(11 years, 6 months ago)
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Lord German
To ask Her Majesty’s Government what actions they are taking regarding the challenges faced by the Welsh economy, and how they are ensuring that the Welsh and United Kingdom Governments work closely together in the interests of the Welsh people.
Baroness Northover
My Lords, because the Question for short debate of the noble Lord, Lord German, will now be taken as last business, the time limit becomes 90 minutes rather than 60 minutes. Speeches should therefore be limited to 10 minutes; the speech of the noble Lord, Lord German, remains as 10 minutes and the Minister’s as 12 minutes.
Lord German
My Lords, I begin my speech today by paying tribute to my noble friend the Minister and welcoming her to her new position as well as her first appearance at the Dispatch Box. I hope that nothing that I might say, or that other noble Lords might say, gives her any difficulty in responding to questions about Wales that we pose in this debate.
The economic health of Wales is the most important issue of all facing our country. Jobs, prosperity and the well-being of our people depend upon it, but there are some worrying underlying trends which are holding Wales back. I want to examine those issues today and to look at some potential solutions.
Despite 13 years of a Welsh Assembly, economic performance in the country still languishes at the bottom of the league. There is an overdependence on the public sector, and lower private sector development than is needed to pull Wales up by its bootstraps. In 1989, GVA per head in Wales was 84% of the UK average; in 2009—these are the latest figures available—it was 74%. GDP in Wales in 2010 was 80% of the European average, compared to 111% in the UK as a whole, and in west Wales and the valleys that fell to 68%. In the last quarter, public sector employment in Wales represented nearly 26% of the total workforce, higher than in any other part of Great Britain.
Wales went through its last industrial revolution in the mid and later 20th century, with the virtual ending of coal and heavy, smokestack industries. The replacement was with inward investment companies from around the globe, producing goods for the UK and European markets. That was a difficult transition, but it was a transition. Unfortunately, some of that has remained, but much has moved on to areas of cheaper labour cost. Once again, Wales needs to look for a different pattern of economic development, which is why the UK and Welsh Governments need to work together.
The levers that affect economic change are split between the Welsh Government and the UK Government. Working in different directions would at worst be pointless and could also result in overlapping or duplication of support and effort. By way of example of the split of those levers, we can take employment issues. The Work Programme remains with the UK Government but the Welsh Government provide apprenticeships. Financial support between SMEs is split between some of the banking provision and work that the UK Government do and the small, support grant aid that the Welsh Government provide. On exporting activities, the Welsh Government lead trade delegations, and so do the UK Government; sometimes they work hand in hand, but sometimes they do not. Essentially, the microeconomic and macroeconomic measures that Governments can take are split between two Governments.
We await the report of the Silk commission, which will undoubtedly propose changes to the ability of the Welsh Government to use financial levers. These are crucial, because the Welsh Government will benefit from financial incentives to boost the Welsh economy. I am therefore somewhat surprised that Labour seems to have rejected income tax powers. It is not about the variation of income tax—whether it is 1p up or 2p down, or whatever—but about raising the tax base overall in Wales, which will give the Welsh Government a better income. The more successful that the Welsh Government are in raising the tax base of Wales, the more money they will have to spend on public goods. And it is important that the Welsh Government should have financial incentives to do better; it goes alongside borrowing powers. You cannot use one without the other.
The other issue is the use of European funding. Wales will in all likelihood have a third round of the highest level of European support, subject to a budget which I understand some in the other place are striving to reduce. But there is a need to refocus the use of that European money and concentrate on private sector development—small company growth, new business formations, supply chain support, new financial support mechanisms, exporting, and redoubling the effort that we put into skills development and training. Convergence funding is very likely to continue, because GVA in west Wales and the valleys in 2010 was 68% of the European average, well below the current 75% qualification threshold for the highest level of funding. To measure that against the figure for the UK as a whole, it was 111% of the European average.
The recently published Heseltine report suggested bringing together many structural funds to try to create an armoury of financial weapons, with the ESF, ERDF, the marine and fisheries fund and the European agricultural fund for rural development, so that there could be an organised direction for European funding, particularly to aid the goals of small and medium-sized enterprise growth, skills and training. I would like to know the Minister’s attitude towards the proposed Atlantic strategy, which of course is now in its formation and which would serve the purpose of doing just that for Wales.
Where are the opportunities for the future? Manufacturing is a key Welsh advantage, and always has been in recent decades. In 2010, manufacturing made up 18% of the Welsh economy, compared to 12% of the UK as a whole. The automotive sector, pharmaceuticals and steel production are key areas for development but there is now a need to look at new and emerging sectors where there is an added value and an export advantage. For example, we need to encourage joint ventures between companies from outside Wales and companies with know-how within Wales. There is a need to bring the know-how and the finance together to create wider markets.
