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Nation•Cymru A news service by the people of Wales, for the people of Wales.

Opinion

Can any political party turn around the Welsh economy?

By Mark Mansfield
An abandoned coal mine Photo Gordon J A Dixon

Jonathan Edwards

Way back at the start of devolution, the first National Assembly had an economic target of raising Welsh Gross Value Added (GVA) to 90% of the UK average.

There was such a definitive focus on economic rebuilding because creating a political structure to help improve Welsh economic performance after the ravages caused by Thatcherite deindustrialisation was central to the argument developed to win the devolution referendum of 1997.

While there are a host of statistical ways of measuring economic performance, and I will leave the economists and academic social scientists to bash it out amongst themselves, GVA is a key productivity metric and gives us an idea how different geographic areas are performing.

In other words it’s safe to assume if GVA is comparatively low then the geographical area in question faces significant economic challenges.

At the time of the creation of the National Assembly, Welsh GVA was 72.4% of the UK average. Today, after a quarter of a century of devolved governance, the latest figures I can find from 2022 published by the Welsh Government notes Welsh GVA as 72.1% of the UK average.

Not only has performance remained stagnant at best, Wales finds itself at the very bottom but one of all UK countries and regions.

During the last 27 years the Welsh Government has assumed more powers over the economy, yet it remains true that the main economic levers remain under Westminster control.

However, the failure to make a dent in the GVA deficit between Wales and the UK average indicates that devolution hasn’t delivered on its founding promise to the people of Wales. The GVA target was quickly dropped in Cardiff Bay.

I very much agreed with Rhun ap Iorwerth when he stated in a speech at Cardiff University in 2024 that his first economic policy proposal was to reintroduce an ambitious target to close the GVA gap. While targets themselves are abstract, their purpose is to give a clear direction to the work of government and help measure the success or not of policy.

They indicate a seriousness to get to grips with Welsh economic decline, without which there is no real possibility of dealing with the major social problems we face as a country, be it poverty or ill health.

The party’s manifesto writers, perhaps mindful that they will soon be holding the Welsh Government reins, have quietly dropped any mention of closing the geographical gap with the rest of the UK.

A new Fiscal and Economic Commission will be set up to help compose internal Wales targets and measure success but gone is the specific aim of improving Welsh performance compared to the rest of the UK.

Specific targets

Similarly, none of the other parties commit to a specific target to improve Welsh GVA comparatively to the UK average. All the main protagonists have interesting ideas and there is much symmetry between the parties. Regrettably it is difficult to say with confidence that anyone contesting the election has the imagination to overturn the economic fortunes of our country.

Glaringly missing from all manifestos is a clear vision of how Wales needs to position itself for the Artificial Intelligence economic revolution that is currently accelerating at speed.

Wales will either find itself at the head of the curve or trailing in its wake, and it is the responsibility of those who seek to lead us to make sure that the people of our country are ready for the transformative changes ahead.

On a side note, readers may be interested to learn that in Albania, Prime Minister Edi Rama last year appointed a Cabinet Minister made up from the work of AI named Diella. Diella has been tasked with the issuing of public procurement contracts to make sure they are 100% free from corruption.

The key point being that AI is about to wipe out a whole range of knowledge-based jobs and logistical/manual jobs down the line as robotic abilities improve. When the political parties emphasise skills and education, what exactly is the economy we are preparing our young people for?

Considering the implications for public revenue generation, the next Welsh Government is going to have to think very quickly about how an AI based economy will impact on taxation.

Data centres 

Does the Welsh Government for instance use the abundance of electricity generation capacity in Wales to secure investment for data centres and other AI infrastructure and then find a way of taxing the assets directly?

If this is the plan, how will the planning system support development and will our elected members have the backbone to withstand the NIMBYism that dominates political discourse in our country.

Political parties obviously want to try and fight elections on their chosen ground; it is understandable that they don’t want to venture onto terrain that they probably don’t understand.

