Building Business

Introduction

The Covid-19 pandemic has forced us to think in terms of what we value. We have all had to question what we assign value to, and what we support as things of value to our communities, to our economy and to ourselves and our families. It has forced questions on how we best bring resources across society to bear on these challenges and encourage imaginative solutions while building our economy – and the abilities of our citizens and businesses – to take advantage of new opportunities on the horizon.

Economically, the huge shocks of the last few years require support for businesses to navigate any recovery, at the time where the business support system and regional economic development is in flux following the UK’s exit from the European Union. At the same time, the ‘Levelling Up’ agenda and the crisis intervention of the last few years have signalled the re-emergence of the state as a key actor in the economy, although the extent to which this will remain the case in ‘normal times’ is still uncertain. With historically higher spending per-head than other parts of the UK, Wales potentially has much to lose in terms of the move from EU funding but change also signals an opportunity to look again at how we deal with many of Wales’s long-standing economic issues.

As a result of the ongoing COVID-19 pandemic, there is a need to rebuild our economy, and in the context of climate change to do so in a sustainable way for the long-term that supports and incentivises small and medium-sized enterprises (SMEs) in that transition. It is in this shifting context that we look at business support and the infrastructure to build up our businesses, local communities and shape our economy for the challenges of the future. That is why we have canvassed our members on their experiences and aspirations.

In short, all of this is an opportunity to go back to the drawing board on what business support is, what it is meant to do, and how it fits across wider policy areas. In a time of shifting sands, it is important to get proper foundations in place.

Brexit has meant that the whole structure of EU funding is changing in the UK. Advocates noted the opportunity that this could lead to a more responsive support system that would drive local needs with less bureaucracy and ensure better joined up policy. So far, it is yet to be seen how this will happen, but we can assess development so far and point to lessons for the future, and where there are opportunities in shaping business support to better ensure these desires are met. This work serves as an interim – and necessarily tentative – report on that process to date, with the aim of providing constructive ways forward and ensuring the best outcomes and opportunities for businesses in Wales. The terrain can now be shaped toward the long-term, and should be done with SMEs as the focus, with ‘think small first’ being the principle around which to shape the delivery.

Covid-19 led to an unprecedented support for small businesses and employees. This was essential for those businesses and an acknowledgement of the value of these businesses in our lives, or economy and communities. Outside the pandemic crisis response, for business support to succeed and to promote a ‘Levelling Up’ agenda it needs to focus on impact on business capacity and capabilities leading to long-term economic development. It is important that we also learn from previous mistakes and avoid a focus on short term projects and ‘shiny new things’ that may have no real impact on local prosperity and the wider community

In 2019, 99.4% of total enterprises active in Wales were small and medium-sized enterprises (SMEs), with micro enterprises (0 – 9 employees) accounting for 95.0% of the total. SMEs accounted for 62.4% of employment and 37.9% of turnover in 2019 in Wales.

A system that works for small businesses in Wales must be well funded, and serve the longterm economic development needs of areas. It must also bring to bear central funding with local market knowledge of local partners and be able to stand autonomous from the short-term electoral cycle and the accusation of politicisation of funds while addressing real needs. All this, while also being accountable for the delivery and performance in pursuing that mission of longterm small business focused economic development. It needs to gain the trust of disparate actors – including governments at different levels – and ultimately provide a lever that helps steer towards a prosperous Wales in the future economy.

This report looks to be a constructive contribution towards this end.

Key statistics

Our recommendations

General

Business Support should be based around the principles of support (whether advice and guidance, funding, finance) for:

SME Growth and building the capacity and capabilities of SMEs
Transitioning to net zero
Community and social value

UK Government and the Shared Prosperity and Levelling up Fund in Wales

As a matter of urgency, the UK Government should set out its detailed plan for the principles, shape, quantum funding and design of the Fund and how this will apply and be implemented with partners in Wales, so that there is a clarity and certainty for all stakeholders to plan for the years ahead with this vital resource in mind. As things currently stand, it remains uncertain, which is untenable and against principles of sound fiscal responsibility and long-term planning and economic development.

Welsh Government

Welsh Government should pursue an Economic Development Bill for Wales to provide clarity and a proactive approach to ‘think small business first’ across Government and between governments.
An Economic Development Bill should place the small business economy at the centre and as the foundation to success across its economic, environmental and social aims. This bill would also provide the framework and principles through which to address regulation, tax, skills and wider policies through a lens that encourages the growth to address the missing middle in the Welsh economy. This should provide the framework for aims and measures across government geared toward building small business capacity and capabilities.
Welsh Government should commit to a substantial external consultation with partners as to the future design of business support in Wales engaging the voice of recipients of business support and those businesses which have not previously sought support to understand need and barriers.
Welsh Government should assert a pro-business view and take a ‘think small first’ growth policy in terms of looking to how we can encourage businesses to grow and look at every step to utilise wider policy, business support and resources to build capacity and capabilities to achieve this in the long-term.