As regards research and development, Welsh higher education can and should do more to grab the available funding for innovation. We have really good examples of progress in this area. Some of our universities are to be congratulated on what they have done but we need to replicate that and expand it. Research and development expenditure in Wales represents only 2% of the UK spend in this area and the split in Wales is 46% investment from the private sector and 54% from the public sector. However, the figure is too small in terms of encouraging the innovation and development which companies in Wales need.
Small companies make up 99% of businesses in Wales and represent 43% of all company turnover. Many of them urgently seek credit to enable them to expand, so getting the cash to these companies must be a priority. However, noble Lords will know that small business formation in Wales has gone down each year since 2004. In 2004, some 11,525 VATable threshold companies were created, but only 7,500 were created in 2010. They decreased in number through each of the good years as well as the lean years. Therefore, renewed emphasis on supporting the small business birthrate is needed.
The M4 syndrome whereby people believe that they are doing different things and achieving different purposes must end. There must be a common purpose between the Welsh Government and the UK Government, so perhaps now is the time for a joint task force: not a review or a policy document but a group which can recommend action, support both Governments, suggest new approaches and enable better working together. This could draw on the best brains and build on best practice in all these areas. I believe that a new arena for co-operation is needed. Wales is in need of an injection of new thinking to drive its economy upwards and off the bottom rung. There is more need than ever to work together because not working together will damage the prospects of the very growth which is so needed in our country.
Lord Roberts of Conwy
My Lords, I, too, welcome the noble Baroness to the Front Bench. I have already congratulated her on her appointment to the Wales Office.
I support the thrust of this Question expressed so well by my noble friend Lord German, especially the second half. It reflects the concern that lay behind a similar Oral Question that I asked about the Government’s industrial strategy on Wednesday 17 October, which drew the following reply from my noble friend Lord Gardiner of Kimble:
“Although some measures will be UK-wide, economic development, including financial assistance to industry, is a devolved matter. Her Majesty's Government lead regular discussions with the devolved Administrations to ensure that the strategy reflects this. This involves consulting … on key policies as well as sharing information and good practice”.—[Official Report, 17/10/12; col. 1491.]
We have more than a hint there of the nub of the problem which was rightly identified by the noble Lord who has just spoken: namely, the division of responsibility between the devolved Administrations and the UK Government. We also have the nub of the answer as far as Wales is concerned, which lies in close, constructive and effective co-operation between the two Governments. On the Welsh Government’s side, I congratulate them at the outset on their contribution to the fact that there has been an increase of 67,000 in total employment in Wales since 2010. This compares very favourably with an increase of 54,000 in Scotland over the same period, bearing in mind that Scotland has almost twice our population.
I also venture to praise the present Welsh Minister, Edwina Hart, for her genuine efforts to enlarge the vision of her department and the scope of its consultations, which now extend to Welsh Members of your Lordships’ House. Some of us have a great deal of experience relevant to her work and are certainly ready to impart any knowledge we may have that will further the interests of Wales. Having said that, I would not wish anyone to think that I am unaware of past failings on the part of the Welsh Assembly Government. The abolition of the Welsh Development Agency and the international brand that it promoted for Wales had a devastating effect on our inward investment efforts. The failure to collaborate with the Welsh Affairs Committee in its inquiry into inward investment was also regrettable. There must be a more co-operative relationship between the National Assembly and this Parliament, and that should be reflected by their respective Governments.
The United Kingdom Government’s assertion that they are profoundly aware of the UK’s full geographical economic dimension, including the economic interests of the citizens served by the devolved Administrations, is borne out by their UK-wide support for ultrafast broadband, for example. The Hitachi acquisition of Horizon Nuclear Power, which will benefit Anglesey and north Wales, was also a UK Government project. I understand that the prospects for a new nuclear power station at Wylfa on Anglesey are very bright.
I was glad to read in the Government’s response to the Welsh Affairs Committee’s report on inward investment of the close relationship established by the UK Trade and Investment section of the Department for Business with the Welsh Government, even to the extent of seconding two of its officials to the Welsh Government team. I also welcome the fact that the Minister for Trade, my noble friend Lord Green, and, indeed, the Secretary of State for Wales have offered to join Welsh Government trade and investment missions. That offer is not to be spurned and should be valued. Such co-operation is essential to successful future development. Isolation would be fatal to Welsh economic aspirations. This is something we must guard against constantly. There is always a tendency for England to go it alone now that the nations have their own Administrations, and a tendency for those Administrations to assert their separateness, but this divisive approach is not the best way to proceed. It is not in the best economic interests of Wales, nor is it in the best economic interests of the United Kingdom as a whole.
