Opening Context
With the election of a Plaid Cymru government, a new economic policy agenda is now underway. This change represents the latest step in the development and delivery of post-devolution economic policy. 27 years of devolution have largely failed to deliver on the economic aspirations underpinning the case for it. Indeed, many of the aspirations of A Winning Wales, the first Welsh Assembly Government’s economic plan, remain unachieved and still resonate with today’s economic challenges; the aspiration that ‘within a generation, the standard of living in Wales will match the UK as a whole,’ that ‘Wales will become more prosperous and that prosperity will be sustainable and more evenly spread’, the development of ‘a better co-ordinated and well-targeted business support network’, with the overarching aim of ‘Welsh GDP per person rising from 80 per cent to 90 per cent of the UK average over the next decade – with the ultimate aim of achieving parity’. These aspirations have not been achieved and similar economic policy discussions continue over a quarter of a century on. This remains the case despite numerous changes in economic strategy, institutional structure and overarching policy goals.
Wales remains at the foot of all too many of the UK’s economic league tables and hasn’t significantly caught up to the UK economy in the manner initially envisaged. Whilst economic development is within devolved competency, a number of economic levers sit outside of Welsh Government’s direct control, especially given the lack of fiscal firepower at devolved level required to deliver larger scale capital intensive projects. The Welsh economy is thus shaped by a number of political and private sector actors in often complex ways. This has restricted the ability of successive devolved governments to bring about significant economic progress.
A new government offers the opportunity to rethink how our economic policy functions and delivers. The suggested priority areas in this response aim to consider how we can act to make progress towards a successful, sustainable and fair economy. We continue to face significant structural challenges, a lack of overall wealth and ownership, an urgent need to decarbonise and reap the benefits from the green economy, a lack of fairness and equality for many workers and those at the bottom of the income distribution, widespread poverty and stagnating living standards and a bottom-heavy tax base which restricts the effectiveness of (albeit limited) devolved fiscal levers. Wales, a small nation, with big ambitions, can and should do better, and there are numerous opportunities to create a more prosperous economy which lifts living standards and collective wellbeing for all our citizens.
What is your first priority for the Committee to consider as part of its work?
Welsh Government headline economic mission is to halve Wales’ 15% productivity gap to the rest of the UK within the next 10 years. As the Welsh Government’s overarching economic mission, this should frame how the Committee conducts its business and scrutiny and therefore be an area of focus. We welcome the clarity and the sense of an overarching mission to shape the direction of economic policy levers; this should be matched by a focus in the Senedd and especially through the Committee, where detailed, evidence-based and productive cross-party challenge can be undertaken on the topic of Wales’ productivity. This is also a relatively politically-neutral policy ambition, enabling cross-party engagement on how it can be best achieved.
There are, however, significant challenges with the specific productivity mission – which the Committee should consider in their work. Firstly, the capital intensive policy interventions required to meaningfully increase Welsh productivity (and especially in regards to realising catch up potential to the rest of the UK) do not correspond well with Welsh Government’s resources, fiscal powers or capacity. Secondly, the metrics for measuring productivity growth are slow and unreliable (current statistics being used in Welsh Government’s data dashboard to measure it are from 2023), meaning it will be difficult to measure the impact of Welsh Government policy and investment distinctly (or separate it from the wider UK economic picture), nor fully understand the subnational regional picture within Wales to the desired extent.
Furthermore, the extent to which the productivity mission strategically fits with the new government’s other economic policy ambitions, such as increasing Welsh ownership, addressing substantial regional economic inequalities or the goal of ensuring that at least 70% of Wales’ procurement budget is spent in Wales, for instance, should be considered. In a number of cases the policy interventions required for each goal point in different directions. With significantly limited resources to impact the economy (it receives £530 million, just 2% of Welsh Government’s budget – which also sits across energy and planning) Wales cannot afford to do it all. How a focus on productivity fits with a wider suite of policy goals to create a clear and comprehensive economic picture is also an open question worthy of discussion. The Committee should also consider how this approach is delivered in tandem with accelerating the contribution of our SMEs to the economy (we remain a largely SME-led economy), a conversation which has been ongoing for a number of years.