However, these big changes are fast advancing. If the next Welsh Government doesn’t get its policy right, there will be little hope of advancing from the bottom of the UK economic performance table.

Jonathan Edwards was the MP for Carmarthen East & Dinefwr 2010-24

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32 comments

Undecided

The short answer is “No”. Politicians seriously overestimate the influence they have on a global economy - even those with real fiscal powers. And, as with so many other areas, they lack the courage to do what might make a difference anyhow.

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Bob

By some estimates responsibility for the Welsh economy is split 80/20 between Westminster and Cardiff Bay and the original promises wrongly assumed a good faith partner controlling the 80%. But it's not fair to say nothing has improved under devolution because Wales has handed the wooden spoon to North East England in 2018 which now lies at the bottom of the GDP per capita table. This small but significant improvement should be acknowledged to recognise that growth is possible within that 20% even when the odds are stacked against it by the devolution settlement and bad faith partners.

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Elved A

it's a devolved responsibility; it's shirking responsbility to say anything different.It's quite a unionist argument - some tories opposed devolution for this very reason. They get blamed for WG ineptness. And the NE has always been largely bottom of the table - has been since 1990. Occasional changes, but on average it's the poorest region.

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Bob

If it's all devolved as you say why didn't the Welsh Gov knock a few percent off corporation tax for companies based here. That would've transformed the economy just as it turned Ireland into the second richest country in the world.

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In reply to Bob

Undecided

I agree with both of you. Economic development is devolved pretty much in name only; but the truth is that Labour has no interest in business. Eluned Morgan admitted as much with reference to Drakeford.

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In reply to Undecided

Bob

Both positions can be true. It's not possible to create an Irish success story with the current powers, but it's still possible to do much more. The recent investment summit was excellent example that left many asking why haven't we done this before. Let's hope that becomes an annual event.

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In reply to Bob

Undecided

Not sure about investment “summits”. They pander to politicians who like glitzy projects which often over promise and under deliver. The inward investment ship largely sailed 25 years ago (in the direction of Eastern Europe and Asia). I would much prefer an incoming Plaid government to concentrate on small to medium sized businesses who account for about two thirds of employment in Wales. That’s what WDA 2.0 needs to do, particularly in the Valleys and rural areas.

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In reply to Undecided

Bob

Both. It's not a choice. Home grown enterprises are important, especially scaling small success stories into global success stories, but so is investment.

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In reply to Undecided

Padi Phillips

And one aspect of the old WDA need to be resurrected and that is the ability to establish businesses and get them going before passing them on to other operators. As far as i am aware, the old WDA never availed themsleves of those powers, but Cymru has certainly been very short on R&D, something that should be addressed by WDA 2.0 and the university sector along with existing SMEs. Nor should the state sector be ignored - there is nothing fundamentally wrong with the state running businesses, and the old chestnut about state run business is largely rubbish - an idea derived largely from an era when some state run businesses were lame-ducks of the private sector nationalised because they were adjudged too big to fail in employment terms, such as British Leyland. In a well run mixed economy both the state and the private sector can complement one another, and crucially this is what made the post WW2 economy deliver for ordinary people up until 1980. Worker cooperatives should also be part of the mix. Slavish emulation of the Irish model would be a mistake as Cymru has a very different economic and social history and it is highly unlikley in any case that the Irish experience would be replicated. There are only so many global companies that want a base in the EU and pretty much all of them are located in Ireland. Far better to cast the net far wider in seeking out ideas to emulate in the quest for improving Cymru's economy, and maybe Scandinavia offers far more in terms of inspiration.

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In reply to Bob

Elved A

On corporation tax, the idea that you could be part of many trade agreements and unilaterally cut corporation tax is for the birds. Almost all trade agreements have subsidy control and 'fair competition rules'. But remember this has limited use nowadays as companies already profit shift, implement group structures, place IP in low tax locations. It was great for ireland in 1980s, but times have moved on. So in summary, if that was devolved, it'll be pretty useless or low level that it wouldn't change much.