Lord Jones
My Lords, I thank the noble Lord, Lord German, for obtaining this debate. I congratulate the noble Baroness, Lady Randerson, on her appointment to the Front Bench. It was deserved and her tenure in the Welsh Assembly Government was successful and much respected.
The Welsh Assembly has come of age; it has much to be proud of and, with hindsight, the handover from Westminster to Cardiff was seamless—truly an exceptional achievement in the history of governance in Britain. The First Minister is proving to be a safe and shrewd pair of hands—indeed, quite a statesman. The Education Minister is a genuine reformist. He certainly wants better things for schoolchildren, university students and students at FE colleges. Mrs Hart, with a challenging economic brief, has the gift of decisiveness, and we know that she is in charge. The Secretary of State for Wales knows Wales like the back of his hand. He has a good pedigree, coming as he does from Rhosllanerchrugog in the north-east, and I can imagine him discussing matters in Cardiff Bay with the First Minister in their first tongue, Welsh. These two parliamentarians can collaborate for better things for Wales. Certainly, their hands are on the levers of power, and together they can deliver for Wales.
Scotland will gain more devolved powers, if not independence. I would expect the Welsh Assembly to gain more devolved powers on the back of those Scottish gains, but probably not on the Scottish scale. Whatever, the consequence of Scottish gains means that better relations between Westminster and Cardiff are going to be an absolute priority. Wales and Westminster will need to work ever more closely together to deliver better things for the people of Wales.
To enhance the Welsh Assembly and for better working there, I would prescribe more Assembly Members. They would create a bigger Assembly gene pool and perhaps more competition for places in Cabinet. They would enhance self-esteem in the Assembly and make for a better working relationship with London. More Members in Cardiff Bay would guarantee more dissent and, arguably, more difficulties for Cabinet Ministers, but dissent and competition make for a more mature parliamentary Assembly, wherever that Assembly may be. I should like to see more questioning, more dissent, more competition and more Assembly Members for the good of the Assembly and for the good of Wales.
Perhaps I may turn to economic issues. We must keep what remains of our steel industry. I have in mind particularly the once iconic Shotton steel plant. Shotton was once an industrial town of 14,000 steelworkers—now, arguably, just 400. However, I pay tribute to the great achievements in productivity at Port Talbot. Our aerospace industry is the world’s best, and much of it is in Wales. I have in mind Airbus at Broughton. Its 7,000-strong workforce is based on high-tech skills and it pumps more than £7 million weekly into the north-east Wales and Cheshire economies. Where aerospace in Wales is concerned, what workshare we have, we must keep. When BAE bailed out of Airbus and cashed its chips for its £4 billion and invested in north America, that was a wrong call. It left the British side of Airbus without a champion at the highest table. We are now effectively contractors, not partners. That was the consequence when BAE left. What workshare we have, we must keep.
It is good to have plans to invest in Wales’s railways. I want the Wrexham-Birkenhead line to be electrified. It would enhance economic activity along a Wirral-Deeside-Wrexham axis. I agree that there must be huge investment in south Wales in the railway system, but there must be investment in the north. The electrification of the Birkenhead to Wrexham line is long overdue and would provide a huge injection to economic activity in the north-east of Wales.
To face the economic challenges of the future, I want even more skills training and retraining in Wales. We should aim for even more quality apprenticeships. I hope that we can aim for more engineering jobs, particularly engineers, but we also need to give priority to those aspects of manufacturing that are described as high end.
Let us give a fair wind to enterprise zones. We made a great start in north-east Wales. We have a fine chairman, Askar Sheibani, who is making good progress. However, I should like to see that progress made throughout Wales. The enterprise zones can be a huge opportunity. Let our banks give more assistance to small and medium enterprises, and to entrepreneurs. Let them encourage and generously assist where they might. It is time that our banks helped SMEs. We need to give emphasis to a living wage; we do not have a good record in Wales for wage rates. A living wage should be a great priority. Advanced manufacturing centres should be established in our sub-regions. In the enterprise zone in Deeside, the chairman, Mr Sheibani, wants an advanced manufacturing centre with links to world-class universities. Such centres would benefit Wales greatly in the immensely competitive global situation in which we find ourselves. We should acknowledge and encourage our established blue-chip companies, and should not take them for granted. I would like to think that they might expand and that they will always be able to encourage and mentor industries alongside them.
If only we could have our Welsh Development Agency back. It was a great success and won manufacturing work for the people of Wales. When we put it down and dismembered it, we let able, experienced and successful managers to go to regions in England and elsewhere, and be competitors for the work that we never got after we put the agency down. I might be forgiven for some bias, because I legislated the agency into being. I pay tribute to the huge endeavours of the noble Lord, Lord Roberts of Conwy, for the people of Wales, but I remember that in debates in Grand Committee and elsewhere on the agency’s likely birth, he was at fault. He will allow me to tell him that.
