Three weeks ago, I called for politicians to seek an urgent meeting with the European Commission to re-examine the strategy for spending its funds in Wales.
At the time, I argued that as the economic situation had dramatically changed since the strategy was drawn up in early 2007 most of the actions contained in the strategy were no longer relevant to the current short-term needs of the Welsh economy.
I also suggested that there was a very strong case to bring forward the £430m of spending earmarked for 2012 and 2013 within the European Convergence programme to support the Welsh economy as it goes through its darkest period.
While I believe that talks are now ongoing with the European Commission, it is critical for those in discussion with Brussels to ensure that we gain access quickly to the hundreds of millions of pounds of funding needed to support the Welsh economy. More importantly, they need to ensure that it is then spent on addressing the major issue facing thousands of small firms across Wales, namely access to cash as banks become reluctant to lend and, worse still, cut overdrafts at a time when businesses need such facilities the most.
To be fair, there have been some important initiatives emerging from the three economic summits to date, such as the plans for a scheme to pay companies to retain and train their staff rather than make them redundant, an idea originally suggested in this blog on November 2nd. However, none of these initiatives, despite their worthiness, have actually addressed this critical issue facing the Welsh economy: namely, of how to get money released from the banks to the small firm sector.
With many suggesting that the next 12 months are going to get worse before they get better, I believe that the time has come for a bold new action, one in which Wales can take the lead and demonstrate to the rest of Europe how it can support its business sector at a time of crisis.
Therefore, if the Welsh Assembly Government manages to get advanced payments of European funds I believe it should be used to directly support businesses through underwriting financial support from the high street banks.
In other words, the hundreds of millions of pounds made available from Europe should form the basis for a Welsh National Loan Guarantee Scheme which would be used to underwrite a significant percentage of new loans to business, particularly on short-term credit lines, overdrafts and trade credit.
For example, if a bank has halved the overdraft facility of a small firm from £50,000 to £25,000, thus placing that business under enormous short-term financial pressure, this scheme could enable the bank to restore those facilities by guaranteeing the difference. As I have said before, all of us know that good businesses don’t turn into bad ones overnight because a bank manager has decided to lower their exposure to the business, and this scheme, if implemented properly, could give financial breathing space to businesses across Wales.
Therefore, while the banks would be expected to provide part of the loan or overdrafts to firms in Wales, the Welsh Assembly Government would, through this fund, guarantee a proportion of the money being lent to businesses.
Of course, this would not be a free-for-all and banks would still need to apply their normal lending criteria but by providing a guarantee for a percentage of loans and overdrafts for businesses within the SME sector, it would enable businesses to deal with immediate short-term cash problems and enable them to get through the current credit crisis.
As the funding is only being used to guarantee lending, then once the recession is over and the economy is recovering, the funds can be reutilised for a range of investment projects to grow the business sector as originally planned by the Welsh Assembly Government through their European strategy.
Some would argue that this should be a co-ordinated national action but with devolved responsibility for economic development, I believe that Wales cannot wait for the UK Government to make decisions in this matter as very little seems to be happening. With access to £1.5bn of European Structural Funds, the Welsh Assembly Government needs to make the most of this competitive advantage over other UK regions and intervene directly to ensure that Welsh businesses get access to money to keep their business going.
It is therefore time for the Welsh Assembly Government to seriously consider this lifeline to thousands of Welsh businesses. At the very least, senior ministers should call in the heads of the Welsh branches of all the main banks to discuss how they can work in partnership with the Government to deliver such a scheme to support businesses in Wales and ensure that we, as a nation, use every means at our disposal to get the economy out of recession as quickly as possible.
Most importantly, it would inject confidence into the Welsh economy and the Welsh business sector at a time when it needs it the most.
At the time, I argued that as the economic situation had dramatically changed since the strategy was drawn up in early 2007 most of the actions contained in the strategy were no longer relevant to the current short-term needs of the Welsh economy.
I also suggested that there was a very strong case to bring forward the £430m of spending earmarked for 2012 and 2013 within the European Convergence programme to support the Welsh economy as it goes through its darkest period.
While I believe that talks are now ongoing with the European Commission, it is critical for those in discussion with Brussels to ensure that we gain access quickly to the hundreds of millions of pounds of funding needed to support the Welsh economy. More importantly, they need to ensure that it is then spent on addressing the major issue facing thousands of small firms across Wales, namely access to cash as banks become reluctant to lend and, worse still, cut overdrafts at a time when businesses need such facilities the most.
To be fair, there have been some important initiatives emerging from the three economic summits to date, such as the plans for a scheme to pay companies to retain and train their staff rather than make them redundant, an idea originally suggested in this blog on November 2nd. However, none of these initiatives, despite their worthiness, have actually addressed this critical issue facing the Welsh economy: namely, of how to get money released from the banks to the small firm sector.
With many suggesting that the next 12 months are going to get worse before they get better, I believe that the time has come for a bold new action, one in which Wales can take the lead and demonstrate to the rest of Europe how it can support its business sector at a time of crisis.
Therefore, if the Welsh Assembly Government manages to get advanced payments of European funds I believe it should be used to directly support businesses through underwriting financial support from the high street banks.
In other words, the hundreds of millions of pounds made available from Europe should form the basis for a Welsh National Loan Guarantee Scheme which would be used to underwrite a significant percentage of new loans to business, particularly on short-term credit lines, overdrafts and trade credit.
For example, if a bank has halved the overdraft facility of a small firm from £50,000 to £25,000, thus placing that business under enormous short-term financial pressure, this scheme could enable the bank to restore those facilities by guaranteeing the difference. As I have said before, all of us know that good businesses don’t turn into bad ones overnight because a bank manager has decided to lower their exposure to the business, and this scheme, if implemented properly, could give financial breathing space to businesses across Wales.
Therefore, while the banks would be expected to provide part of the loan or overdrafts to firms in Wales, the Welsh Assembly Government would, through this fund, guarantee a proportion of the money being lent to businesses.
Of course, this would not be a free-for-all and banks would still need to apply their normal lending criteria but by providing a guarantee for a percentage of loans and overdrafts for businesses within the SME sector, it would enable businesses to deal with immediate short-term cash problems and enable them to get through the current credit crisis.
As the funding is only being used to guarantee lending, then once the recession is over and the economy is recovering, the funds can be reutilised for a range of investment projects to grow the business sector as originally planned by the Welsh Assembly Government through their European strategy.
Some would argue that this should be a co-ordinated national action but with devolved responsibility for economic development, I believe that Wales cannot wait for the UK Government to make decisions in this matter as very little seems to be happening. With access to £1.5bn of European Structural Funds, the Welsh Assembly Government needs to make the most of this competitive advantage over other UK regions and intervene directly to ensure that Welsh businesses get access to money to keep their business going.
It is therefore time for the Welsh Assembly Government to seriously consider this lifeline to thousands of Welsh businesses. At the very least, senior ministers should call in the heads of the Welsh branches of all the main banks to discuss how they can work in partnership with the Government to deliver such a scheme to support businesses in Wales and ensure that we, as a nation, use every means at our disposal to get the economy out of recession as quickly as possible.
Most importantly, it would inject confidence into the Welsh economy and the Welsh business sector at a time when it needs it the most.
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