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In reply to Elved A

Bob

It's not just about profit shifting. It's about choosing where to start a business. The ship that's sailed is being the gateway to the EU.

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In reply to Elved A

Bob

Couldn't hurt to have the same corporate tax powers already provisionally granted to Northern Ireland. With Dublin on the doorstep it's just as important to Wales as Northern Ireland.

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In reply to Elved A

Llew Gruffudd

The tax system in Estonia has shown your comment to be not the case. Devolved corporation tax can, as it has shown, can be used in different ways. Cuts in corporation tax can lead to a race to the bottom, but Estonia taxes not profits as our tax system does, but distributed profits, eg dividends. Retained profits are tax exempt, leading to inward investment, investments in technologies and company expansion. It also leads to workers skills training. Estonia has found that due to to company expansions and the attraction of new business, tax revenues have increased. Estonia is recognised as having the best tax system in the world. As I have argued elsewhere, under the present constitutional arrangement, this does not help Wales much in financial terms, as extra tax raised means lower block grants. It does mean however that Wales would be more economically ' independent '.

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In reply to Llew Gruffudd

Elved A

Estonia works because much of economy is export focused, high tech, small-medium companies. They have highly skilled tech sector. We have much smaller private sector, lower tech, lower productivity companies- and crucially fewer home grown firms. Therefore exempting profit doesn't mean it will be reinvested. In fact, msot welsh companies will almost certainly hold on to those savings without expanding, thus actually erroding the tax base. Have a think about what the local welsh economy looks like to you. In flintshire, it is large foreign companies and smaller companies like cafes. Changing the tax system is also a risk. Estonia did theirs when they were rock bottom, early 90s. Finally, don't forget Estonia isn't as resilient as you may think. it had largest GDP hit out of any nation in the financial crash (15% I seem to remember) I don't think there is any evidence that you can cut and paste the Estonia model elsewhere and it works. It does show localism, basing around locals strengths is imporant - and having a diligent politicians is important. I suggest you look at the senedd and decide for youself if you trust any of them to change a system , let along the tax system and it to work well

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In reply to Elved A

Llew Gruffudd

Retaining profits has as much incentive to grow the company in Wales as it does in Estonia. The same incentive to use those profits for improving the skill and increasing technology. Even more so with the large companies you elude to. The problem with Welsh business is as the Americans put it, they don't scale up. This is one incentive to do so. Estonia has a lot of cafes too. Changing the tax system is not a risk, but essential for Wales to succeed, the UK system, which Wales mirrors, is a mess as any accountant will tell you. It is not a matter of cut and paste, its learning from best practice, wherever it comes from. As for your point regarding resilience, you tend to be a little selective in your arguments. Estonia's hit as you put it was less than Italy, Spain or Greece and it was one of the quickest countries to recover, unlike the UK, which is still suffering the effects.

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In reply to Elved A

Bob

"Estonia works because much of economy is export focused, high tech, small-medium companies" Was this true before they changed their tax system or did changing the tax system help them create this economy? If it's the latter it's an odd self-defeating argument to make, that Wales shouldn't change the tax system to create a better economy until it has a better economy.

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Andy W

Wales has good growth potential, if managed correctly. Universities network and will sort out their size / funding in next 5-10 years. Lots of small companies such as bedigital / Fleet EV are growing in Wales and into England. Celtico should grow and complement other small Welsh based engineering organisations to capitalize on net zero / renewables Cardiff Capital Region seems a strong network and Cardiff can grow thanks to better train links from Welsh Valleys that enables a greater pool of resources. The worst performing organisation is NFU Cymru. They should never have allowed onhttps://www.bbc.co.uk/news/articles/cwy82lk40wpo to have happened and now should be proposing solutions. There is funding for new organisations to be created to utilise ex-Tata Steelworkers - NFU Cymru members could copy Herefords economy and create a large apple orchard in Afan Valley to supply apple juice to Iceland Foods / Celtic Collection; create a chicken farm. University of Wales Trinity Saint David’s should be supporting Pembrokeshire fishing industry. Waitrose / M&S only sell Scottish seafood. Can nobody in Wales support the growth of some of farming and fishing industries?

