“The Welsh Conservative Party would make the new repayable grant system available to all sectors of the Welsh economy and all sizes of businesses. It is vital, as the nation struggles to come out of recession, that every business that needs finance to grow and create employment within their local economies is given every opportunity to access such funding”.
The Challenge
It is generally accepted that the current system of grant support is largely unsustainable within the current economic climate. The Welsh Conservatives believe that, overall, there needs to be a gradual move away from the free grant culture in Wales towards an environment where companies, especially SMEs, get quicker access to repayable soft loans that can lead to a more sustainable financial support structure for business to flourish and grow. However, this should not mean abandoning SMES within our poorest communities and, in particular, there will still be a need for grants in the Convergence region of Wales, especially for start-ups and for innovation-based projects that are higher risk and would not be in a position to agree terms on repayable loans. This, however, should be viewed as investment in R&D and in increasing the intellectual capital of the nation.
The evidence
The Welsh Conservatives have supported the general principle of repayable grants. However, it is the belief of the Commission that these should not be limited to any one sector, as currently proposed by the Welsh Assembly Government, as various research studies have shown that growth companies are not limited to any particular industry. As a recent report from the UK Government has demonstrated [1], high-growth firms engage in diverse activities and are not only involved in high-technology sectors. So, while there are reasons to support the development of high-growth businesses in a few promising sectors, ‘traditional sectors’ should not be forgotten. In fact, business services and the wholesale/retail sector – two industries that have been excluded by WAG - provide almost half the high-growth firms in the UK. In addition, two thirds of Wales still qualifies for the highest level of European structural fund intervention rates and full advantage must be taken of this status until 2015 to help grow and develop the private sector. There remains a clear case to provide financial help to support SMEs within the poorer parts of Wales and a “one size fits all” economic strategy may not be fit for purpose. For example, 64 per cent of employment in West Wales and the Valleys comes from SMEs as compared to 52 per cent in East Wales i.e. SMEs are the main employers within our poorest communities and need support to grow and develop [2].
The Way Forward
Unlike the sectoral approach of the current Labour-Plaid Government, the Welsh Conservative Party should make the new repayable grant system available to all sectors of the Welsh economy and all sizes of businesses. It is vital, as the nation struggles to come out of recession, that every business that needs finance to grow and create employment within their local economies is given every opportunity to access such funding. We would also seek to create a new innovation grant that could fill the funding gap to enable high-risk private sector projects to receive vital initial seed-funding that would not be forthcoming from traditional sources of finance. Finally, the Commission believes that whilst repayable grants may be the only sustainable strategy for future funding of small business, the current Welsh Assembly Government has acted with too much haste in abandoning grant support for SMEs in Wales. This especially the case for the poorest Convergence region which, unlike any part of the UK with the exception of Cornwall, is eligible to receive the highest rate of grant support. Therefore, there should be detailed discussions with the Welsh European Funding Office (WEFO) to create a Convergence SME grant fund which could be used to support the growth ambitions of new and existing firms within our most deprived communities. This would be funded entirely from European grant aid and private sector match funding, could be linked directly into a new small business support structure for Wales and would last the lifetime of the current Convergence funding period.
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