THE 2013 BUDGET

Following last week’s Budget, it wasn’t going to be too hard to predict that, yet again, the opposition parties in Westminster would go on the airwaves demanding a u-turn from the Chancellor of the Exchequer on fiscal and economic policy.

Yet it must have given George Osborne a considerable degree of comfort that the consensus from leading business organisations such as the CBI and the IOD is that reducing the deficit must be the overriding priority for the UK economy in the short to medium term.

Indeed, it was generally agreed by the business community that there was actually very little scope for any major decisions, within the current financial situation, to turn around an economy that seems now to be largely dependent on whether greater confidence can be generated within the business community and amongst consumers which, in turn, seems to be dependent on whether further euro-crises are avoided.

And ignoring the potential effect of Cypriot bank meltdowns, that is probably the thinking from the Treasury behind the announcement to increase capital spending plans by £3 billion a year from 2015-16, as well as the additional incentives for homebuyers.

In fact, this decision may finally be a grudging acceptance from those in charge of country’s finances that the capital expenditure was cut too far and too fast in the first two years of the Coalition Government when it was badly needed to boost the economy, especially the construction sector.

As a result of this decision, Wales will benefit from an additional £161million of capital spending power, which is great news for the economy although the Welsh Government did complain that this funding does not compensate for the loss in capital spending it has already endured since 2010.

Whether this is the case is clearly a debate for politicians to continue over the next few weeks but the one additional silver lining is the suggestion that there may be additional capital funding from the UK Government for two major infrastructure projects for Wales, namely the potential M4 relief road and the electrification of the North Wales railway line.

Of course, the devil is in the detail and negotiations between various Whitehall departments but the sooner a decision is made over these two projects, the better it will be for Welsh business. More importantly, it will certainly compensate for any reduction in capital spending, perceived or otherwise.

It is also worth looking in the small print for other details within the budget that may affect the Welsh economy and amongst the less publicised announcements was the decision by the UK Government to provide £1.6 billion of funding to support strategies in eleven key sectors as part of its industrial strategy. This sounds like great news for technology-based industries but it also has potentially serious implications for Wales, especially if the vast majority of this funding to support UK innovation continues, as it has in the past, to go to England.

This will mean that the Welsh Government, with its own focus on nine key sectors, will need to up its game substantially in ensuring that we compete effectively with other regions in attracting investment in key industries such as life sciences, advanced manufacturing and ICT. With initiatives such as the £100m Life Sciences Fund and the new creative industry hub in Cardiff Bay, there are certainly signs that this is beginning to happen.

And what about the small firm sector which makes up the vast majority of businesses in Wales? Well, many will welcome the introduction of an allowance of £2,000 per year which will be offset against employer’s national insurance contributions from 2014. This will result in 35,000 Welsh businesses benefiting by more than £50million, with 20,000 of these businesses taken out of national insurance contributions altogether.

Despite this boost, some have questioned whether more could be done to support small firms to grow.And whilst large firms will welcome the decision to reduce the main rate of corporation tax to 20 per cent in April 2015 to become most competitive amongst G20 nations, the small business rate of corporation tax has remained the same since 2011.

If, as our politicians keep saying, small firms are the backbone of the economy, then more must be done to ensure that they keep more of their profits to invest in their businesses and that it is not only larger corporations that are the beneficiaries of the Treasury’s fiscal largesse.

However, this may be part of a greater long term plan for the sector and perhaps this is something that George Osborne has up his sleeve to boost the economy in the 2014 or 2015 budgets?

Politics is all about timing and the Conservative Party will be hoping that the economy will begin to recover in 2014, giving the Chancellor further scope to boost business and consumer performance through reductions in corporate and personal taxation.

Certainly, he may be boosted by signs that the economic situation may be better than some doomsayers suggest - employment now stands at a record 29.73 million; the number of UK private-sector businesses is also at an all time high of 4.8 million; retail sales in February grew by 4.4 per cent, their strongest rate in almost two years; and manufacturers expect output to accelerate sharply in the next three months according to a CBI survey.

If true, then such a recovery, combined with more positive policies in the next two budgets may well ensure that, contrary to the pointers within current opinion polls and in the absence of any coherent policies from the other parties, the next General Election result may not be as foregone a conclusion as many think.

THE EMERALD ISLE AND THE GREEN ECONOMY - THE ECONOMIC RECOVERY OF IRELAND?