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Llew Gruffudd

You pretty well answered your own question, when you pointed to the lack of GVA growth, although it GVA, or its big brother GDP, is a poor measure. It is crude and indiscriminate. However as you said, it is the popular measure and by its measure Wales is not making progress, nor under the present constitutional arrangement will it. This is also the opinion of the Silk Commission on Devolution and also Ron Davies one of the architects. It cannot grow its wealth. A different approach can make a difference. The present situation is in a large part the result of the Welsh government, together with Westminster abdicating any semblance of regional economic policy, in favour of financial transfers. Financial transfers will not grow the economy. That needs increased consumer spending and targeted government spending The lack of investment in innovation, research and development, together with skills training and technology is costing Wales multi billions. However under the arrangements that any party in Wales will inherit, the tax revenues from improvements will be offset by reduction in the block grant. A new government may well change the priorities, but the overall economy remains pretty well the same.

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Adam

A tough thing to do while westminster still controls most of our tools to become successful.

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Padi Phillips

Another article worrying about the spectre of AI when it's far from certain that AI actually works.Granted, at the moment the 'promise' of AI is cutting jobs, but I believe that the world will relatively soon discover that cutting those jobs and condemning thousands of workers to penury will prove to be a premature move. AI has it's uses but it cannot do people's jobs, and it makes horrendous mistakes... At present AI is just another ploy by employers to cut staff and amass profits AI does have a role, but rather like Google Translate (itself a form of AI) it cannot be allowed to mark its own homework and needs a human to oversee and correct its work. It is a worker aid, and that is all. AI is a bubble, and at some undefined point in the future, that bubble is going to burst. At least then computer RAM and graphics cards will come down in price. An interesting, and informed take on AI can be found here: https://www.theguardian.com/us-news/ng-interactive/2026/jan/18/tech-ai-bubble-burst-reverse-centaur Needless to say, Cymru does need to consider AI, but perhaps not quite the panic toned manner this article suggests.

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Jonathan Edwards Penfeidr

Best discussion about the real Wales for a long time. Frustrating not to be able to read the 'Read More' bits, or is that just me? So much of the 'discussion' about what's best for Wales is hot air. We need to talk more about the hard subjects like the economy. And face the hard comparisons - with small countries who are not only independent but also dynamic and to be congratulated. Estonia - based on so much talent eg Skype and Transferwise. Israel - threw off a Wales/East Germany-style economy, most of GDP being governmental, and has amazing strength, which so many envy. Ireland did it by schmoozing the EU, very smart, until recently maybe. Namesake and contributors give me confidence that Wales does have the talent to get Indy - but its never easy.

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Chris Jones

Good to read that someone is thinking about the impact of AI. However, my main argument with this interesting take by Jonathan Edwards, is that it is people, not politicians (or their parties), who really make the economic weather - at best, a government (ie. a bunch of politicians) can provide a societal framework (boundaries) within which an economy can (should) work. Wales has had inumerable well-meaning governmental schemes over the decades all of which seem, depressingly, to have had little or no impact on the overall economy (of course, BREXIT hasn't helped). So, basically, what does this mean? Does it mean that businesses don't want to set up here, trade here or that the workforce or the people have no 'entrepreneurial' drive or business acumen? Are the taxes, rules, regulations (the business climate) and political interference too tight? Is it because, as a nation, we can't be arsed? Don't know but it's probably pretty obvious that the 'politicans' don't know either! As to AI, I'm sure that it is already having a dramatic and real effect on jobs regardless of what you believe or read - my son (in a high level tech job) was made redundant last month because of it and my son-in-law had to take on the work of 200 colleagues made redundant because of it, at lower pay and more work just to stay employed. Politicians? Well, my neighbour said to me today he thinks AI could do a better job! Me? I shall be in the garden sharpening the pitchfork. Pob lwc!

