Thursday, December 13, 2012
THE AUTUMN STATEMENT AND THE WELSH ECONOMY
Given this, George Osborne must have been relieved that, despite disputes about economic and fiscal policies on the front pages, there was a broad welcome from the business community for most of the main measures announced.
The £5.5 billion package to develop the UK's infrastructure was largely in response to pressure from business groups, with the Welsh Government receiving £227 million to spend on key capital projects via its Barnetised share of this funding. In addition, the decision to reduce the main rate of corporation tax to 21 per cent by 2014 is seen as not only supporting British businesses but also makes the UK a very attractive option for overseas investors.
And whilst unexpected, the ten fold increase in the Annual Investment Allowance for small to medium sized firms (SMEs) should act as a catalyst to get entrepreneurs investing their cash in developing their businesses over the next two years. However, whilst those were some of the headlines from the Autumn Statement, the more interesting new policies that have potential for the Welsh economy have to be found by reading carefully through the ninety three page document. For example, the UK Government has extended the temporary doubling of the Small Business Rate Relief, a move which has been automatically replicated by the Welsh Government in previous years.
Whilst politicians in Cardiff Bay could improve on such an offering, this is unlikely to happen until the business rates review is completed. It is great news for Newport that it has been chosen as one of only twelve cities to benefit from the second wave of the Government’s Urban Broadband Fund to help build one of the fastest and best connected communications networks in Europe. With Sir Terry Matthews' Alacrity Foundation also based in Wales' third city, this could give the local economy a massive kickstart after years of decline.
The announcement that Ebbw Vale and Haven Waterway Enterprise Zones in Wales will join Deeside in getting enhanced capital allowances will also help the development of key projects in both areas. A more controversial issue is that of shale gas, which is seen by some as the panacea to the growing energy problems of the UK economy.
Given the way that the USA is looking to become self sufficient through natural gas resources, it is not surprising that the UK Government is taking the first steps towards examining such potential through establishing an Office for Unconventional Gas to manage this relatively new industry. With South Wales having the potential to become one of the main areas for shale gas extraction, what seems like a minor policy change could have a big impact on both the local economy and the environment.
The recent thawing of relations between the Welsh Government and UKTI (the UK Government's trade body) is timely given the increased focus on exports and the announcement that UKTI's annual budget will be increased by £70 million to deliver more services to SMEs. Certainly, one would like to see Welsh firms take greater advantage of these exporting services in the near future. Indeed, the closer co-operation that has been established with UK Export Finance should ensure that Welsh firms are in a strong position to tale advantage of the new scheme to provide up to £1.5 billion of loans for the purchase of UK exports.
In supporting science and innovation, the UK Government announced that it will be investing £600 million in research infrastructure and facilities for applied R&D. If this was fairly distributed, Wales would be getting around £30m to support the development of innovative technologies. However, with Wales having access to additional money via European Structural Funding, then both the Welsh Government and the Wales Office should be making the case that the UK could get more bang for its bucks if facilities to support high quality research were built in Wales.
An announcement was also made that the Prime Minister will soon be setting out the next steps to support the UK Life Sciences sector. Again, with the Welsh Government showing the way to other regions through its £100m life sciences fund, we cannot be left behind other favoured regions, such as Aberdeen, Cambridge, Dundee, London and Oxford, as this vital high technology industry is developed further.
Another policy development that should be of relevance to Welsh firms the decision to provide £120 million for two additional rounds of the Advanced Manufacturing Supply Chain Initiative. This will support R&D, skills training and capital investment to help UK supply chains achieve world-class standards and encourage major new suppliers to locate in the UK. With Wales remaining one of the major manufacturing regions of the UK, I hope that our best companies, such as Airbus, Ford, Toyota and Tata, are linked into this programme. I would also expect that this initiative can be used to support new developments, such as the nuclear programme at Wylfa, to ensure that local firms take full advantage of major projects.
Therefore, as with every statement from the Chancellor of the Exchequer, there are policy changes that could have positive impact on Welsh business. The challenge now is to ensure that the Welsh Government work alongside their counterparts in Westminster to ensure that the economy of Wales takes full advantage of such opportunities over the next twelve months.