LAST week, just before the closure of the WDA, a number of the enterprise agencies in Wales received notice – only a few days before the end of the financial year – that the budget for developing and supporting new businesses would be substantially cut.
As a result, a considerable number of jobs will be lost within these bodies, which deliver various business support packages across Wales and act as a vital catalyst in encouraging entrepreneurship.
As usual, the timing of the decision was immaculate, especially as the latest start-up figures from Barclays demonstrated a decrease of nearly 13% in the number of new businesses being established in Wales: There were 2,000 less businesses starting up in Wales in 2005 as compared to the previous year.
The main axe on business support will allegedly fall on South East Wales, which contains some our poorest and least enterprising communities, and where providers will see their funding in aiding start-ups almost halved. Coincidentally, South East Wales is also the region of Wales which, according to Barclays, has experienced the largest decline in start-ups between 2004 and 2005.
This decision to reduce the level of funding for start-ups will have significant consequences for both employment and wealth creation, given that the survival rates of new firms is quite high in Wales due to the support being received from enterprise agencies during the first vital couple of years of existence. For the significant number of those starting a ‘lifestyle’ business, a third of whom originate from an economically inactive background, the impact may be far worse.
Given that the cost of supporting each of these lifestyle start-ups is around £600 and they reach an average turnover of around £27,000, the return on investment to Wales is actually quite phenomenal given that other government grant aided support schemes – such as Regional Selective Assistance – can cost an average of £10,000 per employee.
Therefore, if the amount of start-ups to be supported in South East Wales has been halved to 1100 in 2006-2007, this will mean a potential loss of over £30 million in turnover to the Welsh economy, which could increase considerably if the same policies are pursued in future years.
The decline in starts demonstrated in the Barclays data was not unexpected. For example, the recent Global Entrepreneurship Monitor for Wales (GEM) showed that 5.3% of the adult population were involved in setting up and managing a new business in 2005. Whilst this is higher than the 3.6% recorded in 2002, it represented a decline of 22% on the highest level achieved in 2003.
The GEM and Barclays data also has considerable implications for enterprise policy in Wales because it suggests that, without further economic or fiscal incentives, entrepreneurial activity in Wales may stay at this level for the foreseeable future. More importantly, there is increasing evidence that the economic future of this nation will not be solved by specific schemes such as the Knowledge Bank alone, and there needs to be further stimuli that can enable Wales to make a further ‘step-change’ in entrepreneurship, particularly amongst the more deprived parts of the population.
Six years ago, many of us were highly optimistic when the Entrepreneurship Action Plan was put into place to change the culture of Wales from one that was dependent on large industries and the public sector to a more entrepreneurial economy. Part of that solution was the encouragement of greater enterprise amongst the population and providing the right level of support to those who wished to start a business.
The decision to cut the level of support to help new businesses at a time when we are experiencing a decline in start-ups across Wales is not exactly joined up thinking. Certainly, I hope this decision to downgrade the importance of entrepreneurship is not a harbinger of the future approach of the new Department of Enterprise, Innovation and Networks in developing the Welsh economy and I would hope that the Economic Development Committee of the Assembly will look closely at this issue of declining enterprise in more depth, given its implications for the economy of Wales.
As a result, a considerable number of jobs will be lost within these bodies, which deliver various business support packages across Wales and act as a vital catalyst in encouraging entrepreneurship.
As usual, the timing of the decision was immaculate, especially as the latest start-up figures from Barclays demonstrated a decrease of nearly 13% in the number of new businesses being established in Wales: There were 2,000 less businesses starting up in Wales in 2005 as compared to the previous year.
The main axe on business support will allegedly fall on South East Wales, which contains some our poorest and least enterprising communities, and where providers will see their funding in aiding start-ups almost halved. Coincidentally, South East Wales is also the region of Wales which, according to Barclays, has experienced the largest decline in start-ups between 2004 and 2005.
This decision to reduce the level of funding for start-ups will have significant consequences for both employment and wealth creation, given that the survival rates of new firms is quite high in Wales due to the support being received from enterprise agencies during the first vital couple of years of existence. For the significant number of those starting a ‘lifestyle’ business, a third of whom originate from an economically inactive background, the impact may be far worse.
Given that the cost of supporting each of these lifestyle start-ups is around £600 and they reach an average turnover of around £27,000, the return on investment to Wales is actually quite phenomenal given that other government grant aided support schemes – such as Regional Selective Assistance – can cost an average of £10,000 per employee.
Therefore, if the amount of start-ups to be supported in South East Wales has been halved to 1100 in 2006-2007, this will mean a potential loss of over £30 million in turnover to the Welsh economy, which could increase considerably if the same policies are pursued in future years.
The decline in starts demonstrated in the Barclays data was not unexpected. For example, the recent Global Entrepreneurship Monitor for Wales (GEM) showed that 5.3% of the adult population were involved in setting up and managing a new business in 2005. Whilst this is higher than the 3.6% recorded in 2002, it represented a decline of 22% on the highest level achieved in 2003.
The GEM and Barclays data also has considerable implications for enterprise policy in Wales because it suggests that, without further economic or fiscal incentives, entrepreneurial activity in Wales may stay at this level for the foreseeable future. More importantly, there is increasing evidence that the economic future of this nation will not be solved by specific schemes such as the Knowledge Bank alone, and there needs to be further stimuli that can enable Wales to make a further ‘step-change’ in entrepreneurship, particularly amongst the more deprived parts of the population.
Six years ago, many of us were highly optimistic when the Entrepreneurship Action Plan was put into place to change the culture of Wales from one that was dependent on large industries and the public sector to a more entrepreneurial economy. Part of that solution was the encouragement of greater enterprise amongst the population and providing the right level of support to those who wished to start a business.
The decision to cut the level of support to help new businesses at a time when we are experiencing a decline in start-ups across Wales is not exactly joined up thinking. Certainly, I hope this decision to downgrade the importance of entrepreneurship is not a harbinger of the future approach of the new Department of Enterprise, Innovation and Networks in developing the Welsh economy and I would hope that the Economic Development Committee of the Assembly will look closely at this issue of declining enterprise in more depth, given its implications for the economy of Wales.
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