PRIME Initiative

Two big changes affecting the way government deals with small business have emerged out of the current spate of resignations and today’s cabinet reshuffle.

Firstly Alan Sugar, the business star from TV’s The Apprentice has accepted a new role promoting enterprise from within government. The role is unpaid, but Sir Alan is expected to accept a peerage, which will enable him to speak on business topics from within the House of Lords.

Text of official announcement below.
Press comment: Sugar

Secondly the government department with overall responsibility for business in the UK, BERR, is disappearing in a merger with DIUS, the department in charge of higer education. The new merged department, called BIS or “Business, Innovation and Skills”, will be taking over both roles - under the control of the current Business Secretary Peter Mandelson.
Press comment: BIS

From BERR site

Sir Alan Sugar has been appointed as the Government’s Enterprise Champion.

Areas he may look at include access to finance, prompt payment, how to handle the downturn and how to start a new business. The post will be unpaid.

New Department for Business, Innovation and Skills (BIS)

Last updated 05 June 2009

Over the next 20 years the UK’s population will age faster than ever before in its history. There will be 5.4 million more people of pension age - an increase of 45 per cent. At the same time, our working-age ratio is declining. This combination has serious implications for the economy, with proportionally fewer workers supporting the growing number of older retired people.

One measure being implemented by Government from next year to tackle this issue is the introduction of later retirement ages. Through gradual changes in State Pension age (SPA), three million people who would otherwise be able to claim a state pension are being nudged rather hopefully back into the workforce.

This presentation given by PRIME recently (Powerpoint format) highlights the economic impact of these changes - and projects even higher levels of worklessness and poverty among older people if practical measures are not adopted now.

Of the three million workers eventually being removed from pension entitlement by the changes, most are women - in fact in the initial batch all are. We reckon that no more than 40 per cent of the total are likely to be economically active. This means that 60 per cent of the three million will be without a pension - and without a job. And that’s without taking into consideration the impact of the recession, since it’s impossible to say how long that will last.

But it does seem the consequences of changing the pension age haven’t really been thought through. In attempting to solve the problem of financing pension provision the state may only have succeeded in creating different problems elsewhere.

On the plus side, today around one fifth of the over-50 working population are self-employed, and many continuing to work beyond the current state pension age. So there is considerable benefit to the economy to be gained through assisting higher numbers of over 50s into self-employment.

But self-employment isn’t an option for everyone, so there would also need to be other measures to support older workers to remain in or re-enter conventional employment.

Without such action raising the state pension age won’t accomplish much - indeed it may do more harm than good. It’s not enough to put a whole lot of older women and men back into the workforce by administrative fiat. They also need some practical way of making a living.

See also What are the alternatives to a personal pension? on our other site.

Over half a million women could benefit from changes to the pension bill currently going through Parliament. They will be able to buy back up to 12 years of contributions to fill in gaps in their National Insurance record, enabling them to then qualify to receive the full state pension. Currently only around a third of women reaching state pension age qualify for the whole amount.

Though women only need to have 39 years of contributions at the moment, compared to 44 years for men, the breaks from work many women take to raise children or care for another family member means a pensions shortfall is much more common among women - 90 per cent of men get the full whack.

The proposed changes will affect both men and women who reach state pension age between 5 April 2008 and 5 April 2015, enabling them to plug much bigger gaps in their National Insurance record. The reason for doing this is that the cost of buying the extra entitlement is usually much less than you’d get back from the state over the full length of your retirement.

None of the changes apply to you if you reached pension age (60 for women, 65 for a man) before April 2008. And complicating the calculation of whether you would really be better off is Pension Credit, a separate system that kicks in for those on low incomes.

More on this story from the BBC

The Pensions Service - official information from the government

Pensions Advisory Service - independent non-profit source of information.

The next step in the drastic simplification of government-funded business support in the UK was today announced by Peter Mandelson, who is Secretary of State for Business. The aim is not to reduce total spending on government assistance to business, but to slash the number of different programmes so they are easier for people to find.