North-east Wales is a case in point. We now have an enterprise zone. The FE colleges of Yale and Deeside will merge to form a 22,000-student force with a £64 million budget. We have the new university of Glyndwr and the mature university of Bangor available to us. I think that HE and further education can combine the expertise available from the centres of learning to mentor and nurture our small and medium enterprises. Lastly, the great industrial parks of Deeside and Wrexham can only benefit from their proximity to our universities.
Lord Thomas of Gresford
My Lords, I am delighted to follow the noble Lord, Lord Jones. Perhaps your Lordships will forgive me if, in the course of my remarks, I put in a plug for north-east Wales as well.
First, I congratulate my noble friend Lady Randerson on her new position. I am delighted that she is working with a Secretary of State for Wales from Rhosllanerchrugog, which perhaps may pull the whole balance of Wales a little further to the north. Rhosllanerchrugog is very dear to my heart. I recall fighting the 1974 election and hearing that there was a young Liberal branch in Rhosllanerchrugog. So I set out to find it; it was within the constituency I was fighting. And there it was; it had been formed in 1905 and had not been added to since. However, the ladies concerned were delighted to sit in the rooms that we acquired in the village and dispense tea to all their friends. Rhosllanerchrugog was the home of politicians, musicians and educationalists. It was once said that every primary school headmaster in Denbighshire came from Rhosllanerchrugog. It was worse than the masons. However, that was the nature of the village. It was in an industrial setting. There were 11 collieries in the area when I was a boy. There was a steelworks at Brymbo which produced far better quality steel than the huge sprawl of Shotton steelworks down in Deeside, to which the noble Lord referred. It was a centre of industry and of culture and I hope that it will become so again.
I would like to draw attention to the final report of the city regions task and finish group that was set up by the Welsh Assembly Government under Dr Elizabeth Haywood and which reported last July. The group felt that a city region approach in Wales could deliver larger and more efficient labour markets, larger potential markets for goods and services because of the concentration of activity and transport costs savings, and a greater exchange of knowledge, ideas and innovation. Recommendations were therefore made in that report for the establishment of two city regions in south Wales. The main factors considered were critical mass; traffic flows; community identification; and existing structures of governance. It was recognised in the report that Welsh cities contribute less to the economy than cities elsewhere in the United Kingdom. I am disappointed that the group was unable to recommend a city region encompassing Chester, Wrexham and Deeside. I concede that community identification would be an issue if one put Wrexham and Chester together. However, they are only 12 miles apart.
Economic flows often overlap existing local authorities and create a sub-region or city region. Such a region should reflect economic reality and not political or administrative boundaries, including the boundary between England and Wales. The two communities of Wrexham and Deeside alone, despite the advocacy for Deeside from the noble Lord, Lord Jones, and for Wrexham from me, would not have the critical mass. But the sub-region which was rejected, including Chester, is very closely linked. It would give rise to a population of nearly 500,000. One has to wonder whether the existence of the Wales/England border was a factor in the group’s conclusion. After all—perish the thought—such a region would require input not just from Cardiff and the Assembly Government, but from Westminster itself.
In north-east Wales there are strong cross-border commuting inflows to Airbus, to which the noble Lord, Lord Jones, referred, and to the Flintshire and Wrexham industrial estates. There are outflows to major employers on the English side—Vauxhall at Ellesmere Port and to all the small businesses which depend upon it. Wrexham is a major retail centre. It also has large companies in its industrial estate and many SME businesses, which have thrived. When the collieries and the steelworks closed, the leatherworks departed and the brewery shut down, one felt that there would be nothing left. However, the investment into the area has been very constructive and positive. Deeside, with its enterprise zone, to which the noble Lord, Lord Jones, referred, is a very significant centre for manufacturing. Chester is important for services, tourism and retail. There are two excellent universities at Glyndwr and Chester. The former, Glyndwr, focuses on servicing the industries in the area: for example, precision optical glass at St Asaph. I am pleased to hear that the college at which I lectured on Deeside will be combined and form a greater group in that area as well.
Transport links are good. I agree that the electrification of the railways serving the Wrexham area—the Birkenhead to Wrexham line—should be carried out as soon as possible to connect with the electrified railway system in Liverpool. It is a recognised priority. If there is a need for building up investment in large projects, that is one that would bring a great deal of benefit to the area. The automotive industry creates 9,000 jobs at Vauxhall at Ellesmere Port and at Toyota on Deeside. It is another area of expertise which the two universities of Chester and Glyndwr do and should address.
