Support Our Start-Ups at This Critical Time



Dear First Minister,

Over the last couple of weeks, I have been contacted by new firms from all over Wales who have asked, time and time again, when will they get the support from Government that every other business is currently receiving?

Whilst the general economic response from the UK and Welsh Governments has been rapid and timely, it is unfortunate that very little of what has been on offer has been of any relevance to start-ups.

For example, the new Income Support Scheme grant for the self-employed that was recently introduced prevents founders of start-ups established in 2019 and 2020 from claiming support because they will not have submitted any tax returns for 2018-19. That means that as many as 340,000 new businesses in the UK will not qualify for government support because they were started in the last fifteen months.

Similarly, many tech start-ups will not be able to qualify for the Business Interruption Loan Schemes as they will not be showing a profit and are dependent on equity not loan finance going forward.

In Wales, many have welcomed the recent initiative from the Development Bank to offer low cost loans to businesses, a devolution plus response that will provide additional support to Welsh firms at this critical time. Yet to qualify for this, firms will have to have been in operation for two years or more, essentially excluding around 30,000 Welsh businesses that will have been set-up within the Welsh economy during that period.

In addition, a significant number of start-ups are based at home, sub-letting or located in co-working spaces and will not be eligible for support under the various business rates relief grant schemes.

New businesses are not looking for any special treatment – they just want to get access to the same level of support being provided to the rest of the business community. More importantly, academic research has shown that firms that are less than five years old create almost all net new jobs in an economy, and they are those businesses that are agile, flexible and able to pivot their strategies to suit the current economic environment. Are these the sort of firms that Wales can afford to lose when we come out of the current crisis?

So, what can be done to address this issue?

  • The Welsh Government could set up a Covid-19 Start-Up Support Grant scheme which, as with the UK Government’s self-employed grant scheme, would enable all start-ups to get a taxable grant worth 80% of their trading profits up to a maximum of £2,500 per month for the next 3 months. To overcome the issue of self-assessment returns which UK Government have suggested is a barrier to this support, the profitability could be assessed through the provision of bank statements to demonstrate income and expenditure. This would help up to 15,000 new businesses that have been established in 2019 and 2020 and are currently receiving little or no support.
  • Alternatively, all qualifying start-ups could receive grants of £10,000 under the new Economic Resilience Fund. As eligibility has not yet been determined, this would show that Welsh Government will not close the door on opportunities to support the start-up community in Wales.
  • With the assistance of the Development Bank of Wales and working with organisations such as Tech Nation, the Welsh Government could set up a runway fund that could offer convertible loan notes to those tech start-ups that are beginning to have a real impact on the Welsh economy and need funding now to continue trading.
  • Co-working spaces have been vital in supporting the growth of a vibrant enterprise ecosystem in Wales over the last five years, and at very little cost Welsh Government could ensure that they continue to play a vital role by giving such premises a business rates holiday until the end of the year.
  • Through its relationship with the UK Government, the Welsh Government can lobby for specific measures to be introduced at a UK level such as enhanced support for investors under the SEIS/EIS schemes.
  • Finally, Welsh Government needs to begin preparation for the post Covid-19 landscape by ensuring that previous failings, such as the lack of credit for small firms after the recession of 2009, are avoided, so that new firms have enough funding to grow and create new jobs in the economy. The fact that the Development Bank of Wales is now offering loans with low interest rates is long overdue and was a key part of the recommendations for its creation. This approach must continue beyond this year so as to give Welsh firms the support they need to be competitive going forward.

Of course, we have no idea when things will get back to normal and, to be honest, what that new normal will be, but the real question is whether that recovery from the current shock will be slow and severe or if, by protecting and supporting those entrepreneurial job creating start-ups, there will be an uplift in economic fortunes in Wales sooner rather than later. And if it is more than likely that this recession will result in older and bigger firms shedding jobs or being unwilling to take back those they have furloughed, then it will be younger businesses that will, as always, have to take up the slack in creating employment opportunities.

Ever since the Entrepreneurship Action Plan for Wales was established in 2000 as the first regional enterprise strategy in the world, the Welsh Government has always been supportive of entrepreneurs and their businesses. However, those individuals who have spotted the opportunity, taken the risk and started a new venture, now need that support more than ever, and I hope that you will take the opportunity to ensure that they receive all the help they can get at this critical time.