The intention now is to make Business Link the single point of contact for most government-funded support programmes for business. The process won’t be completed till March 2009 at the earliest, but Mandelson announced 30 programmes that should be available by then from Business Link - and five that should be available immediately.

“Publicly funded business support - advice, loans and grants, can help individuals realise their entrepreneurial potential, businesses start and succeed, and communities prosper and flourish”, Mandelson said. The problem has been people haven’t been able to find it. A plethora of over 3,000 different schemes around the country has meant that tracking down what is on offer is a major task.

There are more details of the simplified Business Link offering in this new “Solutions for business” leaflet.

However, if you look at the details, all is not what it seems. The promisingly named “Intensive start-up support”, available from December 2008, will only be available to you if you belong to one of the groups that the local Regional Development Agency has decided to assist. So it is not yet clear who will be eligible.

Similarly it is not yet clear how “Small loans for business” - up to £50,000 scheduled to be available from January 2009, will be rationed. The announcement says they will be targeted at “entrepreneurs who might otherwise struggle to raise finance from mainstream lenders” - but this could be almost anyone in the current economic climate.

The intention behind this whole simplification effort may be admirable, but has not been achieved - and probably never can be. Even after March 2009 many other government agencies will still be in the business support game, so all taxpayer-funded programmes will not be centralised under Business Link’s new “Solutions for business - supported by government” brand.

For a start Jobcentre Plus is rolling out its “Flexible New Deal” at the moment, which will offer a variety of schemes for people currently claiming benefits seeking to enter employment and self-employment - in other words setting up their own businesses.

And many local authorities have their own business creation schemes, some of them funded by Local Enterise Growth Initiative money from central government. HMRC, Defra, and the Ministry of Justice are among central government departments that will continue to run their own schemes to achieve their own objectives. So Business Link is never going to have a monopoly on business support.

However, it is now a better place to start. You can find Business Link in your area here.

Quietly coming into effect at the end of May, the Consumer Protection from Unfair Trading Regulations 2008 summarises in one place most of the things you are not allowed to do when selling to consumers. The parallel Business Protection from Misleading Marketing Regulations 2008 does the same thing for businesses selling to other businesses (B2B).

The new regulations replace many existing laws, including most of the Trade Descriptions Act, so they are certainly worth a read. Among perennial bad practices predictably banned are “bait and switch” - offering one thing then actually providing another, claiming to belong to a trade association when you don’t, and pyramid selling. So most of it is common sense.

But there are some more surprising additions to the list of shame. Now banned are advertorial (paying for favourable press stories without making this clear to readers), fake blogging (pretending to be an ordinary consumer giving an independent opinion in an online web site or forum when you in fact stand to make a financial gain) and “astroturfing” - generating a fake grass-roots buzz around your product or service by paying people to pretend to be satisfied customers or supporters.

Since many of the latter practices have become fairly common in the media, on the Internet and among fans of so-called guerrilla marketing, it is likely that court cases may be necessary to define what exactly is permissible and what is not. For example it’s not yet clear whether the sort of affiliate marketing deal popular on the Internet will be caught under these regulations - for example recommending books in return for a commission on any sales that ensue

Since in many instances the offence lies in the deception or misleading of the customer, you can probably stay on the right side of the law by declaring what you are up to. If you have a financial interest in a transaction that isn’t obvious to the consumer, you can probably make everything clear and above board with some kind of declaration. Here’s a PRIME example - from our ONLY foray into affiliate marketing!

The regulations will mainly be enforced by local authority Trading Standards departments, with the Advertising Standard Authority playing a role where advertising is involved. Penalties can be up to two years in prison and substantial fines. But it is likely the authorities will go after big fish first in areas where there is any doubt to get maximum press coverage and establish the principles.

Read the rest of this entry »

From October 2008, a new benefit called the Employment and Support Allowance (ESA) will start replacing Incapacity Benefit and Income Support for those unable to work due to a disability or long-term illness. The new system will apply to new claims from 27 October 2008. Those with existing claims accepted before that date will continue to be paid on the existing system for another two years.