We also have the problem with the border. The group recommended that the Welsh Government—and, I suggest, my noble friend—should look at the cross-border relationships that have developed and work between Danish Copenhagen on one side and the Swedish city of Malmo on the other. The two countries combine to produce an economic entity that is very effective. Aachen, Maastricht and Liège also co-operate in economic development. Three countries are involved there: Germany, the Netherlands and Belgium. We have a similarly great opportunity to bring regions together. The chief executive of Cheshire West told the group that a “sharper focus on the art of the possible” was needed because of the border between England and Wales. That put it very well. We should not regard the border as something that prevents constructive economic development of the region. In north-east Wales and in Chester we face competition from the city regions that are being developed both in Manchester and Liverpool. Something needs to be done—and done soon—involving both the United Kingdom and Welsh Assembly Governments.
Lord Aberdare
My Lords, I put my name down to speak in this debate—on the securing of which I add my congratulations to the noble Lord, Lord German—with some trepidation, as I would not lay claim to any particular expertise in economic matters. However, I was encouraged to do so by the second part of the Question, about ensuring that the Welsh and UK Governments work closely together in the interests of the Welsh—and presumably UK—people; and by the fact that I recently met the Vice-Chancellor of Swansea University, Professor Richard Davies, who told me about a project at the university that in my view provides a test case for such co-operation. I shall focus on this project in my remarks.
Other noble Lords described the challenges facing the Welsh economy better than I could. They include a paucity of large global businesses and of business investment into Wales. Partly as a result, there is no infrastructure of dynamic, innovative smaller companies to provide the supply chains for those larger businesses, sometimes by forming high-tech clusters around large research universities. Evidence shows that links with world-class research and teaching are a major factor driving investment by large knowledge-driven companies. The UK Government have introduced technology innovation centres—sometimes described as “catapult centres”—to bridge the gap between universities and industry; but there do not appear to be plans for such centres to be based at any of the Welsh universities.
The Welsh economy still has a greater emphasis on arts and media, as well as on the public sector, than on science and technology. It is not clear to me that Wales attracts as large a proportion of UK research funding as one might hope. These are major challenges, and both the Welsh and UK Governments need to be engaged in a co-operative way to provide a favourable and supportive environment in which they can be met.
Swansea’s planned science and innovation campus seems to me exactly the right kind of project to address the goals of both Governments. Swansea already has a strong reputation for research excellence, and a track record of collaborating with businesses large and small, local and international. It has recognised strengths in engineering education—mentioned as an important area by the noble Lord, Lord Jones—and has developed an innovative and well established co-location model that intermingles academia, students, industry and research on the same site, and even in the same buildings, so that the university acts as a live research arm for industry.
The new campus will extend this model, capitalising on the university’s interactions with major international knowledge-economy companies, including Airbus UK, Alliance Boots, BAE Systems, BP, Huawei Technologies—I hope I pronounced that appropriately— IBM, Rolls-Royce and Tata Steel. As well as student facilities and residences, it will include an innovation hub, the laboratory space and facilities of which will be available to local SMEs. The hub will act as a centre for partnership activities involving direct undergraduate and postgraduate interaction with industry, for example in a project with Rolls-Royce to test materials for the aerospace and aero-engine industries.
The university already has a number of such projects, including one with Tata Steel to develop new coatings on steel and glass that are capable of generating, storing and releasing energy, with the result that the buildings could in effect become power stations. Another example is Wales’s premier purpose-built medical research facility, in partnership with the Welsh Government, Abertawe Bro Morgannwg University Health Board, IBM and others.
The new campus will combine an outstanding experience for students, a high-quality skills pipeline for industry and shared resources and facilities for research and innovation. The development will take place on a 25-hectare site in Swansea Bay that was formerly owned by BP. The value of the first phase of the project amounts to some £250 million. Much of the funding is already in place, including a £60 million loan from the European Investment Bank, £30 million from the Welsh Government—£15 million of which comes from European funds—and substantial support from industrial and private partners, as well as almost £12 million from BIS to build an energy safety research institute on the new campus.
Over a 10-year period, all development is expected to bring an economic impact of more than £3 billion and the creation of some 4,000 direct jobs plus an even larger number of indirect jobs. The construction process itself will generate more than £400 million of economic activity, the great majority of it within Wales. This is likely to become the largest knowledge economy project in the UK and one of the top five in Europe. The CBI in Wales has described the project as,
“an exemplar of how universities should work with industry, to enable the development and commercialisation of world-leading research”.
Of course, it is also fully consistent with the model suggested by the noble Lord, Lord German, for promoting the involvement of Welsh universities in research and development partnerships.
