Earlier this week, I gave a speech at the Parliament for Wales debate at the National Eisteddfod to discuss how further powers could affect the business community.However, it would seem that certain sections of the Welsh Assembly Government have taken umbrage at some of the reported comments from the speech, even though none of them were actually at the event. Of course, it is easy to take such comments out of context so I am taking this opportunity to set the record straight.
Let me make my position absolutely unequivocal. In general, I believe that the argument that full powers for the Assembly along the lines of the Scottish Parliament would not help Wales is no longer valid.
However, the real issue for the economy, which must be addressed by detailed research, is how further powers can make Wales a more attractive business environment for both inward investors and indigenous businesses. Indeed, I believe that a more radical Assembly Government, with increased devolved powers, could use full legislative powers to boost investment and profitability.
This would certainly be an improvement on the current settlement where economic development policy in Wales is straitjacketed by having only one real instrument – grants to business – as the means of making any real difference to the economy.
More relevantly, if businesses, and the agencies who support them, have to fill in a small rainforest of paperwork to access funds, then what is the point of such a system?
To date, there has been little examination by policymakers of the impact of new legislative powers on the Welsh economy, and it is about time that a cost- benefit analysis is undertaken of the effect of additional powers, taking into account the benefit for Welsh businesses.
In my opinion, we have waited too long to examine the effect of greater legislative powers on economic and enterprise development, and I was extremely disappointed that this was not discussed in any real depth during the inquiry by the Richard Commission into further powers for the Assembly.
I believe the time has now come to have an honest debate to thoroughly re-examine the whole issue of the additional powers that can create competitive advantage for Welsh businesses, as opposed to grants that do little to support long-term investment.
I exhort Sir Emyr Parry Jones and his committee to examine this issue in more detail.
However, if we want the business community to back the call for greater powers, the Assembly must ensure it uses all the current powers at its disposal to show it can help the business community when and where it needs it most.
For example, the Assembly Government has failed to introduce a business rate relief scheme that is anywhere as supportive as similar schemes in both England and Scotland, despite considerable promises by one of the coalition partners before the election.
Many businesses are still paying far higher rates of business tax than they did two years ago. Simply put, Welsh businesses are short-changed relative to their Scottish and English counterparts at a time when our entrepreneurs need as much support as they can get.
Of course, we don’t need further powers to change business rates as it could be done tomorrow by the Cabinet in Cardiff Bay. It is a mechanism that is relatively simple to implement and can positively affect thousands of firms without any undue bureaucracy.
At a time when the credit crunch is hitting many small firms across Wales, the Assembly Government could ensure parity with England immediately over the rate relief scheme and assist small businesses at a time when they need it the most.
Rather than giving businesses government handouts via a maze of bureaucracy, why doesn’t the Assembly give money back in the form of business rate reductions?
As the Economic Development Minister rightly said before the last Assembly election, cuts in business rates would see 50,000 small businesses taken out of the business rates net. This is a real improvement which would benefit small businesses without an increase in bureaucracy. Cutting these rates will help indigenous companies and will make Wales more attractive to business.
My message to the Assembly Government is clear.
If used properly, further devolved powers can help create a prosperous and competitive Welsh economy with policies that really do make a difference to both home-grown and inward investing businesses.
To do this, it must ensure that the business community is fully on board as it is probably the one sector that is most sceptical over further powers for the current body.
If that can be done, then the rest is relatively easy.
Comments
Tell me, as Chairman of the Welsh Conservatives' Economic Commission, did you make these views and ideas known to Lord Roberts of Conwy when he was consulting recently on how devolution should work for Wales?
Action on business rates would save my small business over £3000 per annum which would be very welcome.
However, I have a naive question. Business rates are charged by county councils in order for them to pay for education, policing etc etc. When rural rate relief was in place, the WAG reimbursed the councils for the money they would have received. Without a similar grab back system in place no council will ever agree to your plans because they would have to put up council tax to such a degree that it would cause a politic storm. Ordinary voters are in no mood to have taxation increased to pay for fat cat businesses to do better at their expense (as it would be wrongly perceived).
Although it is attractive to think in terms of supporting business in this way, and it is encouraging to think that maybe the WAG have this on their mind, nevertheless it is too simplistic. The way forward is, as you so rightly say, is to be 'radical' and imaginative (not innovative). Fiddling with business rates is not radical enough.
