By Professor Dylan Jones Evans
Over the weekend, the UK Government announced a further £617 million in funding for the Small Business Grants Fund (SBGF) and the Retail, Hospitality and Leisure Grants Fund (RHLGF).
These had previously enabled local authorities to distribute £12.33 billion to businesses as part of the Treasury’s support for the economy.
This additional money is to be specifically targeted at those firms that are not paying business rates and were previously excluded from any financial assistance. However, councils will also have the discretion to make payments to other businesses based on local economic need.
As economic development is devolved, the Welsh Government will receive around £36m of consequential funding under the Barnett formula and as a result, it will be its decision to decide how to spend this funding.
There are a number of potential options available in allocating this additional finance. It could use it for other budgets but that is highly unlikely given that there are still businesses across the nation that have yet to receive any support.
For example, there are over 260,000 businesses in Wales but only 113,000 are listed for business rates. That means that the majority of firms that either sublet or work from home have not received the standard SBGF and RHLGF support.
In terms of the grants introduced by the UK Government for the self-employed, the condition that these rely on self-assessment for 2018-19 excludes the majority of the 14,000 new businesses set up in 2019 and 2020 as well as those directors who are paying themselves via dividends and not wages.
In terms of the support that Welsh Government has itself developed via the Economic Resilience fund, the self-imposed limit that firms have to be VAT registered to avoid fraud means that many are not even considered as only 40 per cent of Welsh businesses pay VAT. Also, for the £100 million loan programme run by the Development Bank of Wales, all businesses less than two years old are excluded.
The additional funding therefore gives Welsh Government a significant (and largely unexpected) leeway to close the funding gap, especially if it was combined with the tens of millions of pounds allegedly still left in the Economic Resilience Fund.
Indeed, given that the new “BounceBack” loans of £50k or less are being introduced today by the UK Treasury, there is little reason for additional funding to be allocated to the Development Bank of Wales (DBW) at this time given this is the same market it has been largely targeting. The initial DBW fund was needed to get money out of the door quickly and it’s done that job well but it would be foolhardy to replicate what the UK Government is finally doing effectively.
So what could or should Welsh Government do?
First of all it should ensure that all non-VAT registered limited companies are now eligible for the next stage of the Resilience Fund and their eligibility will be checked via Companies House records.
Secondly, for those new firms that are not incorporated and are operating as sole traders, the Welsh Government could use the new funds to set up a universal basic income for startups. This would ensure a focus on new firms set up in 2019 and 2020 that do not qualify for any other direct support from the Welsh or UK Governments.
The easiest way to do this would be a flat bursary of £1500 per month for three months rather than a complex grant system that would take too long and be too expensive. It could get local authorities to administer this given the success they had in getting grants out quickly and in order to ensure that these are legitimate businesses, this could be confirmed by the business’ accountant in the same way that many sole traders do with a mortgage.
Certainly, the last six weeks has seen an unprecedented response by both the UK and Welsh Governments to support businesses at the most difficult time ever for the nation.
It has not been an easy task to come up with interventions that ensure that most firms can be adequately supported when the economy is in lockdown for many of them. Unfortunately, it is those smallest and newest businesses that create the majority of jobs in the economy that have yet to be helped.
However, it’s not too late and this additional funding from the UK Treasury could give the Welsh Government the resources to finally help these firms and ensure they are around to drive forward the economy when we emerge from this crisis.