It’s time for the government to rediscover free enterprise

Instead of throwing money at a shaky labour market, the government should foster entrepreneurship, says Matthew Lynn.

In his spending review last week, the chancellor, Rishi Sunak, was once again spraying money around. He launched a raft of new initiatives to get people back into work and added extra funding to a few things that were already in place. You can see why. With an expected 10% drop in GDP this year the Covid-19 crisis has created one of the worst recessions ever recorded. 

We have not yet seen that translate into a huge surge in joblessness, but it is only a matter of time. So far the furlough scheme and cheap loans to companies have softened the blow. Over the next year that will start to change. We are starting to see that this week, with Arcadia group going into administration. We will see many more redundancies in the months to come. 

No one would argue with the government doing everything it can to fix that. The individuals themselves are hardly to blame if their jobs disappears. And we know from experience that if young people don’t find a job in the first year after they leave school or university then they find it incredibly hard ever to build a career for themselves. 

New gigs are easy to come by

But we are putting far too much emphasis on the government creating work. We should be doing more to help people help themselves. Why? Because in fact, as Gillian Anderson might put it, as Margaret Thatcher, in that clipped voice in The Crown, there has never been a better time to pull yourself up by your bootstraps. Just take a look at some of the evidence. 

Firstly, the gig and freelance economy is booming. New internet platforms, such as Fiverr and Upwork, are expanding at an unprecedented rate. Fiverr’s share price is up sevenfold so far this year, and Upwork has tripled, a performance that makes even Zoom look modest by comparison. Companies are posting more and more work online, and gig workers from around the world can log in and collect jobs from anywhere. Rewind a few years and anyone freelancing had to build up a network of contacts over many years. Now it can be done with a few clicks, and anyone can sell their services into a global marketplace. It is easier than ever to get started. 

Next, new technologies are rapidly emerging. From artificial intelligence, robotics and vertical farming to drones and driverless cars, there is a whole range of new industries about to emerge. The start-up sector is still booming, and there is plenty of venture capital money available for well-planned ideas. If you want to start your own business, there are opportunities and investment available. 

Finally, Covid-19 is accelerating change. Companies are switching to working from home on a massive scale. Products are being delivered online in ways we didn’t think possible a year ago. City centres are being redesigned and the suburbs revitalised. But whenever there is change there is always space for new products and services – and scope for new businesses to be launched. 

How to create the right incentives

Add it all up and this is a great moment for people to set up a new business or start working for themselves. Surely the government should be promoting that? It could borrow an idea from the 1980s and launch a revamped Enterprise Allowance Scheme that would pay people a basic income for the difficult first year while they got started for themselves. 

Next, it could create a new class of employment for gig- or home-workers, who would have some of the same protections as traditional employees but not all the same rights and obligations. That would encourage companies to use freelancers far more. Finally, it could offer some tax breaks. How about a £5,000 tax-free “gig allowance”, for example? That would help people get started without the burden of having to report and pay tax on their income, and it would help them when they still weren’t making much money. 

The chancellor should stop racking up debt keeping people in jobs that are likely to disappear anyway and foster enterprise and self-help instead. It would be far cheaper – and in the medium term it would be better both for them and the economy.

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