A focus on productivity could be an opportunity to work across the broad portfolio of the Committee (and beyond), given the cross-cutting nature of a productivity target, which requires high capital investment in order to influence. Transport, connectivity, energy and research and development are among the strongest areas where Wales can invest in to produce productivity gains within devolved competence, for example. How these cross-governmental projects are prioritised and delivered is essential. Indeed, when it comes to the delivery of economic policy, Welsh Government largely convenes other actors to deliver its goals. Corporate Joint Committees also now sit at the heart of a number of economic policy agendas, adding another layer of shared powers and responsibilities. The extent to which the Welsh Government effectively sets clear direction and expectations of both public and private sectors is an essential part of reinvigorating Wales’ economy.
Finally, any Committee focus on productivity also offers the opportunity to consider the perspectives and experiences of a broad range of actors in the Welsh economy; from Welsh Government, UK Government, the four Corporate Joint Committees, Local Government, higher and further education providers, and businesses of all shapes and sizes. All are collaborators in achieving the ambitious productivity mission and can help the Committee produce evidence-informed and actionable insights.
What is your second priority for the Committee to consider as part of its work?
The second priority area of the Committee should be to scrutinise and inform the development of Wales’ economic policy coordination and delivery structures. Key in this reorganisation is the Welsh Government’s commitment to establishing a new ‘economic development agency’, whose remit also appears to include innovation.
We broadly welcome the intention to create a new Wales Development Agency (WDA) and have discussed the broad questions regarding its design and remit at length previously.
That businesses and the private sector should have ‘one front door’ to engage with Welsh Government, is of course, a valuable endeavour. A central consideration to the creation of a body which sits as the centrepiece of economic policy delivery is fundamentally about purpose, remit and resourcing. What challenges does a WDA enable Welsh Government to solve that it can’t with the existing structures? What is its distinct role in the current economic policy delivery ecosystem?
There have, to date, been mixed messages about what the exact remit of the proposed new Agency is, as well as what its implications are for other bodies already in existence; particularly the Development Bank of Wales and the Corporate Joint Committees. That this is the case suggests that multiple essential decisions on the remit and structure of the WDA remain.
There is scope for the Committee to provide a space for independent scrutiny and strategic support for these consequential changes to our national economic institutions and governance structures. This could build on the back of the work of this Committee’s predecessor in the 6th Senedd, which held an inquiry into the Development Bank of Wales.
The previous WDA achieved both successes and failures, leaving behind a contested legacy. It’s also fair to say that the context a reimagined WDA arrives in has completely changed. As pointed out by Ieuan Best – ‘the economy, institutional landscape and political context have changed fundamentally’ since the last WDA ceased operating. How a new WDA can learn from the prior WDA, and create a forward-looking institution which meets the needs of Wales’ economy today and sets it up for success tomorrow, is a critical consideration regarding the institution’s design.
As part of an inquiry into this broad topic, the Committee could consider some of the below issues:
- How a WDA can help support the creation of a fairer, more prosperous and thriving economy across Wales
- What the overarching mission of the Agency is
- What specific remit and functions a new WDA should have
- What priority metrics will guide delivery and how will political ownership of outcomes be ensured
- What equity will the Agency have to invest and on what terms as well as how this funding pot can become self-sustaining
- How the the Agency seek to extract maximum returns from foreign direct investment it will presumably seek to attract
- What can be learnt from other parts of the world in creating effective and efficient economic policy delivery institutions
- What will be the Agency’s footprint – regional or national
- What will be the Agency’s long-term funding arrangement, as this will shape its ambitions
- How the Agency and government more broadly can capture long-term value from its investments
- How will the Agency interact with the intention to establish a Wales Wealth Fund
- How to ensure the best chances of the Agency helping to provide institutional stability in Wales’ economic policy delivery – providing a cohesive and mutually supportive governance architecture
- What priority sectors the Agency should focus on and how will these be determined (and amended over time)
- How the Agency will interact with the UK-wide funding landscape, such as the British Business Bank, for example
- How the Agency will add to wider economic institutional knowledge sitting at devolved level
- How the Agency will support Welsh Government in setting economic direction, as an active market maker
- Whether the Agency will focus on a particular size of business – and the potential benefits of doing so
- What the timescales are for establishing the Agency and whether there will be a phased approach in granting it responsibilities (or not)
- What the business appetite is (both domestic and international) for a WDA
- How the Agency will seek to embed long-termism into our economic policy structures alongside embedding the Well-being of Future Generations Act.
