Sion Barry looks at the state of the Welsh economy and asks whether we can make it more prosperous.
It’s a great question and one that politicians, entrepreneurs and anyone with a stake in the Welsh economy have at one time or another no doubt grappled with.
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A well-worn narrative is one of a Welsh economy still trying to find its ‘commercial feet’ more than 20 years following the demise of heavy industry, although steel is still a very important part of the economy in terms of direct and wider supply chain employment, towards a services sector economy – although granted with a higher than UK average contribution from manufacturing towards overall Welsh gross value added (GVA).
Latest figures show a Welsh GVA of 72.2% of the UK average. Despite an encouraging growth rate since the recession, it is still lower than any other nation or region of the UK.
And yes the North East of England, which doesn’t have devolution, but a similar socioeconomic profile to that of Wales.
So perhaps politicians and the private sector needs to think about a 30 year economic plan; as this is the sort of time frame horizon we could be looking at if Wales is to plug its GVA per head gap with the UK average – although admittedly if you take out the economic powerhouse of London and the south-east of England the scale of the challenge is not so daunting.
The deficit between all public spending in Wales, both devolved and non-devolved and including our UK commitments to serving the national debt and in areas like expenditure on foreign embassies, is around £12bn per annum. Or put it another way around 25% of our total GVA of £45bn.
The challenge has to be to get to a situation where we are actually generating more tax receipts, both personal and business-related – whether in the future mainly collected by a Welsh Treasury – than our public expenditure, minus perhaps long-term capital spending.
That’s a tough one and would require the Welsh economy outperforming the UK average by around 1% over a long period of time – with the challenge that with the regions in England taking more direct responsibility for economic development they are also looking to up their output levels too.
Yes we can talk about Wales’ Barnett Formula underfunding, and of course it would be great to have an additional £200m allocated for an investment fund backing Welsh start-ups and university spin-outs, if corrected would only represent an increase of around 1% on the current block grant.
But the world is awash with cash and long-term investors, whether foreign wealth funds or pension funds, looking to back infrastructure projects.
Providing the UK Treasury don’t play ‘that’s fine but its part of and not additional to your block grant card,’ then we need to have shovel ready investment projects to secure investment even if the Welsh Government has to de-risk projects with some early stage funding to get them through the initial panning consent phase.
So we need to think big and this cannot all come from the Welsh Government. Tidal lagoons yes, and while it has gone off the radar of late a barrage further upstream in the Severn Estuary too.
Anglesey has to live up to its billing as ‘energy island’ and become a world leading location for energy generation projects, as well as research and development.
Do we have an entrepreneurship deficit in Wales and a lack of ambition amongst companies to shift gears to another level; which invariably involves securing growth capital and a willingness to give equity to investors in return?
There is evidence from merger and acquisition data that for deals with an enterprise value of more than £3m indigenous firms are being acquired rather than acquiring.
I often hear that Wales is too dependent on the public sector – although many in the private sector rely on public sector contracts.
Yes if we had ten more Admirals it would a be great start, but there are a large number of exciting start-up businesses such as Cardiff-based technology firm PinPad which is on the verge of seeing its proprietary software, that allows all financial transactions on devices through a simple four digit code, being commercialised.
I am in favour of a Welsh Government having in its armoury the ability to raise and vary corporation tax, especially as the tax is seemingly on its way to Northern Ireland, and like in Scotland powers on all Air Passenger Duty bands to support expansion and new route development at Cardiff Airport.
While for Labour this might be a difficult sell, a stimulus to encouraging more business investment and entrepreneurship activity in Wales, would be to reduce the top 45% band of income tax.
Business rates, which are being devolved next year, should also provide greater reliefs to SMEs.
So we need a Welsh Government to look, and yes this might be counter-intuitive, beyond the electoral cycles, with private sector support to help shape a long-term economic plan, with a degree of flexibility built in, to get Wales to the ‘Promised Land’ of at or above UK average GVA over the next 30 years (assuming of course there is still a UK by then).
The plan cannot succeed by trying to do everything, but at its heart say a small number of priority themes such as in energy, from renewables to nuclear – and why not looking to pioneering carbon capture and storage technology so that in the future we can exploit the vast seams of coal reserves that remain in South Wales.
The plan could also have its heart the support mechanisms – including cheap finance through a Development Bank for Wales – to encourage more business start ups.
Creative industries and tourism have been stand out performers since 2008, so they need support too.
And why not a degree of devolved powers over immigration, so making it easier for businesses to plug skill gaps, which is a major inhibitor to growth, with an agreed number of visas for non-EU citizens to work in Welsh firms? This could also ensure that more entrepreneurs from around the world can bring their businesses to Wales – creating new tax receipts and employment opportunities.
Our cities, or more to the point our city regions, will have raise their games in terms of GVA.
Cardiff as a capital city also needs to aspire to being at least 120% of the UK GVA average.
