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Observations on Self-employment
20/02/2017

When I started Purple Shoots, I had some funds behind me which enabled me to work for over 6 months without drawing a salary from Purple Shoots, whilst I set it up and got it off to a strong start. Then because my husband has a job and we can manage on his salary, I have been able to pay myself at a low level whilst Purple Shoots climbs to financial sustainability, which is our aim.

None of the people who Purple Shoots supports have this luxury. For those who have been unemployed and on benefits (the majority) they will start their businesses with nothing except their own talents and courage and the small loan they get from Purple Shoots. The benefits system ensures that all their savings are gone before they are able to claim anything, and the benefits paid are barely enough to sustain them from week to week, so the chances of them being able to put anything by and save up to start a business are zero. No mainstream lender will support them when they want to start a business – they have no money to put in to match a loan (a normal requirement of many lenders for business), no assets on which to secure a loan and often a poor credit score because sudden loss of earnings (or sudden loss of benefits – a not infrequent occurrence whilst the DWP “reviews” someone’s entitlement) very quickly creates financial difficulties.

So to fight their through the vagaries of the benefits system and all the rejections of mainstream lenders to arrive at the door of Purple Shoots already shows a great deal of determination and self-belief – which begs the question of how many talented people are being wasted in our society because they give up before then and because there are so few organisations like Purple Shoots prepared to help.

Once they have a loan from Purple Shoots and begin their business, unless they have a partner with a job to support them (frequently not the case, especially amongst the young), the business is under pressure almost immediately to deliver them an income. Anyone running their own business knows this is unrealistic. Many people on JSA (Job Seekers’ Allowance) will be transferred to NEA (New Enterprise Allowance) which is the DWP’s attempt to support them. The idea is that it replaces JSA for a short period to allow the business time to develop – however it is immediately up to £10 per week less than JSA (why?) and it only continues at that level for 3 months, then drops away to £33 per week for another 3 months and then stops completely. This is grossly inadequate if there is a real intention to support people out of the benefits system and into self-employment and is well below what is offered in many of our neighbouring European countries.

There are other issues apart from that of a basic income which damage fledgling businesses such as the ones I support.

Many of them will be contractors or suppliers to larger companies. These companies will dictate payment terms which can be 90-120 days or more. For established businesses or people with assets, banks and other finance providers can offer invoice finance to bridge this gap. However for the same reasons my client base cannot access loans from mainstream lenders, they will also be unlikely to succeed in getting an invoice finance arrangement in place. This issue can have serious consequences for a new business.

Most of the smaller businesses supported by Purple Shoots are sole traders. This means that if the business owner is ill or has an accident, he cannot run his business and his income stops immediately. Whilst some of them can get help from a family member or friend, many cannot. For people with established businesses or assets behind them, there is income protection insurance – but few of my clients will qualify for this and if they do, it will be at a high premium which the business cannot afford.

These are just three of the issues which make it very difficult for people at the disadvantaged end of our society to start and succeed with a small business – and ALL of them could be addressed by Government policy. Even increased Government spending on this would in the long run be beneficial to the economy and worth the cost because it would allow these individuals to build profitable businesses, keeping them out of the benefits system and enabling them to contribute to the economy in taxes, provision of employment and local spending power. Using a tool developed by academics and Government Departments for the Responsible Finance Association which takes into account benefits saved, contributions to the economy and negative factors such as displacement, Purple Shoots loans have an impact of almost ten times their value on the Welsh economy because of the businesses they help to create.

It seems that the UK is becoming increasingly an economy where self-employment is only an option for the rich or comfortably off and yet it is a major strength and driver of our national economy. Over half of the jobs created since the crash in 2009 have been in self-employment – figures for those running small businesses in Wales are huge and I believe there are strong cultural factors in Wales which mean that small businesses succeed here. They should be being nurtured. Although this is recognized by the Welsh Government, many of the clients I meet are frustrated by the lack of any support available support to them from any public body (apart from some good support from People Plus, the DWP's contractor), in spite of the rhetoric which would suggest otherwise. I know that policy for business support has recently moved away from these small start-up businesses towards “growth” businesses – i.e. already established ones. Whilst supporting them is great, it seems crazy that help has been withdrawn from those most in need of it.

The RSA and others have done important work on issues around self-employment and I am hoping that their influence together with a groundswell of support from organizations working with new businesses and the businesses themselves will bring about a change so that being self-employed is less of a struggle for those brave enough to do it.

To end on a positive note, Purple Shoots now has several hundred people on its books who have braved all those issues, risked the financial hardship which self-employment often brings at the outset, and created successful small businesses in Wales. Purple Shoots is proud to have been able to provide the finance to enable these courageous, determined people to get started – what they need now is ongoing support from our society and Government to build their resilience.

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