Select Committee on Treasury Written Evidence


Memorandum submitted by PRIME (the Prince's Initiative for Mature Enterprise)

WHAT IS PRIME?

  PRIME is the only national organisation in the UK dedicated to helping people aged over 50 to set up in business. PRIME is a registered charity linked to Age Concern England whose aim is to release the untapped potential of 50+ enterprise. PRIME was founded with the active support of HRH The Prince of Wales and is one of the 17 charities of which he is President and which comprise the Prince's Charities Group.

  PRIME undertakes campaigning to make those over 50 aware of the opportunities for self-employment and enterprise, and to improve the help and support available to enable them to create sustainable businesses. PRIME also works with over 100 partner organisations to provide practical help and support. Finally PRIME undertakes research into the neglected area of 50+ research and enterprise.

  Between 2001 and 2005 PRIME operated a micro-finance loan fund for those aged over 50 wishing to start a business but without the finance. PRIME only loaned to those who were unable to borrow money from the bank because they did not meet the credit checks of the bank or because they had little or no supporting collateral. The scheme was operated with guarantees from the DTI, under the Phoenix Fund, Age Concern and Help the Aged.

  When the Phoenix Fund was regionalised PRIME was unable to find the necessary supporting guarantees to borrow more capital to lend on. PRIME receives some 12 calls a week asking for a loan despite the fact that it says does not operate a loan. It has been seeking ways of re-opening a loan scheme since September 2005.

  PRIME, based on its experience, has a particular interest in the unclaimed assets discussions, and in particular in the proposals for a Social Investment Bank. It therefore wants to address itself to the issues raised by the Commission on Unclaimed Assets in its document The Social Investment Bank March 2007. There is, however, a broader issue that needs addressing about the concentration on youth in the discussions.

OVER 50S: THE FORGOTTEN COHORT

  PRIME acknowledges that the 2005 Pre-Budget Report did mention a focus on financial inclusion, but it stressed the focus on the needs of young people. This led to the first report of the Commission on Unclaimed Assets stressing the role of the Social Investment Bank in helping young people. PRIME responded to this document by pointing out the needs of the over 50s.

  It is worth re-visiting some of the data on 50+ worklessness.

Table 1

ECONOMIC ACTIVITY AMONGST 50-SPA IN THE UK


Economically Active
Workless
Region
Total Pop 50-SPA
Working as Employee
%
Self-employed
%
Econ
Inactive
%
Registered Unemployed
%

East
863,000
521,700
60
120,200
14
205,500
24
15,600
2
East Midlands
676,500
401,300
59
87,600
13
174,300
26
13,400
2
London
933,900
507,900
54
145,900
16
247,500
27
32,600
3
North East
395,400
216,000
55
32,200
8
139,100
35
8,100
2
North West
1,037,000
578,100
56
105,200
10
336,200
32
17,500
2
Northern Ireland
235,000
111,800
48
30,700
13
87,200
37
5,300
2
Scotland
792,500
474,100
60
75,600
10
225,900
29
17,000
2
South East
1,268,200
777,800
61
190,600
15
274,500
22
25,300
2
South West
817,000
478,000
59
117,500
14
206,500
25
15,100
2
Wales
474,000
247,800
52
56,800
12
161,000
34
8,400
2
West Midlands
822,800
482,600
59
100,800
12
222,300
27
17,100
2
Yorkshire and The Humber
769,000
456,200
59
81,400
11
216,100
28
15,400
2
Total
9,084,300
5,253,300
58
1,144,500
13
2,496,100
27
190,700
2


  Source: Nomis Annual Population Survey April 2005 to March 2006:

SPA = men 50-65
women 50-60.

