and will soon be replaced with a new version of the programme, also delivered by private providers. NEA Phase 2 will contain many of the same elements of the original programme, but with an additional pre-assessment stage — ‘Link Up, Start Up’ — where applicants will hear more about what is required of them in self-employment and the issues they may face in reaching a liveable income.
The refreshed NEA will also run in closer tandem with Universal Credit. This means changing the payment plan for providers, with a new reward for helping clients increase their income to the level of the Minimum Income Floor. It will also mean opening up NEA support to existing self-employed claimants on Universal Credit, specifically those struggling to reach the MIF. We welcome this move, however caution that the Department for Work and Pensions may find itself overwhelmed by requests for help given the number of self-employed UC claimants that are likely to have incomes below the MIF. Approximately 41.2 percent of the full-time self-employed earn less than the MIF.
It is also a concern that the size and structure of the allowance under the new NEA will remain broadly unchanged. NEA claimants are currently paid £65 a week for the first three months, but this is then cut to £33 a week for the following three months. Rather than have an abrupt cliff edge in payments, a better approach would be to taper this reduction over time. A second problem is that the NEA payment averaged over the course of the full six months is worth a quarter less than what people receive under Job Seeker’s Allowance (note that claimants must give up JSA before moving onto NEA). The two payments should be equalised as there appears to be no justification for such a discrepancy.
Recommendation #16 — Reform the payment structure of the New Enterprise Allowance to avoid unnecessary drop outs
The government should adjust the NEA payment structure to ensure it is both fair and practical. More specifically:
- Raise the NEA payment to the level of the JSA
- Taper away the payment after three months rather than halve it abruptly
