Paper tigers and dragged feet

Business rate relief would benefit retailers who cannot receive Assembly support

TO SAY that the recession has hit the Welsh economy hard over the past 12 months would be something of an understatement.

There have been thousands of jobs well-paid jobs lost in Welsh industry, while hundreds of businesses have gone to the wall or closed their operations. As a result, there are currently 35,000 more unemployed people in Wales when compared to a year ago, and 18,000 more individuals who can be classed as economically inactive. Shockingly for Labour politicians, the unemployment rate in Wales is now higher than when Tony Blair took office in 1997.

Despite the recession being described as a global problem, it can be argued that Wales, with devolved responsibility for economic development and skills, has been in a position to react differently in some areas when compared to the UK Government.

In particular, the economic summits organised by the Welsh Assembly Government have been perceived as a ‘Welsh solution’, which has enabled politicians to understand the real needs of the economy during the recession.

Despite the opportunity to talk directly with business – which Ministers and civil servants should be doing anyway as part of their daily jobs – the real failure of the economic summits is their domination, both in terms of representation at the meetings and the agenda, by a public sector agenda. Subsequently, there has been very little action involving the private sector and only a couple of meaningful interventions.

Some may consider that to be an unfair judgement, but if we listen to the pronouncements of government politicians, WAG has essentially achieved only one tangible outcome from the economic summits – the ProAct scheme, which keeps workers within jobs through accessing training programmes.

However, even this intervention had been discussed elsewhere prior to the economic summits. For example, in my Western Mail column last November, I suggested that: “Rather than watching impotently as firms lay off key workers, why doesn’t the Assembly Government set up a multi-million pound key fund which enables businesses to temporarily move their workers, during the current economic crisis, onto skills training courses? Not only would this enable businesses to retain their skilled workers through government support over the next 12 months, but it would provide opportunities for upskilling and, critically, enable firms to be in a more competitive position when we emerge from recession.”

With £48 million of WAG and European funding being allocated to the ProAct scheme, 6,200 people have taken up training places since it started in April of this year. However, given that a further 35,000 people are now unemployed in Wales, it is clearly not the all-singing, all-dancing solution to the economic woes of this nation that it is made out to be by some government ministers.

One of the real failures of the OneWales Government during the recession has been its reluctance to implement the main economic policy put forward by Plaid Cymru during the last Assembly election the cutting of business rates to tens of thousands of Welsh businesses. The defence is that business rates reductions would mean that WAG could not target enough resources to those in most need and if business rates were reduced, then WAG would have to make up the shortfall in revenue collected by reducing spending in other areas.

That argument is a paper tiger put up by those who clearly have little understanding of the needs of the small business sector. Those that have been most in need of support during the recession of the past 12 months are the tens of thousands of small firms which are struggling with their finances and the lack of capital in the banking system. Indeed, how many of the small businesses at the heart of every community in Wales, such as the local greengrocer, butcher, shopkeeper, baker or pub owner, have actually benefited from any of the pronouncements made at the economic summits?

As for reducing spending in other areas, that is a matter for WAG, although I also seem to recall that the same argument was not used in shifting £48 million of public resources to ProAct. Of course, WAG would argue that it introduced a £7 million rate relief scheme last autumn to help small firms in Wales. But this is clearly small fry compared to the tens of millions of pounds which will be handed mainly to large manufacturing companies across Wales under the ProAct programme.

If WAG is serious about supporting small businesses, it could also re-examine the annual spend of hundreds of millions of pounds on a bloated and bureaucratic business support system and instead examine how much of this could be given directly to smaller firms in the form of business rate relief.

While some of my colleagues in economic development have argued that this does not make sense because it does not ‘target’ resources efficiently, there is no doubt in my mind that WAG should reduce the financial burden on small firms across Wales through temporarily suspending business rates until the economy picks up again.

This is because business rates are the worst type of tax during a recession, especially to the retail sector which cannot get any support from WAG.  Unlike other forms of taxation on firms, business rates remain the same regardless of the performance of the business as it is based on the property occupied by the business and not on turnover or profitability.  To many firms, it is a fixed cost that must be paid regardless of the success of the business and is one that becomes disproportionately higher for many small firms as their income reduces.

Certainly, there is no reason why the whole issue of business rates could not be reconsidered as WAG draws up its budget for the next 12 months, especially as all three Plaid Ministers sitting around the Cabinet table made impassioned pleas for reductions during the last assembly election campaigns. While a couple of thousand pounds of rate relief may not seem much to a politician or a civil servant, it could mean the difference between survival and failure, especially for many small shops up and down our high streets.

Another area where WAG does have the instruments to make a difference to business is with regard to European funding. Unlike the other parts of the UK that have been hit hard by the current recession, such as North West England, the Midlands and the North East of England, Wales has had access to around £2 billion of European funds for the period 2007-2013 and, more importantly, this is funding which is ringfenced and therefore cannot be reduced through public sector expenditure cuts.

Given this, you would have thought that WAG would have made emergency plans to spend this money quickly to alleviate some of the effects of the downturn. Instead, the approach has been one of a business-as-usual approach with regard to European funding in Wales, and a complete lack of urgency in getting these funds out into the economy.  While the spin from WAG suggests that Wales has currently invested 50% this European funding available to the region, the latest figures from the Welsh European Funding Office – the body which distributes the funds – show that only £123 million has been actually spent to date, despite the Convergence programme starting over two years ago.

It is totally understandable that projects in areas such as business support can take time to get funding out to industry, but if the economy was in crisis why didn’t WAG fast-track capital projects that could have an immediate impact on spending last October when the crisis was upon us? This could have safeguarded jobs and, more importantly, created jobs in construction, one of the sectors hardest hit in Wales during the current recession.

In addition, very little of this European funding has found its way to skills providers dealing with groups of unemployed young people, the age group hit hardest during the recession. For example, the report from the last economic summit stated that not one project led by the Further Education sector have been approved to date and at a time when Wales needs to train young people, our colleges have been frozen out of the last great opportunity to kick-start the Welsh economy.

Some economists believe that we are over the worst of the recession and that the economy is set to grow over the next couple of years. Despite this, it is likely that unemployment will continue to grow and may hit 150,000 in Wales by the end of next year. This means that WAG, regardless of the political colours of the UK Government in Westminster, cannot be complacent and must fully utilise all the powers it has as its disposal make a difference to the economy. Unlike many other regions of the UK, we have been blessed with devolved powers for economic development, education and skills, and billions of additional funding from Europe. Let’s use them.