What has become clear, in the absence of any real consultation by politicians and policymakers about the implications of the new Economic Renewal Programme, is that many small businesses simply do not have a clue about the fact that WAG is abolishing all grants for businesses.
The only exceptions to this decision are those firms within the six key sectors of ICT, energy and environment, advanced materials and manufacturing, financial and professional services, creative industries and life sciences which will be moved into a new repayable grant system.
WAG certainly seems to be in an inordinate rush to disadvantage small business in Wales. According to a senior businessman I spoke to last week, all grants from the Welsh Assembly Government have been stopped immediately although the new repayable grant system for six key sectors will not be operational until the end of the year.
As a result, it seems that no government support will be available to the small firm community in Wales for the next six months. This will mean that at a time when banks remain reluctant to lend and we are trying to emerge out of the deepest recession for 90 years, there will be no financial support from WAG for the majority of small businesses.
This is a position that can only be classed as economic madness when the existing grants could easily have been phased out over the remainder of this financial year while the new system was being put into place.
In principle, I have no objections to a system of repayable grants if it is managed properly and made available to all Welsh businesses – we certainly should not limit financial support to a small number of sectors, especially given the previous track record of politicians in “picking winners.”
Indeed, as Wales emerges out of recession with 130,000 people currently unemployed and a further half a million classed as economically inactive, we must support every viable business opportunity to create employment, and that means investing in all parts of our business community.
However, is there anything wrong with the current grant system that should lead to its abolition?
To date, no real rationale has been given beyond the fact that WAG should carefully consider “its interventions at the level of individual companies.”
Apart from disparaging comments about a “grant dependency culture” in Wales, has any evidence been provided to show that the current grant system does not produce results for the Welsh economy?
Given the impact that the withdrawal of financial support will have on the ability of the small firm community to grow, has there been any detailed conclusion of the impact of business grant schemes in Wales?
Perhaps there has been no detailed analysis because evaluations of similar support programmes show that grants do actually make a real difference at the level of the individual firm and have considerable knock- on effects for local economies.
For example, a recent study commissioned from academics by the UK Government suggested that business grant programmes are delivering benefits to the English economy through net additional employment as well as higher value-added benefits such as regeneration, skill enhancement and the development of supplier networks.
There also seems to be a misinterpretation by many politicians of the level of grant awarded to small firms across Wales. In almost all instances, the entrepreneur will have to come up with the majority of the funding for any project to be developed, with the grant being used to plug any finance gap for that business.
Such a “co-investment” model seems to pass with little criticism when applied to a public sector project, such as the £15 million of public funding recently awarded to Bangor University to create a new arts centre.
Yet, there seems to be a real difficulty among the current set of governing politicians and policymakers within WAG to invest public money in supporting the real wealth creators within the economy, the small firm sector.
The stock answer by many opposed to grants to small businesses is that “the businesses would have done it anyway” although the evidence from the UK Government study referred to earlier suggests otherwise.
In one example, the grant added to the total investment and therefore boosted the future stream of revenues, while in another, the grant enabled the owner to increase his growth objectives for the business. In another case, the additionality from the grant scheme enabled companies to modernise their facilities far earlier than planned or purchase new capital equipment vital to the services that they could provide, especially for firms operating in more traditional sectors of manufacturing.
Of course, there is nothing wrong with the principle of repayable grants but they will only work if the rest of the UK also adopts such a scheme.
If not, then small businesses in other regions will be given an unfair competitive advantage relative to Welsh small firms. In addition, any large business will think twice before choosing Wales over another UK region that not only has grants available to investors, but is as good, if not better, when it comes to other advantages such as infrastructure or skills.
As the poorest region in the UK, surely we should be maximising our support for Welsh businesses, not reducing it?