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Charlie

The problem is the UK's economic level playing field that without mechanisms to correct it inevitably creates one super wealthy economic centre that attracts new business, investment and ambitious people keen to be where the most money is, because to not set up, invest or take a job in the wealthiest part of the economy means not being as successful as you could be.

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Chris Jones

Well yes, Charlie. I'm sure you're right. But this is an argument about the relevance of politicians in the 'real' economy. The contention is that they are a minor player in the success or otherwise of an economy. I keep thinking about how an area in N.Carolina was transformed, over about 20 years, from deep rural poverty stricken swamp land populated by snakes and vicious insects to a scientific and tech hotspot (known as Research Triangle Park RTP) with a GVA (whatever that is) surpassing the entire economic output of Cymru almost x3. How was this achieved? It wasn't through the actions of politicians for sure. It was by 'seeding' the area with a national environmental research institute (NIEHS) that became the focus for attracting corporations like Burroughs Welcome (now Glaxo) and other large and small businesses supporting the growth and set up of business infrastructure (the business climate). So,yes, local politicians probably had a role in agreeing zoning rules and supporting the businesses with tax incentives but the main 'drivers' of this type of economic transformation were the local people and business decisions. As to AI, it would be foolhardy for us in Cymru to allow the building of huge datacentres owned by American corporations. They would employ very few people and they would consume vast amounts of energy and other resources with zero payback or economic benefit. In any case, recent breakthroughs in AI suggest they wouldn't even be needed by the time they're built. Yep, the alien beings are waiting in the ocean depths off Cardigan Bay and hovering over Pentyrch and Smilog Woods. I'll get my hat.

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In reply to Chris Jones

Charlie

Ask yourself this. Would North Carolina have attracted that investment if the US has a level playing field so they couldn't set their own rules and taxes. Or would that investment have ended up in the US capital. And on AI I agree the data centres won't bring much direct benefit but like your NC example they could seed development in otherwise dead areas if the local councils use the revenues to expand local infrastructure to support other tenants. These businesses won't serve the data centre as such they'll just be happy setting up in a smart new tech park with modern buildings and good access next to a global brand. Politicians are law makers who control big budgets. The idea that they are powerless is promoted by those who benefit from the status quo, and the politicians themselves who don't want to be punished for a failure to deliver.

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In reply to Charlie

Charlie

The US is the most successful economy in human history. It achieved that success precisely because it was 50 separate jurisdictions competing with each other. Had everything been run from Washington for the ease and convenience of their civil servants they'd be an economic backwater today. The UK's level playing field is the problem not the solution. Regions and nations need to be able to differentiate to attract, retain and develop their economies that would combine to make UK plc far richer than today. Those that fear a race to the bottom need to look at corporation tax in Switzerland where a country of just 9m has a different rate for each of its 26 cantons, and is one of the richest states as a result.

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In reply to Charlie

Chris Jones

Yes, politician's are law makers (laws that frame an economic climate) - but I have always believed that they have little or no 'influence' on the actual 'economy'. As a business, my investment decisions of where to set up, who to employ or with whom to trade are only marginally affected by what politicians do or say and that is as it should be given the poor quality of the people currently 'in politics'. It is demand in the market that dictates. As to their 'big budgets' this money, in Cymru, mostly goes on social support (NHS etc) and a fraction on infrastructure. This is probably how it should be. Businesses should not be relying on governments - if they have a business it should be able to sustain itself. Your turn.

