The next Welsh Government must provide long-term direction to make the most out of a constrained set of economic levers, argues Joe Rossiter.
Over the IWA’s long history, the economy has been at the forefront of our work.
Throughout this, we have incubated ideas, advocated for change and been successful in helping to shape a more successful Welsh economy.
And yet, a profound and systemic set of economic challenges will be stacked up in the in-tray of the next Welsh Government after the Senedd election in May 2026.
Below are a few key principles which will frame the debate, scrutiny and platforms for change going into the upcoming election period.
What can devolved government do?
Firstly, it is important to establish that Welsh Government has severely limited ability to meaningfully invest at the pace or scale required to radically alter Wales’ economic fortunes.
Welsh Government does not have the budget or policy levers to control all economic policy. Whilst we continue to argue for systemic reform to our devolved settlement, such as calling for longer-term budget cycles and for reform to Welsh Government’s severely limited borrowing powers, these constraints will continue to exist as the next Welsh Government takes office next year.
The powers that Welsh Government do have over the nation’s economic performance largely reside in providing direction for public bodies and businesses to deliver their policy goals.
The powers that Welsh Government do have over the nation’s economic performance largely reside in providing direction for public bodies and businesses to deliver their policy goals.
What does this mean tangibly? Well, it means focussing on:
- Extracting maximum value from the £10bn public procurement budget sitting across public bodies in Wales, which represents a third of public sector spending
- Managing grants and subsidies
- Allocating R&D, education, training and innovation funding
- Utilising devolved tax levers to incentivise and disincentivise behaviours
- Ensuring the planning system enables the delivery of projects which retain long-term economic benefit to communities in Wales
- All whilst growing our ability to pool resources to increase investment over the longer term.
These are the areas that parties should be looking at as they put together their manifesto commitments on the economy.
Because the list of policy levers is so complex and diffuse, sitting across multiple areas of government, providing strategic alignment between them is vital – to ensure that they are all pointing in the same direction. As we have such limited policy levers over the economy, it is even more critical that there is cross-government policy coherence and clarity of purpose to achieving transformational change.
A more active devolved government on economic matters?
Recent global economic policy trends have leaned towards acknowledging the role of active state involvement in the economy. This is most evident in the return of industrial strategy, notably the case with the UK Government, whose strategy attempts to focus on eight priority sectors.
Syniadau uchelgeisiol, awdurdodol a mentrus.
Ymunwch â ni i gyfrannu at wneud Cymru gwell.
But where does this leave Wales, with the above caveats that we have limited powers to deliver such a strategy?
As Mazzucato and Macfarlane outline for Scotland, small economies ‘cannot afford to sit on the sidelines,’ they face a ‘stark choice: either act boldly to shape markets, or be shaped by global market forces.’ In a UK context, this also describes our relationship with the UK Government as much as the effects of global economic headwinds.
In Wales, then, we can either merely seek to deliver the policy aspirations of central government, or set out our own vision and priorities. Of course, this isn’t binary – we still need the Treasury to invest at scale in the Welsh economy. However, we are also capable of setting our own economic direction, which provides a platform for cooperation between devolved and central government.
Having a clear economic policy focus from devolved government will also enable stronger partnership between UK and Welsh governments. These shouldn’t present competing visions for Wales’ economy, but complementary. A devolved government can’t do it all, it has neither the powers nor the budget, but we can have significantly more clarity on what our economy aims to achieve and therefore, where we allocate resources to achieve it.
In Wales, then, we can either merely seek to deliver the policy aspirations of central government, or set out our own vision and priorities.
Balancing attracting inward investment with setting direction
Much political attention in Wales is focussed on attracting inward investment in order to deliver growth, jobs and opportunity.
Indeed, the upcoming Wales Investment Summit, described by the First Minister as Wales’ ‘biggest ever business event,’ is a reflection of this sentiment.
Attracting inward investment, which delivers long-term economic benefits to Wales is of course welcome and any economic strategy should set clear parameters for priority areas. Yet, alone, inward investment will not deliver economic transformation.
Providing purpose: prioritising wellbeing
As outlined earlier in this article, many of Welsh Government’s policy levers over the economy rely on providing direction for other actors. This means that clearly defining the purpose and focus of our economic policy is vitally important. This involves making inherently political choices, all of which require trade-offs.
Therefore, for parties seeking to lead the next Welsh Government, the questions are:
- What type of economy do you want to build?
- What, from your perspective, are our economic strengths and weaknesses?
- What type of economic activity do you want to incentivise or disincentivize? If you want to release investment, how will you achieve this within our existing suite of limited powers?
- How will you extract maximum value out of existing powers?
- What do you want to change and how will we know whether you have been successful or not? What key metrics will frame your focus?
Answers to each of the above fundamental questions should form the basis for a long-term strategy for what type of economy we want to create. Devolved government has neither the capacity nor the resources to do everything – but that should not prevent us from making difficult decisions about what we do prioritise. By attempting to do everything, we will do nothing well.
Over recent years, Welsh Government policy delivery has been most successful when there has been a crystal clear goal to achieve, which has helped to mobilise a range of actors in achieving it. Three examples would be: the utter transformation of our performance on recycling, the 21st Century Schools programme, and the ongoing Transforming Towns programme.
Gofod i drafod, dadlau, ac ymchwilio.
Cefnogwch brif felin drafod annibynnol Cymru.
In our recent economic policy work, we highlighted that devolved economic strategy should be rooted in prioritising improving our wellbeing. Conceptions of wellbeing have immediate resonance in Wales, where the Well-being of Future Generations Act is already expected to be delivered by our public bodies. Such an approach would focus on directing our economic policy levers to what devolved actors have control over, re-focussing on the everyday economic wellbeing of people across the nation.
There is an urgent need for the next Welsh Government to set an overarching vision for the type of economy they are seeking to create and how it will support others to help us get there. Providing a clear set of long-term priorities and aligning devolved policies to achieving them is the only way of extracting the maximum out of our limited economic powers.
Any change to our systemic challenges and making progress to improving our nation’s wellbeing starts here: taking stock of where we are now, clearly articulating where we want to get to, and the tools we have, and need, to take us there. Unless we have a clear conversation on all three of these points, we are doomed to repeat our current mistakes.
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