A BUDGET FOR JOBS AND GROWTH? ONLY IF THE WELSH GOVERNMENT WANT IT TO BE

When I began my academic career in 1992 at Durham University Business School, I worked on a project that, on every Budget Day, would look specifically at the Chancellor’s financial proposals and their implications for the small firm sector.

In an age where tweeting was the noise made by a canary in a Warner Brothers cartoon and the fax machine was god, we spent time huddled around televisions trying to work out exactly what the implications were for the entrepreneurial community as the Chancellor spoke from the House of Commons.

Our analysis would then be written up by teams of academics and edited into one report. This would then be printed off overnight in the North East of England before being flown down to London first thing in the morning where TSB, the sponsor, would distribute to their clients at a morning press conference.

How different the response to the Chancellor’s budget has been this year, with both politicians and pundits racing each other to be the first out with a tweet on the results of the budget without even any careful and measured contemplation of the details.

In fact, barely had the Chancellor taken his seat that the Welsh Government had rushed out a statement stating that “This is a disappointing budget for Wales. It's not a budget for jobs and growth”.

Given that they had less than two hours to digest the detailed statements from the Treasury, one would have imagined that this behaviour was a hostage to fortune, especially given that, as in all budgets, the devil is always in the detail.

More relevantly, I have always considered that any new programme or initiative announced by the Chancellor is a chance for Welsh business to ensure, with the support of Welsh Government, that it takes full advantage of any new opportunities.

For example, the further reduction in corporation tax will mean that the UK will, by 2014, have the most competitive rate in the whole of the G7. Given this, the task for the Welsh Government is to link its own offering to this national indicator and ensure that the ‘brand’ for Wales attracts more businesses to this region rather than any other.

But it is not only in areas such as corporation tax in which Wales can sell itself. The interventionist approach by the UK government to various parts of the economic system could also reap real dividends for the Welsh economy if only we take full advantage of them. Let’s take finance for small firms.

The Government has provided up to £20 billion to support business under the National Loan Guarantee Scheme (NLGS). It has also announced £1.2 billion for the Business Finance Partnership (BFP) to develop new forms of non-bank finance. Surely, as one of the only regions with its own government owned bank in the form of Finance Wales, ministers could put forward a coherent strategy so that these funds, along with the money already held by Finance Wales, could create a far bigger source of funding for Welsh firms?

The UK Government also announced an ambition to more than double annual UK exports to £1 trillion by 2020, expanding not only the role of UK Export Finance but doubling the support to UKTI. Given that Wales has enormous potential through its manufacturing industry for international trading, but one of the lowest proportion of active exporters of any region, this presents a real opportunity for Cardiff Bay to work with Whitehall to get more Welsh firms to trade overseas.

But there is also support for specific Welsh industries. Take, for example, the 100 per cent per cent capital allowances for plant and machinery at the Deeside enterprise zone. This could, if supported by other programmes in training and skills development from the Welsh Government, make North East Wales the engine room of advanced manufacturing once more, certainly in comparison to other competing parts of the UK and after years of decline.

Indeed, there is now a massive opportunity for Broughton to bid for the £60 million UK Centre for Aerodynamics that will support innovation in aerospace technology but only if the Welsh Government works closely with the Wales Office to come up with the best plan possible to secure this within our borders.

The new corporation tax reliefs for industries such as the video game, animation and high-end television could potentially help the further development of these sectors in Wale, especially if serious attention is paid to ICT and the creative industries in the same way that the Minister for Business has recently courted the biosciences industry.

Indeed, that sector should be boosted by the introduction of a reduced 10 per cent rate of corporation tax for profits attributed to patents and similar types of intellectual property. Now all it needs is for the Welsh Government to announce a specific enterprise zone for this industry in Swansea that is centred on the Institute for Life Sciences.

