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  • 1. ‘Journeys to Formalisation’A model for legitimising cash-in-hand businesses Global Microcredit Summit 16th November 2011 www.community-links.org
  • 2. Community Links • Multi-purpose charity • East London • 35 years • 2 founding principles: – Work with people – Innovation • 4 Strategic Aims – Raising aspirations – Tackling poverty – Extending opportunity – Strengthening communities www.community-links.org
  • 3. A Picture of East London• Hosting Olympics in 2012• Reception area for London – People make what they can and move on – High population churn (20% each year)• Hyper-diverse population mix (over 170 languages spoken)• Most deprived boroughs in UK – High unemployment, low education attainment, poor health, high crime, overcrowding• People living close to the edge• Yet there is plenty of hope, hard work and entrepreneurialism www.community-links.org
  • 4. Community Links and the Informal Economy • 10 years + focus on informal work and poverty: • Developed a wider evidence base – 25 reports into relationship between poverty and cash-in- hand work – People work cash-in-hand out of need not greed – Takes them out of absolute poverty, whilst trapping them in relative poverty • Supported policy development – Her Majesty Revenue & Customs (Tax) e.g. Hidden Economy Group – Dept for Work & Pensions (Welfare Benefits) e.g. Welfare Reform • Run lobbying campaigns – ‘Need NOT Greed’ www.community-links.org
  • 5. About Cash-in-Hand WorkDefinition• Economic activity hidden from the state for tax, benefit or employment law purposes, but legal in all other respectsFacts & Figures• 12.3% / ₤120bn of UK’s GDP• Over 2 million workers• Av. 20% in deprived boroughs www.community-links.org
  • 6. Policy Context in the UK In the UK there is ‘no’: • Overarching strategy and plan • Lead government department • Agreed policy message This results in: • Disagreement between government departments • Contradictory policy, approaches and messages • ‘Punishment’ approach not a ‘supportive’ approach • No service to formalise people’s informal economic activity www.community-links.org
  • 7. Current Climate in the UK• UK in the grip of the current global financial crisis• Soaring unemployment – 1 in 5 young people unemployed• Large public sector cuts (funding and staff)• Coalition government ideological move towards a smaller state – Removal of Business Links, Regional Development Agencies, and reduction in funding for business support & advice, incl. micro-finance• UK has history of long term (and generational) unemployment and welfare benefits – 4 in 10 children in London live in poverty• Government has an obligation to tackle poverty and worklessness, through its employment department (Dept. for Work & Pensions)• Enterprise is part of the growth agenda for UK plc• ‘Legalisation’ of informal businesses must be included www.community-links.org
  • 8. Journeys to FormalisationA model for legitimising cash-in-hand businesses www.community-links.org
  • 9. Objectives1. To learn how local organisations support people to move from the ‘hidden’ economy to the ‘formal’ economy2. To develop a viable model which can be shared and replicated3. To lobby UK government to endorse this model www.community-links.org
  • 10. Research Method• Interviews with 10 organisations (staff and clients) from across the UK over 2 years• Development of the Model• Creating the environment for change through discussions with private sector and government about implementation and policy www.community-links.org
  • 11. The Model www.community-links.org
  • 12. Process of Formalisation for Self Employment Outre Early Supp Busin Exit ach Advic ort ess Advi from e with Supp ce and perso ort referr Formal Informal nal al Enterprise Enterprise financ es No client commitment Client commitment to formalise Trust of formal institutions grows over time Individualized service, flexibility to set times and targets, process may take 5 years Discretion over reporting informal activity www.community-links.org
  • 13. Stage 1: Outreach and ReferralSend advisors into the community to foster interest in formalising residents’ informal trading by:• Running group workshops or individual drop-ins in community settings (centres, clubs, churches, the street)• Building relationships with community workers, community leaders and groups to raise awareness and encourage referrals to the service www.community-links.org
  • 14. Stage 2: Early AdviceAdvice is offered on a confidential, no-expectation of disclosure or commitment basis, via meetings that aim to:• Stress the benefits of formalisation: social, emotional and financial• Foster a desire to formalise, without pressure• Be practical: offering flexible meeting times and locations• Identify barriers to formalisation – fear, literacy, low self-confidence, low formal qualifications, language, childcare, etc.• Garner trust with supportive hints and tips helping the informal trader today: – Marketing, health & safety, training courses, construction certification• These small steps may make apparent, in practice, the benefits of formalisation www.community-links.org
  • 15. “Most people want to formalise, it is survival. Most people don’t want to be looking over their shoulders, fearful. People want peace of mind.” “It’s really showing them that in a lot of ways they’re often disadvantaging themselves by not declaring their business.” “It depends on rapport with the individual and if you don’t get it at the beginning you don’t go anywhere.”www.community-links.org
