Why the Welsh economy is performing poorly compared to the rest of the UK

Mike Hedges - MS for Swansea East

The Welsh economy is performing poorly versus the rest of Great Britain and has done throughout the post war years. GVA per head in Wales in 2021 was £22,380 which was 74.1% of the UK figure and the second lowest of the UK countries and English regions.

Wales has a greater proportion of its population working in manufacturing, public administration, Health and Social services, agriculture, forestry, and fishing than either the UK as a whole or the Southeast of England.

Wales has a smaller proportion of its workforce in ICT, life sciences, real estate activities, administrative and support services, Professional, Scientific, and technical activities, arts, and entertainment than either the UK as a whole or the Southeast of England.

The shortage of employment in higher paid sectors is one of the major causes of a lower GDP. The most successful regions in Europe are based around capital cities and that is true for Wales with the area around Cardiff the most successful, but this success does not go as far as the Glamorgan and Gwent valleys or to Newport and Swansea.

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Investment

Outside capital cities there are successful regions in and around Hamburg, Bavaria, and Salzburg. All three have economies based on ICT, life sciences and have support from their universities. There is major inward investment in those sectors and crucially there are a large number of successful local start- ups.

Things that have worked is a start-up centres in Bavaria, Hamburg based on the Universities is a major science, research and education hub and Salzburg has corporate headquarters for national and international corporations.

Turning to Wales by the 1920s it was apparent that it was facing economic difficulties, largely because of its reliance on older heavy industry. The first attempt at major economic regeneration was the Treforest industrial estate that aimed to diversify employment.

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Incentives

From the 1940s to the 1970s, British governments delivered through a Regional Policy that deployed industrial location controls and financial incentives to Wales.

The most successful Government regional policy was in the 1960s and 70s when it  brought Various government bodies to Wales including the Royal Mint to Llantrisant, Companies House to Cardiff, office for national statistics to Newport and the Driver and Vehicle Licensing Centre to Swansea.

In the early 1980s enterprise zones were created to stimulate the economy. Wales had three such zones, Milford, Delyn and the largest in Britain at Swansea. Reports showed 80% of jobs created in enterprise zones were displaced from other places; the prosperity the zones brought to the areas was short-lived; and each job created costs £23,000.

In the 2011 Budget the Chancellor George Osborne announced a new round of enterprise zones. Wales followed setting up Enterprise zones across Wales and there are currently eight Enterprise Zones in Wales. When one of the most successful Financial & Professional Services centres in Wales and one of the most successful modern manufacturing centres are chosen then success in those areas is expected. The other Enterprise zones have not been successful.

The Welsh Development Agency was established in 1976 and it was credited with having brought in, secured and safeguarded investment with major companies. How many of these inward investors are still major employers in Wales?

With South Glamorgan County Council, the WDA helped establish Admiral Insurance plc, which is now a FTSE 100 Company and one of the few major start up successes in Wales.

Vibrant

The Technium concept was originally developed by a partnership between Swansea University and the  WDA, which built an Innovation Centre. This was followed by the creation of Techniums across Wales but the branding of all advanced factories as Techniums was doomed to fail. There are successes from the Swansea Technium program and companies are still developing there.

The model, where government, academia, and industry work together to create a vibrant innovation economy, is a holy grail for policymakers around the world. Where it has worked it has been driven by the University and supported by Government not run as a government initiative. The key is University leading and supporting commercialisation.

The most recent innovation was the Sêr Cymru programme which was designed to build a “strong and dynamic” scientific research base in Wales. Phase IV of the programme focuses on inspiring the next generation of scientists and developing disruptive innovations to help solve the socioeconomic challenges faced in Wales and the wider world.

Lots of schemes but the only wholly successful outcomes have been the relocation of Government departments and Admiral insurance. Successful economies have a mix of inward investment from international companies and major start-ups.

I recommend the following key actions:

• Produce a strategy to increase ICT and life science employment in Wales via inward investment and growing Welsh firms.
• Negotiate with the Westminster government the relocation of Westminster government services, to Wales.
• Hold a summit followed by an action plan with the universities in Wales on developing companies from university research.
• Set a target that each year Welsh GDP will increase by 1% compared to the UK and plan accordingly.