‘To predict the unpredictable has proven to be a challenge’
They say the best things come to those that wait and earlier this week the Welsh Government published the Economic Action Plan for Wales...
The challenge for the Welsh Government to drive economic growth throughout Wales is a herculean task. To overcome historic and systemic challenges, to stay one step ahead of the ebb and flow of global economic trends; in many ways to predict the unpredictable has, unsurprisingly, proven to be a challenge.
This is especially so when you have finite resources, limited powers and public services in need of investment. As a result, productivity has remained stubbornly below the UK average and our regions remain areas in need of significant government investment to drive economic growth.
That is why the CBI has for many years advised the Welsh Government to focus on fixing the Welsh business environment. We know that modern and reliable infrastructure, a highly skilled workforce, an efficient planning system and an attractive tax system will drive growth. The policy sweet-spot for the Welsh Government is to dovetail their policies with those already delivered by the UK government, to not duplicate but provide additional services and, in turn, deliver a devolution dividend for businesses that employ over 1 million people in all parts of Wales.
There were key changes to Welsh economic policy unveiled yesterday which I would like to highlight. The first is a shift to a regionally-focused model of economic development. As I said in my article last week and in the CBI Wales manifesto in 2015, as England empowers its regions to drive forward economic growth, Welsh regions must not be left behind. The commitment to three distinct regions, each supported by Chief Regional Officers is welcome.
While we wait to see exactly what form this model of economic growth will take in Wales. For the CBI, this model should be focused on empowering regions to work innovatively with the private sector and work collaboratively with neighbouring English Local Enterprise Partnerships. Soon every part of Wales will hopefully have a growth deal. These deals come with certain governance structures and delivery targets. This process of accountability, transparency and collaboration is the right approach and the Welsh Government should do what it can to support that culture.
When it comes to regional growth, we know agglomeration is key. The M4 relief road, the Heads of the Valleys Road, electrification of the Great Western Mainline to Cardiff and the metros for north and south Wales will all enhance agglomeration and spread economic activity across the regions. We must continue to see our cities as the prized assets they truly are and know that growing our cities doesn’t come at the cost of lower growth elsewhere.
The second change in the Economic Action Plan was a recommitment to closing Wales’ historic productivity gap with the rest of the UK. Simply put, low productivity rates mean Welsh workers have to work longer hours for lower pay than their international counterparts. As Paul Krugman, Professor of Economics at Princeton University famously said: “Productivity isn’t everything, but in the long run it is almost everything. A country’s ability to improve its standard of living over time depends almost entirely on its ability to raise its output per worker.” The Welsh Government’s recipe to solve our productivity crisis revolves around their new economic contract (which I discuss in more detail, below), with it investing more in firms that are able to demonstrate an “alignment with at least one” of the five “calls to action”. These five calls to action include: decarbonisation; innovation, entrepreneurship and headquarters, exports and trade; high quality employment, skills development and fair work; and R&D, automation and digitalisation.
While the devil is clearly in the detail, these five areas seem right and mirror the former Chancellor George Osbourne’s 2015 report, “Fixing the Foundations: creating a more prosperous nation.” That report had 15 recommendations to increase UK productivity which included: a competitive tax system, economic infrastructure, highquality innovation, less regulation, a proactive planning system and resurgent regions. The good news is that all of these priorities are to be found throughout the Economic Action Plan. Delivering these priorities is not the sole responsibility of the Minister for the Economy so the co-operation of his ministerial colleagues and strong leadership from the First Minister will be essential.
The third change unveiled in the Economic Action Plan is a “new economic contract between business, government and partners.” This contract seeks to “drive public investment with a social purpose through delivering added and wider value from the business support we offer”. This is centred on a new expectation from government that the businesses it supports will offer “fair and rewarding work which creates more and better jobs closer to home”. Government is perfectly entitled to expect more in exchange for the public support it can offer a growing business. This process, however, will need to be efficient if we are to attract the best and most rewarding employers to Wales. We will need to ensure the wider business environment and broader offer to businesses considering investing in Wales is first-class as there will be fierce competition both at home and abroad for businesses of this type.
Finally, I’d like to emphasis an element of the plan that only gets a brief mention and that is the issue of devolved tax competitiveness. The Welsh Government is about to gain new power to vary income tax, in addition to its powers on stamp duty, business rates and landfill tax. The action plan states that they will deliver the plan’s objectives through the government’s existing Tax Policy Framework and ‘we will raise revenue to fund public services fairly and promote competitiveness’.
As the Finance Minister stated last Thursday at the CBI Wales annual dinner, these tax powers are the first Wales has received in over 800 years. It is critical for business that Wales’ fledgling new tax system gains a reputation for competence, reliability and efficiency. Seeking to impose additional tax burdens on people or firms in Wales should be a last resort, not a first response. Government should think innovatively about increasing tax take and less about tax rates. The good news is through my engagement with the Welsh Government, it is cleat they understand this and are committed to establishing an attractive tax system in Wales.
It is good that Wales now has a published Economic Action Plan. The CBI and its members will be keen to work with the Welsh Government over the coming months to ensure it puts in place the right metrics to measure progress and ensure our ambitions become a reality.
Ian Price is director of CBI Wales.