  It would be comforting to imagine that the workless was composed of 2% of the population that wanted to find a job and 27% that did not need to work. While it is difficult to give precise figures, "Winning the Generation Game" (Cabinet Office 2000) probably made the best estimation of what these workless older people were actually doing:


% estimate in "Winning the Generation Game"
Estimate projected onto 2006
ONS data

Incapacity Benefit
49
1,323,000
Retired on adequate pension
9
243,000
Retired on inadequate pension
18
486,000
Caring
17
459,000
Registered Unemployed
7
189,000
Total
100
2,700,000


  These data provide a fairly robust model to work with, whilst not being totally precise. On the assumption that 75% of those on Incapacity Benefits really can and want to work, that 75% of the carers will need to find employment at some stage; and that 75% of those retired with inadequate pensions need to work, these data suggest that there are 1,890,000 people aged 50-SPA wanting employment.

  If even as few as 1% of these became self-employed, that would be 18,900 new businesses. Even on the basis that 50% of these were drawn from those on Incapacity Benefit with an average annual welfare payment of £7,000, transforming this into an income from their business of £5,000 p.a. the added value would be £113,400,000 per annum. If an additional £5,000 of added value was created by each of the other 9,450, then the added value would be £160,650,000 per annum.

  Under the New Deal 50+ self-employment route from April 2000 to March 2003 (when Working Tax Credit was introduced and the employment credit abolished) there were approximately 12,000 people aged 50+ who pursued this programme, ie 4,000 per annum. Data has subsequently become extremely difficult to find but clearly the figures are attainable.

UNDERPINNING GUARANTEES A MAJOR PROBLEM

  The difficulty is that starting a business does require some capital and the majority of these over 50s would not qualify for a bank loan to start a business. A loan fund providing micro-finance for the over 50s who want to start a business is therefore vital:

    (i) to create savings in welfare;

    (ii) to give financial independence and dignity to people who at 50 have one-third of their lives in front of them; and

    (iii) to avoid a social welfare explosion in ten years time as this number become ill, as research shows happens more frequently to the workless.

  PRIME would therefore urge that the Social Investment Bank needs to have a stronger focus on micro-finance for the over 50s to enable many more to access the funds to start a business. Key to this is the guarantee.

  Community Development Finance Institutions like PRIME need to be able to grow a very large portfolio so that risk can be accommodated within the financial economies of scale. Alternatively they will have to concentrate on a smaller number of large and relatively risk free deals, making little impact on the social structures that conceal, for example, 50+ worklessness. Organisations like PRIME cannot grow quickly enough to ensure the deal flow is sufficient to cover risk, and they find it difficult to raise the capital and revenue through which to grow, if there is no guarantee behind the capital.

  PRIME's concern is, therefore, that the Social Investment Bank, with its inherent tension between being small, adaptable, innovative and able to take risks, and being solid dependable and able to attract capital to create a new asset class, will veer towards the latter. Attractive as these two functions might appear for a new institution, PRIME takes the view that the Social Investment Bank needs to put a guarantee function first and foremost in the first years of its existence. In PRIME's view this will start to unlock hesitant and risk averse capital and it will afford the time for intermediaries serving the disadvantaged to grow.

  By putting the guarantee function first there is an opportunity to unlock different forms of capital. For example there is a new breed of on-line loan exchanges developing. At present these schemes tend to lend to the lowest risks thus limiting their social impact. PRIME has already undertaken investigations into how a guarantee scheme could harness a new stream of loan capital for financially excluded over 50s through the on-line loan exchanges. All that is missing is the guarantee. Of course PRIME's concern is for over 50s business start-up micro-finance, but there is no reason for such a scheme not to be made available to other disadvantaged groups.

CONCLUSION

  While PRIME supports the idea of a Social Investment Bank, PRIME believes its initial task should be that of providing a guarantee which enables smaller Community Development Finance Institutions the opportunity to attract capital for the financially disenfranchised, enabling them to grow and develop. There is a place for the bigger, brasher and more publicity garnering investments, but not at the total expense of initiatives that really benefit communities on a small scale. PRIME takes the view that the Social Investment Bank, by acting as a guarantor in the initial years of its existence, will, in fact enable an asset class to develop. In PRIME's opinion the Social Investment Bank may evolve to take on a role as innovator and magnet for new capital.

April 2007





 
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