Similarly with grants. Even if there were any grants to go for these days (which there aren't)you state that the red tape involved is putting businesses off applying for them. This is patently not true as the take up of any money previously available over the years has been 100% despite the obvious irritations, tediousness and doubts about whether they're worth it. What always queers the pitch is the issue of 'match funding'. This has led to all this money from EEC being returned. Businesses cannot or are refusing to match fund grants anymore.
Where the WAG can help is in the re-provision of services and initiatives that have now disappeared such as Opportunity Wales. Also you need to continue to underpin business climate enhancing services such as trade missions, research missions, Wales Trade International,which are currently valued and respected by business. A complete and radical rethink on Finance Wales and Wales Tourism should also be instigated because these bodies could be valuable.
Finance Wales, in particular, is so risk averse that it is more of a hindrance than a help to business. Much more thought should be given to the business financing systems used by US Credit Unions which are the real financial infrastructure of small American businesses.
Welsh Walker - regarding business rates, WAG could pay for this out of their budget (as they currently do with the small business rate relief scheme).
I produced a detailed paper on this for the Assembly elections and estimated that to extend the then rural rate relief scheme across the rest of Wales (as opposed to the frankly pathetic amounts being supplied by the new small business rate relief scheme) would cost around £10 million per annum. Of course, that is a lot of money but there is no reason why convergence funding could not be used to subsidise an enhanced scheme within our poorer areas. Certainly, Dafydd Wigley had costed out an enhanced relief scheme as part of Plaid’s election manifesto but twelve months later, nothing….
Of course, someone will say that the money has to come from somewhere and that is true, but one would have to seriously examine the whole budget for economic development. Certainly there is room for shifting resources. As in any budget it is a matter of priorities and given the amount of bureaucracy that is currently involved in servicing the business support sector, this would be far more efficient use of money.
You say that the grant money has been taken up – money for nothing usually is and I would switch to a repayable cheap loan system immediately – but the question is whether it is reaching the right businesses.
For example, 50 per cent of the grant funding has gone to large overseas companies who employ consultants to write out their bids for them. Nothing wrong with that in principle but the new 'simplified' model of business support will be anything but that, and businesses are already telling me the difficulties of dealing with this. I kid you not but there is talk in the enterprise sector of tenders of over 7,000 pages having to be submitted to WAG. If that is true, then heads will have to roll…..
Business support needs to be simple and effective at the point of delivery. For example, we also proposed a voucher scheme where companies could take responsibility for procuding services and claim that back.
Self-assessment works with tax - why can't it work with grants as long as there is an accountable system of monitoring such a process?
As for Finance Wales - I could say a lot here but essentially they have moved away from being a Development Bank (as the original paper on the bank proposed on the same lines as Canada) to a model that is a quasi-public sector equity fund which, I predict, will be spun off in the next few years to the benefit of the existing directors. Supporting growth potential firms doesn't mean you have to charge punitive interest rates at three time sthe official Bank of England rate to the rest of Welsh businesses.
As a result, we have essentially lost a means of supporting Welsh businesses at a time when they need it the most. For example, today's papers have stated that HSBC are refusing to support leisure industry businesses regardless of their financial health.
Imagine what that will do for Wales' tourist industry.
Anon 2.48 - according to my media sources, certainly the Assembly press office complained to the Western Mail last week over this speech as being from a Conservative spokesperson (I wish) but there we go.
If they had bothered to turn up at the speech, they would have hear the main arguments first hand rather than reading the selective quotes out by the organisers. At least they have read them now.
For example, today's papers have stated that HSBC are refusing to support leisure industry businesses regardless of their financial health.
This reminds me of the time in the early 90s when HSBC took over the Midland Bank. The Midland Bank area director at the time (later kidnapped by Russians!) was forced by HSBC to withdraw support from over 300 companies in the Swansea area who were reasonably financially OK but didn't fit the profile of businesses that HSBC wanted to keep. This chap proceeded to systematically reduce or withdraw overdraft and other facilities until these targeted businesses either went through or changed banks. I think about 1500 jobs were lost at the time. So there - its happening again.
I quite like this concept in principle but what will actually happen is that the vouchers will only apply or be redeemable with certain 'preferred' service providers - ie.the usual suspects. There is scope for abuse here.