Grants, the Bank and Mrs Merton

Two months ago, the Welsh Assembly Government heralded a ‘new era for business support’ with the aim of making Government backing for new or growing enterprises “faster, simpler and more responsive to their individual needs.”

Of course, the real question is whether the small firm sector will get the support it requires or whether the Assembly Government will continue to focus its efforts, as it has done during the last nine years, on offering large financial incentives in the form of regional selective assistance grants, for large companies to locate to Wales.

Some would argue that the latter situation will prevail and only this week, the Assembly Government provided major support to HSBC in creating 250 call centre jobs in Newport over the next couple of years.

I am big fan of HSBC and no one can blame them for taking advantage of such generosity when such a massive grant is waved in front of them by the Welsh Assembly Government? I am sure that any company of whatever size in the same situation would do the same.

However, for politicians to pretend that the only reason they located the jobs in Wales was because of other factors does tend to stretch credibility, particularly given the nature of the jobs within the call centre industry.

To an extent, it’s like the classic line from Mrs Merton, “So (Debbie McGee), what attracted you to the millionaire Paul Daniels”, except that in this case, it’s “So, HSBC, what attracted you to the grant-supported Welsh economy?”

No doubt, Assembly spokespersons will bring out the usual explanations regarding the high skill levels of the local workforce and the commitment of local supplier chains.

Yet despite these factors which do differentiate the Welsh economy from the other regions of the UK, policymakers still feel compelled to use taxpayers’ money to support highly profitable large companies that surely are able to pay their own way in relocating here in Wales.

So what is the extent of such largesse by our political masters? Believe it or not, actually discovering the value of grant awards to large companies has become nigh on impossible and even our elected representatives are unaware of the exact detail regarding grant assistance.

Indeed, the last time a specific paper on grant spend in Wales was presented to an Assembly Committee was over two years ago on May 3rd 2006. As a result, there is no accountability for the spending and it is frankly an incredible situation that the Welsh Government of the day no longer feels compelled to report on how it uses taxpayers money to support businesses across the nation.

The only source of information (for now), is to be found on the decision reports webpage of the Assembly Government, which regularly provides information on the decisions made by the Welsh Industrial Development Advisory Board (WIDAB). This is a statutory body which advises the Economic Development and Transport Minister on offers of Regional Selective Assistance(RSA) to business projects, usually over £500,000 in value.

An examination of the WIDAB grant approvals during the twelve months shows that £33.5 million of regional selective assistance grants was awarded to 21 companies across Wales at an average cost of £12,731 per job. Given the average size of the projects - £1.6 million – one can assume that these went to large firms either relocating here in Wales or expanding their operations. Of course, unlike a loan system, none of this grant money will be repaid by the large companies and so the Welsh taxpayer is essentially subsidising the operations of large companies which frankly do not need it.

It has been indicated that the new Single Investment Fund will be underpinned by a long term strategy of moving businesses away from grant support to an investment culture with the introduction of more repayable loans and grants with upside equity stakes. This would be a bold move but should also take into account the need to provide grant funding to the riskier end of business support, namely start-ups and R&D-based technology businesses, including those relocating here to Wales.

Any movement by the Assembly Government towards repayable grants must apply equally to large firms as to small firms. There cannot be a system where large firms are given non-repayable grants from the public purse whilst the Assembly Government penalises smaller firms unfairly or, worse still, starts to act as a public sector venture capitalist by putting together unworkable equity deals with more subclauses than a deal with the devil.

At a time when all firms are struggling with the credit crunch, we need a transparent business support structure that can make a difference to the Welsh economy. In this respect, the Assembly must ensure that it is not only large firms that get favourable treatment for the support required but that our small firm sector, which employs the majority of the Welsh workforce, also receives the same level of quality support as multinational corporations with their own deep pockets.

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