Are all 2012’s great wave of new businesses really start-ups?

As a BBC investigation alleges Welfare to Work advisers are not working in participants’ best interests, Startups looks at what this means for levels of enterprise

One of the chinks of light amid the depressingly familiar economic updates of the past 12 months was the number of people who have chosen the path of setting up their own business. In 2012, unaudited figures showed start-up levels were up 10% according to Companies House, with 484,224 businesses started compared to 440,600 in 2011. However, while there has almost undoubtedly been an uptick in the volume of start-ups, all may not be as it seems. Before all of those in the business of promoting enterprise revel too much in the positive figures it turns out we may need to slightly reevaluate the economy’s gradual, but perceptible, shift from a reliance on the public sector towards private sector green shoots. Listening to BBC 5 live yesterday morning, its Investigates report revealed that long-term unemployed participants in the government’s much-criticised Welfare to Work programme may be inflating the number of newly self-employed without really having a business to speak of. So it begs the question: are all of last year’s start-ups really start-ups? And why would advisers on the programme effectively cook the books, as the BBC show alleged?

Incentivised to push self-employment

Described by one jobseeker as being as persuasive as a ‘car salesmen’ – who like estate agents, bankers, politicians, and, yes, journalists are rarely trusted – some Welfare to Work advisers have been accused of peddling self-employment while secretly pursuing performance kick-backs. Under the scheme, advisers receive an initial payment for every person referred to them by Jobcentre Plus, but considerably more for successfully keeping them ‘off the dole’. The more people find a “sustained job outcome” and remain in that position for three and six months, the more money is awarded to the 40 public, private, voluntary and community sector providers of the Work Programme. Subsequent payments can be claimed, incidentally, against the success of participants who remain employed for every four weeks thereafter for up to one year, 18 months or two years. Since the programme launched in June 2011, tens of thousands of success payments have been made. So it’s no wonder the ads for advisers are akin to jobs for sales people rather than advisers. One on for a position in south east London stated that the candidate would be “focused on meeting and exceeding targets for job placements”. The results-driven person needed to “have experience of working with payment by results contracts”.

Work scheme open to abuse

Understandably, the government wants advisers who do their utmost to get the jobless into gainful employment. What the BBC programme, presented by journalist Adrian Goldberg exposed, however, was that the advisers have their own best interests at heart rather than those of the participants. Because starting a business takes participants out of unemployment it swells any success the Welfare to Work programme can demonstrate. Starting a business, under the scheme, is equal to securing a 9-5 job – and is far easier to achieve, given it could be a slight extension of a hobby such as selling a few knick-knacks on eBay. The advisers, the Investigates programme found, are telling unemployed people with children that by registering a business and working 30 hours a week (16 hours for single parents) they would be able to claim working tax credit of up to £1,920 a year, thus potentially increasing their existing benefits. According to the BBC programme, there are several common businesses that advisers are encouraging people to start up in order to register as self-employed, including:

  • Ironing services
  • eBay business
  • Cake making
  • Photography
  • Gardening

There might be nothing wrong with this if the person concerned had a genuine interest in starting a business and could grow it to make a living from it. The problem is advisers were allegedly suggesting that people top-up their hours by recording time spent on ‘admin’ – effectively falsifying the existence of a genuine business – in order to gain the benefit and remain ‘self-employed’. The danger for these new ‘business owners’ is that they would then struggle to top-up the number of paid hours worked if the business was seasonal, which could lead to the tax credit office challenging their claim and demanding money back at a later date. All very unsavoury and unhelpful for the participants and economy alike. So, if all is as the BBC investigation alleged, the news of increased start-up levels may not produce the desired economic benefits they promise. If being exceedingly generous, one could argue there is another way of looking at advisers’ exploitation of what is essentially a loophole. For some who are ‘pushed’ to follow advice and register as self-employed and then fill the requisite number of hours running a micro-business, the taste could just make them want more. Great for the government, the advisers, and the participants themselves. That, you’d have to say would be a win-win-win scenario – but may be more than we can hope for!


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