Economic balancing act requires a steady nerve
IN a speech last week, the Cabinet Secretary for Economy and Infrastructure Ken Skates, outlined his priorities for the Welsh economy.
So, why does his speech matter and what do we do next?
First, let’s admit there is still a debate about the extent to which the Welsh Government can influence the growth of the Welsh economy. Some main levers over tax and borrowing are outside their gift and, like any government in a globalised world with a highly porous border, Wales is influenced by numerous factors beyond our control.
So that leaves a valid question about what the Welsh Government is to do and what we can reasonably expect it to do. How does it seek to influence the course of the ship while being buffeted by global trade winds, with leaks in the boat, while only being half in control of the rudder? If you accept this view, it leaves the choice over policy interventions even more critical. Getting it wrong takes no effort at all, getting it right is like landing on the head of a pin.
Yet let’s pause for a minute. Unemployment is below the national average and employment is up. We are experiencing what the Welsh Secretary calls “record-breaking data”. Despite the uncertainties of Brexit, manufacturing, construction and market services are all on the rise.
Buoyed by the weaker pound, exports are up on the previous year, as are business births. Yet we know it doesn’t feel like that in every community in Wales. We know that the percentage of those on permanent contracts is down from 66% to 63% and there is a question to answer about the quality and sustainability of the employment being created.
That brings us to Tuesday’s speech. To the author’s best recollection, a Welsh economy minister has never started the development of their economic strategy with such a broad analysis of the fundamental problems facing our economy. It signalled a shift towards a cross-government approach, away from the operational silos that hinder innovation and operational effectiveness.
The Minister outlined six big economic challenges – Brexit, productivity, inequality, automation, models of care and climate change. These are overwhelming in their depth, scope and the resources needed to fix them. The Welsh Government cannot hope to tackle these issues alone. It must work with business, the third sector and the UK Government to achieve meaningful change.
How those challenges are translated into actions comes with major risks. We could easily run away with ourselves and seek to appease one group or another or get lost in “analysis paralysis”. It is critical that we use an economic evidence base and see the global economy as it actually is, not how we might like it to be.
For the CBI, there are a great many things the Welsh Government can do that can make a difference, that will nudge a decision in favour of local growth or attract an investor to Wales. They include: a better planning system, a more streamlined regulatory framework, a less burdensome tax regime, and a more responsive education and skills system. All make a great deal of difference to a firm’s ability to grow and its decision about where to locate. If we get them all right, we can deliver a tangible “devolution dividend” to firms in Wales. But they are very difficult to get right and we’re not there yet.
The challenge for the Economy Minister is that none of the issues listed above are in his department. What he does control is infrastructure, trade, entrepreneurship and business finance. Within these areas, the commitment to deliver the M4 relief road, the metro and reforms of Finance Wales have the potential to make a real difference. So any new economic strategy must keep what’s working and reform what isn’t.
Crucially, the minister also controls the “co-ordination of cross-cutting measures to promote economic opportunity for all”. But there is with one proviso: “Individual Cabinet Secretaries will lead in their respective portfolio areas.” It would be interesting to know how this crosscutting measure fits within the newly unveiled cross-cutting strategy – Prosperity for All – and how decision-making in other government departments will change to put growth and jobs first.
The final challenge, not just for the economy minister but all government departments, is one of resource. The supplementary budget for 2017 indicates the economy and infrastructure departmental expenditure limit is £1.3bn – of that £800m is for resources. The Minister must be confident that every part of his budget makes a difference and other departmental spending is aligned in the same direction. That means making difficult choices and not attempting to be all things to all people.
In summary, the Minister’s forthcoming economic strategy must be crafted with the skill of a surgeon’s knife, build on what’s working, be based on evidence and economic reality, not be limited to the confines of his own department and seek to collaborate wherever possible. Not easy, but not impossible. Governments have been here before and succeeded. In an effort to kick-start this discussion, next week I’ll outline what the CBI would prioritise within the big six challenges.
Ian Price is director of CBI Wales.