At the moment you can apply for Incapacity Benefit or Income Support, or sometimes both under a confused system that will eventually be completely scrapped.

At the heart of the new system is a new medical test, the Work Capability Assessment, designed “to look at what people can do rather than what they cannot” according to the government press release.

ESA claimants will be split into two groups based on the results of the test: those judged able to take part in some form of work and those who can’t. The amount of money you receive and the sort of training, if any, offered depend on which group you fall into. Meanwhile Jobseekers Allowance will continue to be available for those without health problems who quailify.

These changes are all part of the 2007 Welfare Reform Act, which is only now becoming law as the relevant provisions are enacted. You can read the detailed regulations passed at the end of March here.

There is a good discussion on BBC Moneybox on how these might affect real claimants.

The new system has had little detailed coverage in the press, with most media outlets ignoring it or treating it as an opportunity to comment on benefit fraud. However, the whole welfare reform process has been dragging on for some time. Many of these changes were announced last year by then Work and Pensions secretary Peter Hain, prior to his resignation in a scandal over alleged failure to properly declare over £100,000 in political contributions.

Official DWP page

Get tough tests face the sick on benefit

Is Labour abolishing illness?

UPDATE: Since more than half of the respondents to a recent mini poll on PRIME’s client-support site www.primebusinessclub.com expect to sell their business this story directly affects many older entrepreneurs. See Can business sale realistically finance people’s retirement? on this site.

Controversial new rules on Capital Gains Tax that will affect anyone planning to sell a small business have finally been clarified.  Tax will be levied on asset sales up a value of £1 million at the rate of 10 per cent, rather than the 18 per cent originally mooted. The higher rate will apply to sales above the £1 million mark.

The new regime comes into effect from the 6th of April 2008.

What is Capital Gains Tax?

If you sell an asset for more than you paid for it, capital gains tax (CGT) may possibly apply. An asset is a resource such property, shares, a piece of equipment or your entire business. It is not the raw material or stock used in the normal day-to-day transactions of most businesses, which are not subject to this tax.

CGT is really aimed at gains made by investing, so if this is central to your business you will need to look into the subject thoroughly.

For most small businesses CGT is most likely to become an issue at the exit stage if you decide to sell your business as a going concern or close down and sell off (or give away) major assets.

The Chancellor’s original proposals made three months ago were highly controversial, and were greeted by frantic lobbying by business groups.

Among the various counter proposals were schemes to reduce the rate or exempt altogether those selling a business to retire.  But the government has decided against those, instead opting for a two-tier system where the lower rate is available to anyone selling assets up to the £1 million threshold.

Business owners will have a £1 million lifetime capital gains allowance that will be taxed at 10 per cent - this means you can claim relief for gains made on multiple occasions up to a cumulative total of £1 million.

The government may have decided against confining the lower rate only to those retiring because it wants to encourage people to sell or hand their businesses on to family members as going concerns. Having to wait until retirement to get the tax concession might have discouraged this.

Report in the Independent

The Chancellor’s statement to the House of Commons

Reaction from Federation of Small Businesses

PRIME and its sister charity PRIME-Cymru have jointly published a report into improving the employment prospects of the over 50s.

“It is worth putting real money behind a drive to re-employ economically inactive over-50s”, says the report’s lead author Christopher Smallwood.

“In order to reintroduce them to the workforce, two things are needed: (1) widespread changes in employers’ practices relating to training, retention and recruitment, and (2) a more proactive approach from Government agencies to help people back to work, particularly in the area of self-employment.”

Some 800,000 people between 50 and state pension age are currently inactive but want to work, according to Smallwood’s analysis of the available data. The UK has a total of nine million people in this age group. At the moment one in three is workless, and one in seven on Incapacity Benefit.

“There is a huge wealth of skill and experience amongst the over 50s that UK business could benefit from tapping into”, says PRIME’s Chief Executive Laurie South. “Not enough is being done to reduce worklessness among the over 50s. Despite an increase in the number in work, the number not working is actually growing - and will continue to grow as the UK’s population ages. So effective government action is sorely needed. ”

“Meanwhile, self-employment remains the best option option for many of the 800,000 individuals eager to work. It’s something you can do for yourself. You don’t have to wait for government.”

