The peculiar story of Margaret Thatcher and Basic Income - RSA

The peculiar story of Margaret Thatcher and Basic Income


  • Picture of Charlie Young
    Charlie Young
    Associate, RSA
  • Employment

Most wouldn’t peg Margaret Thatcher for a basic income enthusiast. Well, she wasn’t quite, but she instituted a policy that shared basic income characteristics. What’s more, it was successful in many ways. More on that later.

Basic income at its purest is the idea that all citizens be paid an unconditional amount, one that is given to people individually as a regular sum that isn’t taken away as incomes rise. Interest in basic income is growing by the day, with new pilot projects being announced more and more frequently. There are basic income-style trials – if not a purist’s definition of basic income in Canada, the US, Kenya, Uganda and Finland, with another soon to start in Barcelona and experiments under discussion in The Netherlands, France, Italy and the UK.

Some have gone so far as to call 2017 the year of basic income, heralding the maturation of a powerful idea with a long intellectual and political history. Whether or not that is to be the case, examining historical equivalents has a lot to offer. Perhaps surprisingly then, Thatcher’s generous state support for prospective entrepreneurs qualifies as a related policy worth investigating.

Let’s set the scene. It’s the 1980s and Margaret Thatcher is Prime Minister. She rose to power in the wake of the winter of discontent and took the helm of an economy cracking under the pressure of staggeringly high unemployment, inflation and class conflict. While Thatcher is perhaps best known for the ideologies that ushered in free market neoliberalism, she made an exception to her expressed ‘small state’ world view (less evident in practice than rhetoric) to provide significant state support for entrepreneurs.

The Enterprise Allowance Scheme started in 1981, offering those of working age who wanted to start a business an allowance of £40 a week, for up to one year. Recipients had to have been unemployed for at least eight weeks and have savings or loans of at least £1000, the equivalent to around £3600 today. These eligibility criteria clearly mean this couldn’t be defined as a basic income. Nonetheless, the scheme offered participants some means of subsistence, a financial floor they could stand on; once in the scheme the payments were an unconditional cash transfer, similar in structure to basic income. Any additional income was theirs to keep and the support wasn’t at risk of disappearing if their earnings rose.

At its peak, over 100,000 people enrolled each year and over the course of the scheme the total number of participants added up to 3.7% of the unemployed population. The EAS is credited with helping 325,000 people become self-employed, and according to participant testimonies without the program the resulting businesses either would have come significantly later or never existed at all. Famous EAS participants include Alan McGee of Creation Records, Julian Dunkerton of Superdry and the Turner Prize winning artist Jeremy Deller.

Of those enrolled in the EAS, a process that required multiple meetings and the submission of business plans, three quarters saw it all the way through. Eighteen months after enrolment, 65% of all original applicants had set up and were still employed in their business and over a fifth of these new business owners employed other people, not enrolled in the scheme. Contemporaneous figures from the World Bank say that for every 100 successful EAS participants, 64 additional jobs were created.

Despite the harsh economic conditions at the time, the EAS ensemble founded businesses in industries like manufacturing, agriculture, construction, catering, transport and the burgeoning industry of ‘micro-computing’ as Hansard put it at the time. Business owners were young, too – a quarter of those enrolled were under 25.

The policy’s stated aim was to decrease unemployment and help provide support for self-realisation through small enterprise. From the above, and from government surveys and associated economic analysis, it seems they succeeded in this mission. This happened at a comparatively tiny cost to the taxpayer. For each job created under the EAS scheme, including participants and any resulting employees, the government spent £1,729 - equivalent to about a year’s worth of JSA back in the ‘80s. In 2017 GBP, that’s one job for every £4,650 spent.

The scheme wasn’t without its critics. Some claimed that EAS failed in terms of its stated goal of net job creation, due to displacement effect. It can’t be denied, however, that it led to increased self-employment and gave thousands of people a form of independence hitherto unavailable. It’s worth noting that the scheme heavily contributed to Thatcher’s free market narrative and equated individual hard work with morality and success. That was the story, despite the fact that the success of the EAS was fundamentally underpinned by a progressive government welfare scheme. That’s important to remember.

The policy later transmuted into the similarly successful Business Start Up Scheme in 1991, which survived for four years. Labour dabbled with similar policies in the intervening years and in 2011 David Cameron announced the New Enterprise Allowance, ostensibly inspired by the EAS. The New Enterprise Allowance still exists in a hollowed out form, with lower payments, increased conditionality, and shortened time periods- reflecting the problematic welfare zeitgeist

EAS payments demonstrably increased entrepreneurial and creative activities, while providing meaningful security for many in an otherwise precarious economy. It created jobs in many sectors and appears to have had a considerable multiplier effect – beyond the value of the payments themselves.

Today, as the world weighs up the potential efficacy of basic income, this only goes to show that tell-tale signs can be found in the unlikeliest of places.


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