START-UPS IN WALES IGNORED BY WELSH GOVERNMENT’S ECONOMIC RESILIENCE FUND

New £500m “Economic Resilience Fund” launched for Wales to provide ...

This week, the long overdue Economic Resilience Fund was launched by the Welsh Government. With £400 million available in grants to Welsh businesses, it forms part of a series of initiatives in Wales to support businesses at a time of crisis. 

Operating on a first come first served basis, the first tranche of £200 million includes money for micro-businesses with an operating address in Wales employing between one to nine people. 

To qualify, they have to have experienced in excess of a 40% reduction in turnover since March 1st 2020, demonstrate efforts have been made to sustain business activity and are not pursuing other forms of Welsh Government non-repayable grant funding support. They should also not be entitled to business rate relief (and already received at least £10,000 in support) and pay staff through the PAYE system. 

Unfortunately, and despite calls from business organisations including the CBI, Chambers of Commerce, FSB and IOD as well as leading entrepreneurs, this part of the Economic Resilience Fund will still exclude the majority of start-ups in Wales as well as many micro-businesses. 

This is because, for reasons known only to themselves, the Welsh Government has also decided to support only VAT registered firms in Wales i.e. those that have a reached a turnover of £85,000 or more.  

Currently there are around 267,000 firms in Wales and only 40 per cent are registered for VAT with the average turnover of micro-businesses being only £62,000. In addition, of the 16,000 new businesses created in 2019 and 2020 (with 90 per cent still trading), only around 2,000 of these have reached the VAT threshold. As a result, the rest are ineligible for any support from the fund. 

That would be fine if they qualified for other support but they don’t. They cannot get a Covid-19 self-employed grant as they will not be able to provide self-assessment for 2018-19. In addition, they will not be able to get a business rates grants as most do not have premises and either sub-lease or work from home. 

And as they are less than two years old, start-ups cannot get access to the £100m Development Bank loan programme announced last week. 

Yesterday, the Financial Times revealed that the UK Treasury may be announcing support for high tech starts after pressure from various groups. It suggested that it is likely to offer businesses “convertible” state-backed debt to high tech start-ups if it is matched by funds from their venture capital backers with one option having pound-for-pound funding up to £12.5m for a total injection of £25m.

These loan notes would automatically convert into an equity stake in the business — normally at a discount — unless repaid, thus giving the UK Government a direct stake in some of the country’s most innovative businesses.

Yet data shows that such tech start-ups make only 6 per cent of all new businesses in Wales which will mean that founders such as carpenters, builders, electricians, painters, plumbers and window cleaners who have started their business in the last two years and are a part of the Foundation Economy that is key to the Welsh Government’s economic strategy will get nothing. 

So why is the Welsh Government ignoring new firms at this time? With the average earnings of those start-up founders being around £12,000 per annum (with many earning far less), then to support the vast majority of new Welsh businesses for the next three months would cost far less than any other business intervention put forward so far by the Welsh Government 

This begs the question why on earth are they not doing given that it is likely that another part of the Economic Resilience programme – namely to support large firms with more than 249 employees – will cost as much as it would to save the entire start-up community in Wales.

Obviously both start-ups and big businesses are important to the Welsh economy so why will one be funded whilst the other is ignored especially as many of those large firms will already have had grants in different forms from Welsh Government over the last few years? It’s all well and good saying that the Economic Resilience Fund will not reach everyone but with a bit of innovative thinking, it could have reached the vast majority of start-ups in Wales - that collectively, employ far more people than both Tata and Airbus combined - at a lower cost than supporting other parts of the Welsh economy.

Given that the rest of the UK has yet to do anything to support the new firm community, any action to support start-ups could have demonstrated the Welsh Government’s commitment to supporting entrepreneurship wherever it blooms in Wales. Indeed, as an organisation it is a key part of the five stakeholder model that is at the heart of Welsh Government policy along with academia, risk capital corporates and entrepreneurs themselves. Has the Welsh Government now abandoned any pretence that it truly cares for the start-up community in Wales?

I sincerely hope not and that this inaction does not demonstrate that it has now abdicated this commitment to entrepreneurship in Wales going forward. 

I know these are difficult times but I implore Ministers and their officials to look again at what they can do to support those start-ups and micro-businesses that are the real job creators within the Welsh economy and the businesses we will need as we come out of the recession we will enter over the next few months.


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