Therefore, apart from political brinkmanship, can the Welsh Government really say that this was not a budget for jobs and growth? Certainly, it could be a self-fulfilling prophecy if it refused to take full advantage of the opportunities for boosting Welsh industry at a time when we need to punch above our weight as a nation to not only attract companies to invest here, but to grow and develop those businesses with real potential for job creation.

WALES AND EUROPEAN STRUCTURAL FUNDS

Last week, there was a political storm over the latest GDP figures to emerge from the European Union and which measure the relative prosperity of its regions.

As expected, West Wales and the Valleys – consisting of 15 local authorities – lost ground on nearly every other part of Europe despite being given £1.2bn of European funding for the period 2000-2006 under the Objective 1 programme.

Not surprisingly, the opposition parties went straight on the attack to accuse the Labour Party of failing to use what it once termed a “once-in-a-lifetime opportunity”.

In riposte, that anonymous individual known as the Welsh Government spokesperson responded by noting that GDP per head in West Wales and the Valleys has broadly kept pace with the UK as a whole since 2001.

Was he correct in dismissing such arguments?

Technically speaking, yes he was, as the rate of growth in West Wales and the Valleys is approximately the same as that for the rest of the UK for the period 2000-2009. But given that only London and Hampshire has shown any positive growth out of all the regions over that period, as compared to an overall growth of 23% across the European Union, it does beg the question of what the last UK Government was doing in terms of regional economic policy. That is a discussion for another day. Instead we should focus on the main reason behind European Structural Funding such as Objective 1 and the current round of Convergence funds.

Let’s be clear, Structural Funds are a mechanism for reducing the disparities between regions in Europe. Their role is not, per se, to close the gap between West Wales and the Valleys and the United Kingdom. In that respect, we should focus any analysis on the economic impact of the programmes on a European level, especially the performance relative to the other Objective 1 regions supported by the European Commission during the last decade.

So what do these statistics tell us?

Back in 2000, when we first received European funding, West Wales and the Valleys was the sixth most prosperous Objective 1 region in Europe with a GDP per head of 17,300 euros. However, by 2009, the region had fallen to 42nd out of 50 regions with a GDP per head of 15,700 euros.

And, given our emphasis on high quality tourism, I am sure it would surprise many to find that both the Canaries and the Algarve have a higher level of relative prosperity than West Wales and the Valleys.

Indeed, in relative terms, nearly every other Objective 1 region in Europe has performed better economically during this decade. Some have argued that the economic decline in West Wales and the Valleys is down to the world recession during 2008 and 2009, and the data suggests that the other Objective 1 areas in the UK, including South Yorkshire, Merseyside and Cornwall, were not as resilient as other poorer areas on the Continent.

Yet even if we only consider the growth in GDP per head for the period 2000-2007, we find that Wales’ poorest region had the worse growth rate – at 21.4% – of any disadvantaged area in Europe. In contrast, the Spanish region of Galicia grew at 63.6% over the same period.

So what went wrong?

Certainly the evidence, contrary to the statements from the Welsh Government, suggests that West Wales and the Valleys, relative to other areas in receipt of Objective 1 funding, has performed badly. Some have suggested that this relative failure is down to the fact that there were too many projects being funded through this programme and resources were spread too thinly across our poorest region.

As a result, the new £2bn Convergence programme, which replaced Objective 1 funding, has focused on fewer strategic projects. Yet others would argue that the failure to engage properly with the private sector, in conjunction with the dominance of public sector-driven projects, is a trend that has actually increased under the new round of European funding.

While the next few rounds of GDP statistics will tell their own story of the relative economic success of current Convergence funding, it is becoming clear that West Wales and the Valleys will now qualify for an unprecedented third round of financial support from the European Structural Funds programme.

Given the way that other regions of Europe in receipt of such support have grown economically while West Wales and the Valleys has floundered, I would suggest that Welsh policymakers should start looking at how other poorer parts of Europe have grown their economies, as it seems we still have much to learn in ensuring that our disadvantaged regions become competitive again.