And yes it needs to further exploit its status as the world’s closest capital city to London, seeking to bring more financial and professional services jobs and investment down the M4.
So can we create a more prosperous Welsh economy? Well yes we can.
This article is a good starting place because it provides the basis of a very useful ‘SWOT Analysis’ – the strengths, weaknesses, opportunities and threats influencing the Welsh economy – even if some of its actual suggestions are less helpful.
A 30-year plan is meaningless given the rate of social, political, and economic change. However, it is great pity that Wales never followed up on some of the suggestions made in the Institute’s own 15-year plan, the ‘Wales 2010’ report in the mid 90s.
In particular, Wales needs to build a proper enterprise culture. There is no reason why we could not do this. Indeed, the Welsh people seem to have many natural entrepreneurial traits. What we need to do is remove the psychological, political, legal, and economic barriers to the full exercise of those God-given talents.
Big-ticket public works are not the answer – especially since most major contracts here tend to go to businesses based outside Wales. Instead our priority must be to convert Wales from a ‘back office to a ‘front office’ operation, i.e. a place where businesses are based. Tax advantages would certainly help in this regard, but Sion is right to question whether a Labour-dominated Assembly would use the necessary powers to that end. Might it not do the opposite?
In any case, as Ireland demonstrated, tax breaks, although undoubtedly beneficial, are not enough on
their own. We need to build more Welsh-based businesses. Historically Wales has actually had a surprisingly high rate of self-employment but has always been bad at turning that into businesses with a commitment to growth. If we can address that issue, the high growth target Sion says is required is by no means unattainable.
You got one thing right Sion, the Welsh Government needs to have a far-sited long-term plan for how it intends to grow the welsh economy into the future. It is hard to see where direct investment will come from to meet the aspirations of a firm economic strategy if not from the Welsh Government, so if the economy is to develop rapidly then I would suggest that there needs to be more state intervention and direct state ownership of the economy. The recent purchase of Cardiff International Airport by the Welsh Government is a welcome first step in this direction in my view.
I think that you will find that the whole point of tidal lagoons is that the barrage should disappear without trace, Sion
I just anted to chip in on the lagoons and tidal power. If these grand projects were funded here and there was a large future divend for Wales then fine, but the reality would be that the projects would be funded and operated by ventures outside of Wales and there would be no dividend, beyond the initial swathe of construction activity. They are unlikely to require a large ongoing workforce to maintain or operate and ultimately w would be giving a valuable resource away.
It’s reminiscent of the coal and metal industries of the 19th century. Wales now as then, has the natural resources for the age we live in, but doesn’t have the cap[ital to exploit them and all that will happen is that profiteers from outside of Wales will make a killing.
We could end up being a country producing multiples of our energy requirement from renewables and quite probably our industries will still be paying a premium for our energy requirements. The line from WG should be to consider the option of supporting these things, but only on the basis of a very substantial dividend for the Welsh economy in return.
As someone who has built seven business in five industries for other people and been very successful. This is a good question to ask. I have always worked in wales and most of england. But wales was always my patch so to speak. Ealing with just about every sector of any economy through these different enterprises and looking at wales from my real time experieces I have this to offer on this debate.
1. Wales needs far less government for a start, its needs to ditch the old structures of the councils and the assembly and replace it with a new broad based representative government that includes the people, not just political parties and lobbyists. 2. Wales needs to stop relying on inward investment, and concentrate on supporting and building on its myriad talented people who have small to medium sized businesses. Years ago i campaigned against the establishment of the LG electronics giant being given all this money, and was shouted down. I argued that this money would have been better spent on supporting and building these small companies, with a promise to create at least one or two jobs in each of them. This would have created a stronger business base, that did not run away to its homeland in a recession. Our future real stength as an economy lay in this approach. 3. The tax system needs to be scrapped, in particular council tax which is is only used nowadawys to sustain and support an outdated mode of government. Put a couple hundred pounds back into the pockets of the people, and this money would be spent localy on home improvements, education and boost local business. Then have a low rate of sales tax on certain goods should yield enough to support the minimum of government needed. We desperately need a peoples bank such as the well televised “Bank of Dave” up north of england. This will keep money in the country and also support local enterprise. 4. We need to radically alter our education system to ensure that real skills are being developed from an early age in schools, colleges and university with real links from local business into these education levels to breed entreprenourship into the minds of our kids, not a welfare ticket dependency culture which has been Labours biggest crime in Wales. We also need to ensure that youngsters are not directed into useless university degrees that will give them nothing but debt. We need to build robust educational course in science, engineering, technology and sales and marketing. We also need to boost the culture of export mindedness within our people. We also need to boost the culture of saving for a rainy day. But above all we need tonditch the old political parties who offer no future except their “isms” which have stultified the peoole for years and lead them to be nothing more than cash cows for the ambitions of a political elite playing god over them. We need most of all to get back to a community based culture where communities live and breath together and build a safe strong and healthy future for future generations to live in.