The Republic of Ireland was one of the economies hardest hit by the recent global recession.

With unemployment reaching 15 per cent earlier this year and the Irish Government having to make austerity cuts that make those emanating from Whitehall look positively generous in comparison, there remained serious doubts as to whether the Celtic Tiger could recover any of its bite during the next decade.

Yet despite these challenges, the new Irish Government has begun a serious fightback and is continuing to look to innovation as the key driver in growing its economy for the future.

In particular, it is developing key strategies that are focusing on those areas of the economy it sees as being critical in transforming the business sector over the next decade.

One of these is the so-called Green Economy that encompasses a range of activities spread across different sectors that have the common objective of providing goods and services in a sustainable way that reduces the impact on the environment.

These include renewable energy, energy-efficient products, resource-efficient production techniques, the re-use, recovery and recycling of waste, water management and low carbon vehicles.

And it is not surprising that there is a focus by the Irish on the Green Economy that, despite the World’s economic problems, is estimated to be worth around nearly £4 Trillion pounds by 2015 and to be employing round 36 million people around the World.

So how are the Irish going to try and capture a small but significant slice of this important and growing sector?

The clues to this are to be found in “Delivering our Green Potential”, the recent policy statement by the Irish Government on growth and employment in the green economy.

According to this document, Ireland has significant strengths and advantages that it can leverage to exploit business opportunities in the Green Economy.

These include abundant renewable energy resources that raise the prospect of Ireland becoming an exporter of clean energy to the UK in the future and a strong research base that is highly relevant to a number of opportunities.

The country also has excellent natural resources such as clean water, air and land to support sustainable economic development as well as an outstanding natural environment and rich biodiversity to develop and support green tourism and related activities.

More importantly, it has a number of exemplar companies and organisations with a proven track record and international credibility in the Green Economy.

It is a comprehensive document that any politician or policymaker in the UK would do well to read thoroughly. However, in my opinion, five key issues jump out as being worthy of further consideration.

First of all is the role of government itself. Politicians are often accused of commissioning hefty strategic tomes that then lie gathering dust on the bookshelves of their civil servants. A critical part of this document is the high commitment to real action being demonstrated by the Irish Government to ensure that it takes the lead in pushing forward its green policies.

For example, the government has established a clear policy for renewable energy that will further develop wind energy, ocean energy, bioenergy, sustainable transport energy, and the supporting energy infrastructure.  Through this, it aims to achieve a 33 per cent reduction in public sector energy use by 2020.

Secondly, there is appreciation that the green economy can be applied across all sectors. Indeed, the Irish Government has now engaged in growing a green financial services industry as a key niche i.e. those capital markets, investment-banking activities and related advisory services that support the development, financing and promotion of a low carbon economy.

With global investment in this niche sector predicted to grow fourfold to over £600 billion by 2020, Ireland is looking to develop its reputation as a world-class green financial management hub. Indeed, green assets under management in Ireland have tripled in the past four years.

Thirdly, there is the continuing commitment to supporting green innovation through encouraging and facilitating collaboration between the university sector and the business community, predominantly by prioritising research in areas such as smart grids and smart cities, sustainable food production and processing, and marine renewable energy.

One excellent example of this is the Irish Maritime and Energy Resource Cluster (IMERC), which is a collaboration between Government Departments, state agencies, higher education institutions and industry partners led by University College Cork. IMERC is aimed at using the expertise and experience of researchers, teaching staff and naval personnel on the development of an ecosystem of innovation in the maritime sector and is underpinning Ireland’s position as an early leader in the ocean energy sector.

Fourthly, there is the issue of skills. It is widely recognised that the green economy often relies on jobs with specialist knowledge and expertise, especially in the fields of engineering, science, technology and mathematics. As a result, universities, as well as further education colleges, are being encouraged to align their courses with the needs of companies within the green sector in Ireland.

Finally, and most importantly, there is the key issue of branding and the drive to create an established international image to promote Ireland’s “Green” offering. In particular, this green image will be focused on attracting potential inward investors that are looking to base their operations within an environment that supports green policies.

Therefore, while Ireland still has a long way to go to recapture its former status as the Celtic Tiger, it is at least developing a strategy that is looking to grow the economy in a key sector during the next few years.

It is an approach that could and should be emulated on this side of the Irish Sea.