Crisis and contingency funding

Welsh Government should provide a comprehensive review and economic impact assessment and its economic assistance to businesses through different waves of the pandemic. This would provide a comparative analysis of the impacts and understanding of how to provide plans and delivery mechanisms for contingency and crisis funding in future. It would also identify gaps in delivery and methods to address them.
UK and Welsh Government need to look at what measures need to be put in place (e.g., through changes such Making Tax Digital) to securely support those groups that were unable to access funding during the pandemic, such as self-employed, company directors, and freelancers.
This preparation should also be in place for different shocks that may come, from pandemics of different types and scale, to flooding risks and environmental impacts. The more the economic support for crisis is in place ahead of time, the less need for capacity to address it at the time, which is important in a crisis. The contingency planning should be owned by an independent body.

Welsh Institutions and the future

There should be a thorough review of the remit and role of the legacy institutions and how they fit in a new system to drive economic growth, prosperity and business resilience and community value, alongside how they fit across governments and with other institutions in the business support ecosystem.
Whatever the future shape of funding, it is vital that the core business support infrastructure, including Business Wales and Development Bank of Wales, is protected and developed and placed on a statutory footing with core multiyear funding set out, and viewed as a key competitive advantage to Wales’s economic and business development.
When determining value-for-money, business support should move beyond simple job creation targets towards a broader economic conversation. This could include modernisation, decarbonisation targets, productivity gains, capacity and capabilities. FSB have called for Business Wales to include an advice line on sustainability and decarbonisation, and the survey suggests there is demand for such a service.
Welsh Government should develop a strategy for the use of business support and levers to build capacity and capabilities in small firms within its Net Zero Strategy, ensuring a small business ‘Think small first’ perspective within its decarbonisation agenda, mitigating possible disruption and ensuring firms can take advantage of new markets and new opportunities.
Business Wales should continue to be the key entry point and one-stop-shop for business owners and firms’ needs in any new system and it is able to navigate that system for firms. Business Wales’s remit and role should be reviewed to best fit in that system.
Governmental support services should not displace services provided through the private sector, and intervention should be based on market analysis and working with the private sector as appropriate, including addressing where there is market failure.
All Government supported enterprise development programmes should also be equality impact assessed, to review the impact on protected characteristics at the budgeting, design, implementation, monitoring and evaluation stages.
Welsh Government and financial institutions should assess the progress made on the 10 recommendations in the ‘Supporting Entrepreneurial Women in Wales’ report, but with particular reference to the recommendation to ‘Improve information on the availability of finance for women entrepreneurs and ensure there are no unnecessary restrictions to the awarding of finance.’
Welsh Government should explore where soft engagement with private providers can help with sharing information and engagement on key issues, including areas such as carbon auditing.

Cross Governmental working

All levels of government should publicly recognise each others’ legitimate interest in this agenda, and each level’s relative strengths to shape an effective business support agenda and delivery.
There are dangers and risks for SMEs in UK Government bypassing Welsh Government in delivery of business support, and also in UK Government not using institutions and structures that have worked, retain trust between actors, are regionally based and embedded in Wales. We concur with the OCED report, which noted the importance of strong institutions and regional based capacity to ensure effective, joined-up business support funding that works in the long-term and outside the electoral cycle. We urge that the system is shaped to accommodate expertise, local knowledge and institutional advantages that are in place in Wales.
Under a neutral arbiter (such as the OECD), UK and Welsh Government should hold a summit to understand the best governance arrangements for long-term delivery of economic development through business support, with a view to providing impartial mechanisms for delivery outside day-to-day government business and interference. UK, Welsh and Local Government must align on a governance arrangement that:
- Ensures each level has input and shapes policy for strategic ends
- Respects established statutory and legislative responsibility
- Provides a clear mix of local knowledge and national capacity
- Ensures decision making on projects are made at the level that best suits addressing these tripartite needs
- Provides regional based capacity, following the footprint based on the Corporate Joint Committee (CJCs) and City Deals
- Is presided over as a statutory independent arm’s length body with multi-scale government represented at the official level, accountable to the relative legislatures
- Is backed by an independent evidence and research capability to drive, deliberate and shape policy to each Government levels and stakeholders’ needs and economic strategy, with equal buy in across each
- Builds ‘Think Small First’ into the system and builds all regulation, eligibility criteria and business engagement and representation into the system with this in mind
- Promotes cross-governmental working for common and clearly articulated ends
- Links across and provides a central point of contact to all institutions and business support across Wales and UK as necessary, from Business Wales and DBW to universities and skills, and Innovate UK and the relative Infrastructure Commissions
- This mapping exercise should be made available and public.
- Recognises and utilises areas of capacity and capabilities in the legacy funding system, such as Business Wales, Development Bank of Wales, Welsh European Funding Office and utilises them to build learning and capacity across the system, particularly Local Authorities.
Business support delivery Institutions should be ‘arm’s length’ from day-to-day political needs of government and have the independence to deliver effectively by building trust among stakeholders through providing a neutral depoliticised space and central point of contact, geared toward long-term local development.
Any new system should make good use of expertise and local knowledge embedded in institutions, and adapt their roles and remits to the new system accordingly, allowing the autonomy to help shape delivery toward local market needs.

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