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.
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