The Welsh economy post-devolution has greatly suffered as a result of the constant shifting of policy priorities and structures. If this reform agenda is to lead to better outcomes then it is vital that multiple parties engage and provide input. The Committee’s are the home of constructive cross-party working in the Senedd, and are thus well placed to ensure this is the case. The Committee’s work could thus ensure that the new Agency is built on the back of (a degree of) cross-party consensus and consideration – ensuring long-term stability which exists beyond one government term.
What is your third priority for the Committee to consider as part of its work?
The third priority that the Committee should consider is on strategic infrastructure planning and delivery.
Fundamentally, for Wales to have a thriving economy for the future, then delivering infrastructure is a critically important component. The delivery of infrastructure, through the planning system, is also primarily within devolved competency. A more active Welsh approach to its infrastructure goals will also be important for sending a consistent vision within and outside of Wales, both to UK Government (who effectively deliver and set the conditions for large scale projects, like new SMR nuclear for example) as well as the private sector, who Welsh Government have become reliant on to deliver large-scale projects (primarily through the Mutual Investment Model). This topic will also complement the other priorities identified in this response, especially the role, remit and powers granted to the new WDA.
An inquiry into this area should seek to examine what is stopping infrastructure being built and what the key trade-offs should be to enable it to happen in a way that our economy requires.
We now have the Infrastructure (Wales) Act 2024 and as such the Committee could consider the impacts of the legislation in practical delivery terms, i.e. is it helping nationally significant infrastructure to be delivered in a timely and cost-effective manner. It would be beneficial to see what impact this is having with private sector delivery.
An analysis on the role of the mutual investment model, used to deliver a number of infrastructure projects, would also be welcome. It’s been used as a way to deliver large-scale infrastructure projects in Wales, but the long-term implications of this approach remain to be considered in sufficient depth.
There are also large-scale projects which will be delivered over the course of the Senedd. This is significantly the case with an acceleration in the delivery of renewable energy infrastructure, for instance. The Committee could have a role in considering project delivery as it is taking place.
A focus on this area should also consider more broad questions, such as what infrastructure we want, why and where? For example, there is much debate around the building of data centres in Wales, with a number of proposals met by community challenge. The Committee could facilitate a dialogue on these kinds of broader infrastructure discussions and how it relates to our economy.
Infrastructure delivery should be a priority area for the Committee because it sits at the heart of achieving Wales’ wider economic policy goals. For instance, in order to raise productivity, living standards, incentivise investment, tackle spiralling energy costs and enable us to reach net zero at the pace required by our ambitious proposed timetable. It is also an area with devolved capability to influence. The policy levers sit here in Wales, meaning that the Committee can have maximum impact with its recommendations.
Is there anything else you would like to share with the Committee as it considers priorities for its Forward Work Programme?
There are many other areas that the Committee could look at which would be worth time and consideration. Other areas that could be considered include; mainstreaming well-being principles into economic policy, Wales’s R&D and innovation ecosystem, public procurement (especially regarding Welsh Government’s 70% goal), the establishment of a wealth fund (and how they can operate effectively), how to increase the ability of devolved government to invest at scale (and build the devolved government’s ability to become a more active agent in our economy), whether our economic data is fit for purpose, and how to effectively grow and scale small and medium enterprises.
The IWA would be pleased to engage with the Committee on the three issues outlined in our response, but also any other topic related to the Committee’s wide-ranging remit. On renewable energy particularly, it is worth noting that the IWA is currently working with the Future Generations Commissioner for Wales on Project Ynni, which will likely help to inform not only Welsh Government’s Energy Strategy, but also the activities of public bodies falling under the Well-being of Future Generations Act.
The IWA is one of the few independent organisations in Wales that undertakes policy work focussing on all manner of issues regarding the nation’s economy. We therefore welcome the opportunity to support the Committee’s work in the years ahead as we have with its predecessors in prior Senneddau.
Joe Rossiter
Co-Director
Institute of Welsh Affairs