I agree with the CBI assessment. This is an outstanding example of the right kind of project to tackle the challenges facing the Welsh economy. It will be a transformational project for Wales, helping to address the deficiency in science and technology research in Wales and to drive economic regeneration and create employment opportunities as well as the skills to fill them, not least for engineers. But it is also an extremely important project for the UK as a whole in terms of attracting global business and investment, developing technology and innovation skills and enhancing our competitiveness in the knowledge economy.
My concluding question is exactly that posed by the title of the debate: how are the Welsh and UK Governments working together to maximise the benefits of this project and others like it that have been mentioned by other noble Lords? Is the project getting the support that it needs from the UK research councils and the UK Technology Strategy Board? Should there be one or more Catapult centres in Wales to foster projects linking universities and business? Is the project known to and being promoted by UK Trade and Investment and by the UK's diplomatic missions abroad? Is it recognised and supported as a significant contribution to the Government's growth agenda?
It would be good to see Her Majesty's Government and the Welsh Government closely aligned and ensuring that this exciting project realises its full potential in both countries. I look forward to hearing what the Minister has to say in what I understand will be her first response to a debate such as this from the Front Bench.
Lord Carlile of Berriew
My Lords, it is a great pleasure to follow the noble Lord, Lord Aberdare. I agree with everything he said. He focused on Welsh universities, and I would like particularly to mention the work done by the University of Glamorgan. It is doing a remarkable job in converting the old skills of mature students into new skills for new industries. However, we are not seeing those new skills being put to work to best effect. I also congratulate my noble friend Lord German on obtaining this debate and on his lucid opening speech. I, too, look forward to the reply to the debate from my noble friend Lady Randerson, whose presence on the Front Bench and expertise about Wales adds to your Lordships' House. In both my noble friends Lord German and Lady Randerson we have two experts on Wales with great experience from the Welsh Assembly Government.
In your Lordships' House and, indeed, in the other place there is much knowledge and wisdom on the Welsh economy. I am not sure that it is always used to best effect in the formation of government policy. This includes my noble friend Lord Roberts of Conwy, who served as a Minister for many years and knows the interstices of Wales inside out. It includes the noble Lord, Lord Rowe-Beddoe, who was chairman of the Welsh Development Agency for a number of years, and it also includes the current Member of Parliament for my old constituency of Montgomeryshire, Glyn Davies, who served as chairman of the Development Board for Rural Wales for several years. It also includes the noble Lord, Lord Jones. I twice tried to unseat the noble Lord in what was then called East Flintshire. Even when my noble friend Lord Thomas of Gresford, as he now is, and I supported the suggestion that the Olympic Games should be brought to Wrexham, we failed dismally in our attempt to unseat the noble Lord, Lord Jones. It was a good idea for the day, while it lasted.
Lord Carlile of Berriew
I am grateful to the noble Lord.
We have heard in this debate so far about south Wales and north Wales and we are going to hear a little from me about mid-Wales, which should never be forgotten. I wish to remind your Lordships that industry, business and commerce in Wales are not merely about the M4 and A55 corridors. There is an enormous amount of Wales and a fine population in between.
Certainly in my time as Member of Parliament for Montgomeryshire, the Welsh Development Agency and the Development Board for Rural Wales provided much assistance to investment in Wales—especially the DBRW in rural Wales. Advanced factories were built and occupied. Perhaps they have had their time but they were a very good idea. Unfortunately, many of the businesses that occupied those factories and many of the businesses that took assistance from the WDA and the DBRW turned into small permanent businesses, not sizeable permanent businesses. As I see it, that is the failure of economic policy in Wales over the years. It has all been too small, too sporadic and too impermanent.
One major gap in Wales was eventually identified by John Redwood when he was Secretary of State for Wales. It is, I am sure, the only thing that I agree with him about or have ever agreed with him about—apart, possibly, from the idea that it was probably better if he did not try to sing the Welsh national anthem in Welsh. John Redwood identified—and my noble friend Lord Roberts of Conwy was a Minister at the time—the absence of a venture capital industry in Wales, and there remains no venture capital industry in Wales. Those of us who have had any dealings with sovereign wealth funds abroad or larger investment schemes know that Wales rarely features in the conversation because there is nothing specific about Wales as a place where venture capital can develop and be invested advantageously.
The banks in Wales are showing as much lack of imagination today as they showed five, 10, 15 or 20 years ago. They are fee-driven and risk-averse. I do not believe that the banks in Wales show the same attitude to new industry, particularly small and medium-sized enterprises, as they show in many parts of England. They are rarely proactive in presenting the availability of their funds to new industry in Wales. They should be following government policy and doing so but, unfortunately, they are not.
