Wales

Development bank suggested as 'first' for UK

Money Image copyright Thinkstock
Image caption The review could spell the end of Finance Wales

A development bank for businesses has been recommended as a "catalyst and driving force" for them to help the Welsh economy continue to grow.

Professor Dylan Jones-Evans led a group examining concerns firms were not able to borrow the money they needed to expand and take on more staff.

It found a "market failure" in available finance.

The development bank, a first of its kind for part of the UK, could have a "significant impact" on small business.

This is the third and final report by Dylan Jones-Evans, professor of entrepreneurship at the University of the West of England in Bristol, who led the expert panel set up by the Welsh government.

Previous reports found that there was a gap of £500m a year between what businesses want to borrow and what banks are willing to lend.

This followed the economic crisis that began in 2007 and reached its height a year later.

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The call for a development bank could spell the end of the road for the arms-length body, Finance Wales.

Prof Jones-Evans says: "The current solutions being provided by Finance Wales, as a subsidiary of the Welsh government, will not be able to fully address the challenges in closing the widening funding gap for SMEs in Wales."

He suggests integrating a substantial amount of its functions which could be done by either merging or amalgamating it with the development bank.

"The government provision of access to finance is too important a priority to be left within the narrow remit of this institution that has failed to adapt sufficiently to changing market conditions, " he adds.

Ultimately, the future of Finance Wales will be decided by the Economy Minister Edwina Hart.

Prof Jones-Evans's other reports also raised questions about how well Finance Wales, which is publicly funded, was performing in terms of getting money to businesses and helping grow the Welsh economy.

Figures last year also revealed that investments in firms from Finance Wales' main European fund had only resulted in 20% of the jobs they were expected to create.

Although it has helped many businesses with financial support it has been criticised for charging high interest rates.

Image caption Prof Dylan Jones-Evans says the bank would work closely with the private sector

The organisation says its loans are risk-based so it charges high rates where the risk is high.

Prof Jones-Evans says high street banks need to be encouraged to lend to firms with the development bank "working with" rather than "crowding out" the private finance sector.

The development bank could bring together loans, grants and business advice in one place.

At the moment, companies can access different loans through the UK government, the Welsh government and Finance Wales.

This is a major development in how the Welsh government supports businesses.

Critics of the proposed development bank have raised concerns that it would be under the direct influence of the Welsh government as opposed to Finance Wales, which operates at arms-length from ministers.

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