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In reply to Chris Jones

Charlie

There's no economy without a rule book and lawmakers (politicians) write the rulebook. Of course there are good rules and bad rules but only the most powerful (originally aristocracy and monarchy but increasingly corporates and billionaires) who can use their might to force their will on others argue for no rulebook. It's these same folks who fear democracy. To stop ordinary people from writing a fairer rulebook they undermine democracy by convincing us that our representatives are powerless and corrupt. If we hate them all we can't tell the difference between those trying to improve things from those milking the system for their own benefit. Other democracies call them lawmakers for a reason. It reminds them and voters of their power to change things.

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In reply to Charlie

Charlie

Compare the economy to a football tournament. It's true that there would be no football without talented individuals kicking balls about. But it's also true that there could be no professional football without a football association organising it all, making sure there's an actual pitch to play on, paying fans turning up, a rulebook everyone follows and referees to enforce them. A legitimate debate on offside rules and VAR would never see people arguing that football would be better if the whole rulebook were ripped up so teams could field as many players as they could afford so it's baffling when some take this view in economic matters.

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In reply to Chris Jones

Jonathan Edwards Penfeidr

I have a home in RTP North Carolina, so I'll throw in 2 pennyworth. NC is a model for Wales, has many Welsh influences and was not poverty stricken etc. You're thinking of somewhere Deeper South, though NC has the pocosin and the usual snakes. It rejected the slave plantations of S.Carolina and was more artisanal: fishing, agri, wood (naval supplies and furniture). Yes it got tobacco + slaves, but didn't dominate. Was nominally Confederate but in fact divided. The Union ran the Blockade from Beaufort NC. Needed a boost by 1950s and got RTP with IBM. NC is a purple state and no one party dominates. Wales, are your listening? And NC is capitalist and nothing like the East-Germany economy of Labour's Wales. Excellent healthcare talent in NC but spoiled by the US corporate system. NC and Wales need to switch away from what they are doing and get more like EU or Japan for health. NC punches way above its weight in the US - hello Wales? And NC got Statehood the way Wales should get Dominion Status and Indy. By getting out of their chairs and attending meetings and facing down Westminster. Go. go!

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In reply to Jonathan Edwards Penfeidr

Chris Jones

Thanks for your interesting intervention. I lived and worked in Chapel Hill for several years which is, as you say, not 'poverty stricken' by any measure. Many parts of NC were though (maybe still are?) at the time of RTP's founding. It's a fantastic US State to live in - one of the best. There is indeed a great deal of Welsh history and influence in NC. I wish we would learn from them. I don't imagine any current politician in the Senedd has ever been there. At the very least, there should be regular trade missions.

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Walter Hunt

Yes, politicians in Wales face constitutional limitations, but this is not the whole story. The WG/Senedd inherited the role of a spending authority from the Welsh Office with nearly half that spending going on the NHS. That inevitably impacts the perceptions and priorities of elected politicians and the bureaucracy; just as the financial service sector does for Westminster. Although there are many small, innovative businesses in Wales, their existence is not as visible or seen to contribute to local economies in the way the mining, quarrying and metallurgical industries did. Because of their low profile, there may be little political reward for supporting the growth of these businesses. The reasons for a failure to recognise the pace of technological change (Mr Edwards cites AI) and reflect this in education and economic planning are more complicated. There is a lack of confidence in regards taking big decisions. Where does this come from? Is it the malign influence of a bureaucracy still stuck in managed decline mode? Interestingly, since 1999 the temporal lag in the leisure and hospitality industry between Cardiff and major cities in England has closed. We have online influencers to thank for that. Success in politics increasingly means adopting the media presence of influencers and influencers are becoming much more political. From that convergence might we see patriotic-politician -influencers making their mark (Gwlad beirdd a chantorion, dylanwadwyr o fri) through persuading people in Wales it not just cĹľl to buy products and services made in Wales, invest in Welsh business and culture or cloudfund projects, it's in their economic interests so to do. (Less Guinness more, Tiny Rebel’s Coal Drop on match days!?!)

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The US is the most successful economy in human history. It achieved that success precisely because it was 50 separate jurisdictions competing with each other. Had everything been run from Washington for the ease and convenience of their civ...

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