The venture capital industry has a great opportunity in Wales. Its biggest contribution would be the establishment of large new businesses, but in order for that to be achieved the Government need to introduce or establish something like venture capital champions who would be able to go out to the world outside and hunt down investment funds which are available both in the United Kingdom and abroad, thereby strengthening Wales as an investment point and making it one of the first places where companies should look if they have funds to invest.
For well over 10 years now I have been a non-executive director of one of the very few listed public companies in Wales, Wynnstay Group plc, which has operated successfully and steadily in a sector which remains unfashionable—the agriculture industry. We should not forget that there is a large agriculture industry in Wales. For every Rachel’s Organics there are potentially another 10 companies of a similar kind. In rural mid-Wales there are entrepreneurial farmers but, to be frank, there are not many of them, and few of those would claim to be entrepreneurial. However, given the encouragement of venture capitalists with imagination, we could build up a large dairy sector so that Wynnstay Group plc would be one of the smaller companies, not the biggest, in its sector in Wales.
I remind those who care to read this debate—it is very welcome to have a debate on Wales in your Lordships’ House without the inhibition of embarrassing the Assembly or embarrassing ourselves by trespassing on the Assembly—that there are many advantages to investment in Wales. It has a reliable workforce. In Wynnstay, the company to which I referred, the churn of employees, in statistical terms, is almost nil. Once a company is established in Wales, it becomes a family too. The noble Lord, Lord Jones, referred to the Shotton steelworks. I have friends in Wales whose families were in the Shotton steelworks for three generations, including the noble Lord, Lord Jones, and there may be families with a longer connection. We have a very reliable workforce with very little churn.
I think it is fair to say, without a cliche and without sounding sentimental, that people who go to work in Wales go there to work and, therefore, the productivity of Welsh industry is high and the workforce loyal. The typology of a Welsh company is stability. I cannot think of an investor who, when he or she decides to invest in building a new factory somewhere, is not looking first for stability, which we offer. That is not said often enough on our behalf. I support the Question in this debate, which urges the Welsh Assembly Government and the United Kingdom Government to go out and look for work in Wales on the basis of its undoubted virtues.
Lord Wigley
My Lords, I am very grateful to speak for a couple of minutes in the gap. I welcome this debate and I underlined a very dire need to get the Welsh economy moving. I welcome the fact that so many noble Lords who have spoken have referred to the importance of the manufacturing industry. Speaking as one who has spent his life in the manufacturing industry before entering this Chamber, I can say that what has happened to manufacturing, not only in Wales, but throughout these islands, is a tragedy. That needs to be reversed if our economy is to come right.
When I started working in politics in the 1960s, Professor Edward Nevin had shown, in his seminal work, that the GDP per capita in Wales was at that time 92% of the UK average. As has been said, it is now down to under 74%. Most of that drop occurred in the 1980s and 1990s. We now desperately need a capital investment programme to trigger economic regeneration. That cannot be done by the Welsh Government alone because they do not have either the powers or an adequate capital budget, having suffered a 40% cutback as a result of the Westminster cutbacks. It may well be that the Silk commission will bring forward proposals for stronger financial powers for the National Assembly when it reports in two weeks’ time. I hope that the UK Government will respond positively to any proposals that emanate from Silk and will flesh out last week's limited announcement on the borrowing powers of the Assembly once the Silk report has been published.
Wales needs a Government that is much more geared to achieving economic success and we need a system whereby the Government of Wales benefit from the economic success that they achieve by their own actions. I hope that the UK Government will also give wholehearted support for capital projects, such as the Severn barrage scheme, which will bring private sector investment into a project that could be of tremendous help to the Welsh economy. Likewise, I hope that early progress can be made with the Wylfa B scheme now that a commercial investor is showing some interest in it.
Finally, I welcome the recent statement by the Secretary of State for Wales, Mr David Jones, on the possible electrification of the railway line from Holyhead to Crewe. That would be very beneficial and would tie in with the electrification that has been mentioned by noble Lords in the debate. I congratulate the noble Baroness, Lady Randerson, on her appointment to the Wales Office. In response to the debate, I hope that she will be able to confirm that the Wales Office will be working very closely indeed with Transport Ministers get this important project off the ground.
Baroness Gale
My Lords, I add my congratulations to the noble Baroness, Lady Randerson, on her promotion to the Wales Office and on becoming a Wales Office Minister. I share in the warm welcome that has been extended to her tonight. I know that her experience as a Minister in the Welsh Assembly will stand her in good stead in her work in the Wales Office. I look forward to working with her. I also congratulate the noble Lord, Lord German, on securing this debate tonight and thank all noble Lords who have contributed. I detected a note of optimism in all the speeches about where Wales can go if we are all determined to work together.