You can download the full report and the executive summary from the links below.

“Improving Employment Prospects For The Over 50s”, by Christopher Smallwood and Linda Obiamiwe, published by The PRIME Initiative, January 2008.

Christopher Smallwood is a leading UK economist, and has held a wide range of senior positions in government, industry, banking and media. He is a Member of the Competition Commission, a Trustee of the charity UnLtd (founded to support social entrepreneurs) and until April 2005 he was Chief Economic Adviser to Barclays plc. Previously he was Chief Economist and Strategic Development Director at TSB Group and before that Chief Economist at BP, Policy Director of the SDP and Economics Editor of The Sunday Times.

PRIME, the charity behind this web site, has warned about misconceptions over the UK’s new anti-age discrimination law. Ridiculous as it sounds, some people have got the impression it outlaws efforts to help the victims.

In reality the objective of the Employment Equality (Age) Regulations 2006 is to assist people facing age discrimination - and regulation 29 specifically allows positive action to “prevent or compensate for disadvantages linked to age”.

This regulation gives organisations like PRIME (the Prince’s Initiative for Mature Enterprise) and its partners in the business support, education and voluntary sectors all the authority they need to provide age-related programmes.

The confusion arises because to help a disadvantaged group you often have to target it and offer special provision. People who haven’t read the regulations assume this isn’t permitted - but it is.

Regulation 29 explicitly allows positive action to “prevent or
compensate for disadvantages linked to age”. The DTI’s own guidance makes it clear that disadvantage includes things like the under-representation of a particular age group in the job market, or exceptional difficulty getting employment. There is abundant evidence that this is the case for the over 50s.

The test here is similar to exceptions provided in other
anti-discrimination laws such as the Race Relations Act, which also allow support organisations to assist particular disadvantaged groups.

In fact the age regulations allow even more latitude - you don’t have to produce evidence the age group is disadvantaged but merely reasonably assert that this appears to be the case to you.

You can read the actual statutory instrument that brings the Age Regulations into law yourself - including the key paragraph 29 that provides organisations with all the authority they need to provide age-related programmes.

However, for any support organisation that is having difficulty reassuring an advertising person, venue manager or potential sponsor, PRIME would be happy to provide enough evidence to make their toes curl if pointing to the law itself doesn’t work. The over 50s really do have a difficult time in UK’s job market - that’s precisely why this legislation was passed.

Unintended consequences are the bane of law making. In this case the confusion will soon pass, as people notice that Age Concern - which lobbied hard for this legislation, hasn’t felt the need to rename itself Concern, or that Help the Aged - another strong supporter, hasn’t turned itself into just Help.

Basically the law on this occasion is sensible. It doesn’t in any way outlaw efforts to help ageism’s victims or get them back into work.

Meanwhile here are some stats to bludgeon doubters with.

The employment rate for those aged between 50 and state pension age is 70%. This compares to an employment rate for 25-49 year-olds of 81%. (Source: Labour Force Survey). So it’s a lot lower. The Government’s own target is to get it up to 80%.

In the UK 1.5 million out of the 2.5 million people of working age who are dependent on benefits are over the age of 50 (Source: Department for Work and Pensions).

Only 31% of over-50s made redundant succeed in getting a new job within three months, compared with 50% of 25-49 year olds (Source: Labour Market Trends, 2004).

Once unemployed, over-50s are more likely to stay unemployed: 38% of men aged 50 to State Pension Age are unemployed for over 12 months compared to 25% of under-50s (Source: Office for National Statistics, 2004).

Over one million unemployed people aged between 50 and 65 want a job but can’t get one, according to a new report by the TUC. Only one in eight workless people in this age bracket had retired and were classed as “affluent professionals”, while many who are still keen to work have been forced against their will onto welfare. This is ageism in action.

Guardian story “Baby boomers forced out of work, says TUC”

TUC report “Ready, Willing and Able” (PDF)