  • 16. Stage 3: Support with Personal Issues and Finances• Support with straightening out personal finances – E.g. housing costs and benefits – with a mutual commitment towards the process based on full disclosure of personal circumstances• Understand and address their personal issues – E.g. literacy, numeracy, low self-esteem and confidence – referrals to appropriate support organisations• Understand and address wider support needs that, if resolved, allows the client to focus on their business – E.g. Childcare, poor health, benefits, housing, certification etc… www.community-links.org
  • 17. Stage 4: Business formalisation and Development SupportPlanning towards formalisation, with a mutual commitment towards the process, would include:• Agreeing a plan of formalisation – including small steps, a guided timeline, tasks, targets etc…• Practically supporting the clients to formalise – E.g. register as self-employed; obtain licenses or permits• Assessing businesses strengths and weaknesses, and then agreeing a plan for business improvement: – Administration; operations; costs and pricing; exploring local customer bases and possible expansion; R&D; marketing; finance and funding• Encourage peer support – Clients encouraged to support / trade with each other via small groups and networking events – Staff, supervisor and partners ‘case support’ meetings to pool staff skills for optimal support www.community-links.org
  • 18. “8 people were involved in helping these people to formalise, that was interesting. They [each] had to win my trust.” “It has taken a lot of time to build the networks with other agencies. The referral route is easier [now]… it is actually specialised support [they offer].” “We get all the customers together that might benefit from talking to each other and sharing experiences.”www.community-links.org
  • 19. Advisor Capabilities Understanding of the benefits system; housing, tax laws; regulatorySympathetic requirements Experienced to the view and qualifiedthat informal in start-up; work is a business and legitimate employment livelihood support strategy Advisor Capabilities Strong Strong interpersonalunderstanding skills, of the responsive interrelated and non- nature of judgmental, barriers of Able to inspire trust poverty engage collaboratively with relevant agencies www.community-links.org
  • 20. Stage 5: Exit SupportContinued support for a smooth and sustainable exit from the service includes:• Advisors contact clients – regularly (daily, monthly, informal and formal intervals, e.g. 6 month review) – Via face-to-face, telephone, texts, e-mail – For a minimum of 18 months and a maximum of 30 months – For any • additional business needs • ongoing support needs www.community-links.org
  • 21. Case StudyThomas, male, mid-40’s, self-employed, micro-credit client Tom lost his job Became self-employed Took micro-loan through illness gardener / landscaper for tools & marketing Illness reoccurred, Helped by micro-credit Grew business over business developed organisation to formalise: 6-7 month, but not cash-flow problems registered business, legal / tax compliant, opened bank account scared of being caught Bank closed his account, and told him to Went back to micro-credit go to doorstep lender, organisation, with v. high APR re-started business again www.community-links.org
  • 22. Attributes Empathy Rapport Non-judgement Understanding Collaboration Experience of advice/ supportComponents of advice/ Meeting Expanding personal Training Finances Registration support the market needs Awareness Eroding Networking of benefit barriers Premises Marketing & contacts Informal Enterprise Formal Enterprise Engagement, Outreach & referral Ongoing relationship management & tailored development plan Developing the relationship Providing business support Enabling stability & growth Phase 1 Phase 2 www.community-links.org Phase 3
  • 23. Recommendations• A genuine cross-departmental government commitment to implement a model of formalisation. – Initial commitment from government departments: DWP, HMRC and BIS• Government design an implementation strategy for formalisation initiatives across the UK• Key characteristics should be: – a trusting and respectful relationship between advisors and clients – adviser discretion – flexibility on statutory obligations to disclose www.community-links.org
  • 24. Organisations delivering the Formalisation Model require:• Extended funding (5 years)• Funding for outreach services• Discretionary powers to not disclose personal information about clients informal work• A focus on Outcomes not Process www.community-links.org
  • 25. Clients seeking to Formalise require:• A payment model for welfare benefits that aids formalisation of self employment through new Universal Credit system• More financial institutions catering to this market: – Start-up Loans - most informal clients don’t have starting capital – Growth loans - up to £2,000 to support micro and small businesses. – Softer conditions - e.g. lower interest rates than those offered by conventional financial institutions, with longer re-payment arrangements (c.3-5 years) – Coupled with practical formalisation support www.community-links.org
  • 26. Questions & Discussion Discussion points: • What can we learn from each other? • What is your government’s agenda to formalisation? • What can we do at EU & Global level to push for change? www.community-links.org
  • 27. Please Contact Aaron Barbour Head of linksUK Community Links105 Barking Road, London, UK E16 4HQ ++44 20 7473 9666 (direct line) aaron.barbour@community-links.org www.community-links.org www.community-links.org