By Dillon Lancaster, FGF Economist
The number of young people not in education, employment or training (NEETs) is unfortunately a well known statistic in the UK currently: approximately one million 16-24 year-olds, or 1 in 8 young people. Former Health Secretary, Alan Milburn, who is currently conducting a review into young people and work, has warned that absent strong intervention the NEETs crisis could worsen to 1 in 6 young people by the end of the decade.
Milburn’s early findings have revealed that this crisis is not driven by young people’s lack of desire to work: 84% of young NEETs want a job or training. Instead a key cause is the lack of opportunities to gain work experience and climb the very first step on the career ladder; there are fewer Saturday jobs, hospitality jobs and apprenticeships than there used to be. Meanwhile, as opportunities for experience are decreasing, employers are demanding even more: leaving a generation which is growing up hopeless and unsurprisingly disengaged.
This is not only a crisis which should evoke compassion for a lost generation but a crisis which should send alarm bells to the Exchequer. The longer someone is economically inactive, the harder it is to get them into work, which in turn means a hefty welfare bill for decades to come. The end result is a double whammy for the public finances: a potential contributor to the economy is potentially lost for decades to come, and instead becomes a net recipient.
So, intervention is needed and it should be as bold as possible. The Government has taken steps to tackle the problem, such as the Jobs Guarantee scheme – which provides six months of fully funded paid employment for 18–24-year-olds who have been on Universal Credit and looking for work for 18 months – and the Youth Jobs Grant, which financially incentivises employers to hire young people. However, one area that the Government has yet to intervene in is youth entrepreneurship.
Enter the Youth Enterprise Scheme.
The Future Governance Forum’s upcoming report on how to improve the Access to Finance for underrepresented founders, looks into the different obstacles founders from different backgrounds face. One of the report’s recommendations is for the government to establish a Youth Enterprise Scheme to provide financial support and mentoring, to help unemployed young people establish their own businesses. The scheme would build on the New Enterprise Allowance (NEA) which was introduced in 2011 and abruptly halted after Covid. Under our proposed scheme, applicants under the age of 25 who wish to set up their own business would receive a £100 a week top-up to their Universal Credit for three months followed by a further three months of a £50 a week top-up. Alongside the money, the scheme would combine face-to-face mentoring opportunities which were established in the NEA with online help and guidance. The latter are becoming increasingly sophisticated as Artificial Intelligence allows bespoke support for founders, with bodies such as the Centre for Finance, Innovation and Technology at the forefront of this technology roll out.
This would provide another avenue into work beyond what the Government has already laid out. Rather than waiting for an employer to give a young person their first opportunity, the Government could help them develop that opportunity for themselves. Schemes of this type have been successful in the past and elsewhere: the NEA resulted in 82% of applicants continuously off benefits for six months from their business start, and one survey saw 72% of businesses still trading over a year after being established. In Germany, a similar scheme saw 80% of applicants still self-employed after 3.5 years and over half the remaining applicants employed in another capacity. This last point is especially important for showing the broader benefits of such interventions: even if a business ends up unsuccessful, founders will build experience and skills which are transferable to regular employment.
The fact that someone who went to a private school is eight times more likely to become a founder in the UK versus someone who went to state school is driven by the lack of a safety net combined with a lack of understanding of how the finance system works – and a Youth Enterprise Scheme could help level this playing field. And in doing so the scheme could tackle two major priorities for the government: raising economic growth and spreading opportunity. Indeed, Gordon Brown declared recently that the biggest obstacle to innovation, and subsequent growth, within the UK was a ‘waste of talent’ and highlighted those from lower-income backgrounds as ‘lost Einsteins’.
At a cost of £50 million a year for entrepreneurial subsidies, the Youth Enterprise Scheme could act as a punchy tool for widening opportunity and unlocking potential growth. It won’t solve Britain’s NEET crisis on its own, but would give another route for young people into economic life.
So on 28 October, John Healey should use his first Budget to confirm funding for a Youth Enterprise Scheme to help thousands of young people set up their own businesses and help deliver the Prime Minister’s ambition of ‘good growth in every postcode’.
