New Enterprise Allowance – use it or lose it the new deal-ish

A new scheme to encourage self-employmant is arriving in Jobcentres across the country on the 1st of August 2011. With little more than a week to go it’s not yet clear whether all Jobcentres will be ready. But, after earlier pilots and trials, the New Enterprise Allowance is scheduled to go live across the UK from the start of next month – making it available to qualifying unemployed job seekers.

Jobcentre Plus is in charge of the scheme because it is only open to people who have been claiming Jobseeker’s Allowance (JSA) for more than six months. NEA gives people who have been unemployed financial support for their early months of self-employment, access to a start-up loan, and advice and guidance from an expert business mentor.

That at least is the theory. But if you look in detail at what’s on offer it is hard to see much incentive to come off benefit and embark on the scheme – even if you are intent on starting a business.

What you get:

The NEA weekly allowance, worth £65 for the first 13 weeks, then payable for a further 13 weeks at £33. You can also get a start-up loan of £1,000 to help with start up costs, but this of course has to be paid back. Depending on your household circumstances, which takes into account the income of anyone you live with, you might also be able to open a claim with HMRC for working tax credit.

What you lose:

Jobseekers Allowance. You must close your claim to JSA in order to get the New Enterprise Allowance weekly payments and loan. Jobseekers Allowance is currently worth £67.50 per week, or £105.95 for a couple. This goes on indefinitely as long as you are available for work and comply with some other conditions. In fact these conditions permit you to work up to 16 hours a week on a business and keep your JSA claim open, as long as you declare your hours and earnings.

On the face of it then there doesn’t seem to be much incentive to close down a JSA claim and take the risk of going on New Enterprise Allowance. In a mere three months you could be worse off and owing money. And after six months the allowance ceases entirely.

If you expect your business to take off slowly this doesn’t look like an attractive option – remaining on JSA but keeping below the 16 hours limit would be safer financially. The New Enterprise Allowance only looks attractive to people who have a venture they are sure they can get into profit quickly. Within six months you would need to be making enough profit to allow you to take an income from the business above your current benefit level. Realistically this isn’t going to be the case for an enormous number of people.

But let’s wait for all the details to emerge and the public response before condemming the scheme. The idea of using self-employment to get people off benefit is not the problem – PRIME itself believes in it. But the money to make it a practical proposition for a whole lot more people is lacking from this scheme. The New Enterprise Allowance is unlikely to make much dent on the unemployment figures, which is what it was set up to do.