18 August 2021

Where is Wales’ wealth creation?

By Paul Davies MS

In June last year Labour’s then-economy minister, Ken Skates, appeared before the Welsh Affairs Select Committee at Westminster to talk about the economy in Wales and Covid-19.

During questioning by my colleague, Aberconwy MP Robin Millar, Ken – a much liked man in Cardiff Bay – discussed business support during the pandemic but was also asked to elaborate on how the Welsh Labour Government had approached economic development in the years prior.

The minister spoke at length about ‘structural challenges’ and a lack of decent infrastructure like our railways ‘because of significant underinvestment” – charges his government lays at Westminster’s door. There are hat-tips to “decarbonising”, “upskilling”, and “human capital” – all admirable, but nothing that will give Wales the economic transformation it needs.

Reading the transcript, you establish rather quickly just how bereft a self-described ‘interventionist’ Welsh Government was of a vision for entrepreneurship and wealth-creation. Not surprising, some may say, given this tired Labour Party in the Senedd evades responsibility whenever they’re picked up on their failures in devolved policy areas. And here I was thinking devolution meant being able to do things autonomously! 

As someone who sees huge opportunity in the levelling up agenda for the British Government to play its part in community renewal across the country, I’m not averse to state investment. Not only has it been a necessity since last March through the furlough scheme, but the Conservatives understand that the public want greater investment in infrastructure, especially in areas that have often felt left behind.

But this is only a part of a government’s responsibility to its people: it cannot just be a cash machine. It must also raise money – and I don’t mean through squeezing more out of taxpayers. I mean through expanding the tax base and making our country richer – and that shouldn’t be a dirty word. 

Although some levers are not in our hands, the Welsh Government is responsible for economic development and has been for 22 years now. It’s also the government in the most powerful Senedd that’s ever convened in Wales. And it really must do its duty better.

With the national debt giving all who desire to be fiscally responsible a nervous twitch, the consensus has become going for growth, rather than spending cuts or tax rises, which is easier said than done. 

But that’s why recent comments by Mr Skates’ successor, the former health minister Vaughan Gething, about the UK government’s replacement for EU structural funds have been so dispiriting, not least when he erroneously claimed that Wales is on a “new path to austerity”.

Never mind that the British government’s at-least-as-generous Shared Prosperity Fund is on its way as a replacement, for Labour it is all about extracting money from another source, rather than making Wales richer through attracting foreign direct investment, nurturing start-ups, stopping the brain-drain of graduates to England, and making Wales a more attractive place to live in general.

Let us not forget that another name for structural funds is regional aid – it was financial assistance for deprived areas. Since 2000, Wales qualified on three separate occasions for the highest level of EU structural funds, which totalled over £4bn. 

We continued to get large sums of aid because Labour failed to put it to good use and deliver lasting improvements. It was no badge of honour. 

What Labour has delivered in government for Wales in that time is the lowest take-home pay in the UK, the UK’s least productive economy, and some of the highest levels of deprivation in Europe. And these aren’t new blips but long-term trends. Now that’s austere.

This is hardly surprising when one Labour minister admitted in 2019 that ‘we don’t know what we’re doing on the economy‘. Although that is patently obvious, it is good to see self-awareness is not dead in Mark Drakeford’s Government.

So I’m thrilled to see the PM and Chancellor recognise the need for domestic wealth-creation, having recently challenged UK institutional investors to consider investing a greater proportion of their capital in long-term British assets, where they are currently underrepresented.

I hope Welsh ministers will make the case for such investment to occur in Wales. This is the kind of approach needed rather than Drakeford’s fantasy ideas like universal basic income and introducing new levies like the tourism tax.

Not only is it important to make entrepreneurship a viable and attractive career path in Wales, it is fiscally sensible. We know that countries that turn on the spending taps can unleash what they cannot control.

We are already seeing this in the US, where trillions of dollars of borrowing are having inflationary effects, the ripples of which have already arrived here: in the US, consumer prices were up 5.4% year-on-year in June, the highest rate in 13 years, while the British figure was 2.5%, the fastest rate since August 2018.

We must not let the last decade – when both interest rates and inflation have been low – mislead us into thinking they will simply stay there. And we don’t want inflation turning into stagflation, especially since it has felt Wales has been stagnating under perpetual one-party rule.

I will use my position over the next five years to ensure Labour do not get away with sweeping their dire economic record aside by simply blaming the virus. But I also want to work constructively so that they get out of this headspace of where it must wait for money to come from Westminster before it can be dished.

It must sow the seeds and reap the rewards of its own supply of revenue at home or forever be content with being the poor relation, behind other British nations and English regions. I want a Welsh government that’s smarter, braver, and prouder than that. 

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Paul Davies MS is a Welsh Conservative and Wales’ Shadow Economy Minister

Columns are the author's own opinion and do not necessarily reflect the views of CapX.