This is a timely debate with the Silk commission due to report on part one of its remit very shortly. Ahead of this, as noble Lords will know, the UK and Welsh Governments have reached a significant agreement on funding reform. The agreement acknowledges that convergence has led to Wales being underfunded in the past and has the potential to do so again in the future. We welcome this admission from the Treasury and will be holding it to account on this point. We also welcome the Treasury’s support for extending borrowing powers in Wales—rightly dependent on an income stream—as a way to shape the Welsh economy, which they have the ability to do.
The debate is timely too because of the better-than-expected employment and growth figures over the last quarter. We welcome those figures but they are still nowhere good enough yet. On the number one challenge facing the Welsh economy—how to secure jobs and growth—the two Governments are not working well together. That is because the policies of the United Kingdom Government are falling short on the real needs for the Welsh economy. The Welsh Government are doing all they can with the levers at their disposal but what Wales really needs to tackle the challenges facing its economy is for the Government at Westminster to change course from their so-called plan A.
That is the message that I hope the Minister will be able to take back with her from this debate, because the Government’s austerity programme is not working for Wales. A 1% injection of growth over the past three months, which was boosted by the Olympics, does not change the fact that the Government’s economic policies have greatly underachieved. Two years ago, the Chancellor said his plan would assume growth at 4.6% by this time. In reality, the UK economy has grown by just 0.6% and we are only now emerging from the deepest double-dip recession in over half a century.
On getting jobs and growth into the economy, we need the United Kingdom Government to implement a plan that works for Wales and follow the example set by Welsh Labour Ministers in Cardiff. Despite the real terms cut of 42% to their capital grant, the Welsh Government have put forward a budget for jobs and growth. On tackling youth unemployment, for example, the Welsh Government introduced jobs growth Wales in April this year, which will create 12,000 job opportunities over the next three years. In contrast, of course, one of the first things the UK Government did when they came into office was to scrap the future jobs fund. That was a risible and completely counterproductive decision, especially with long-term youth unemployment in Wales having quadrupled over the last year.
Another way the Welsh Government are doing what they can to boost jobs and growth is by reaching out to business through city regions, through growth funds, and by investing in Wales’ infrastructure with a £15 billion investment plan over the next decade. As far as we are concerned, the Welsh Government are doing their fair share, but unfortunately Wales is being let down by the coalition Government in Westminster pursuing counterproductive policies.
I will put three questions to the Minister. First, on the scale of public sector cuts, what assurance can the Minister give that forecasted 700,000 public sector job losses in the UK will not fall disproportionately on Wales? Secondly, the Government’s regional pay proposals would be disastrous for Wales. Does the Minister share the views of the Liberal Democrat leader in Wales, Kirsty Williams, who said recently that regional pay would exacerbate a “brain drain” in Wales and create the impression that to “get on”, you first had to “get out” of Wales? Thirdly, does she agree that the increase in VAT—which, before the election, the Deputy Prime Minister Nick Clegg estimated would cost people £389 a year—has hindered the Welsh economy?
Public sector job losses, regional pay and VAT are three policies that will hit Wales hard and are indicative, we believe, of the Government’s divide-and-rule approach to politics. Labour has put forward an alternative “One Nation” plan to get growth into our economy. We are calling for a jobs plan to boost the economy, including using funds from the 4G mobile spectrum auction to build 100,000 affordable homes in the UK. We believe that the Prime Minister and the Chancellor need to change course and follow Labour’s alternative plan as well as the example set by the Welsh Labour Ministers in Cardiff Bay. We believe that that will be the best way for the two Governments to work together to tackle the real challenges facing the Welsh economy, and the best way to get jobs and growth into the Welsh economy, which we all know is what is needed. I look forward to the Minister’s reply.
The Parliamentary Under-Secretary of State, Wales Office (Baroness Randerson)
My Lords, I first thank the noble Lord, Lord German, for securing this debate to discuss the economy of Wales. It is a hugely important subject and clearly close to the hearts of many noble Lords here today. It is an honour for me to be standing here for the first time as the Wales Office Minister answering this debate.
We have had a large number of really good ideas put forward today and some very valuable contributions from noble Lords. Although we might not always agree on the solutions, I hope that we all share a common objective: to revitalise the Welsh economy. Clearly this is not just a job for the Welsh Government. The Welsh Government need to work hand in hand with the UK Government. We also need to work closely with the private sector and with all stakeholders in delivering our vision for the Welsh economy. The noble Lord, Lord German, illustrated the sometimes confusing split of powers and economic levers. We have to work with them and ensure that they work effectively.
However, our hopes and aspirations need to be founded in reality, and the noble Lord, Lord German, outlined the challenges that Wales faces. We must recognise that the UK economy as a whole is dealing with some very deep-rooted problems. The global financial crisis in 2008 exposed an unstable and unbalanced economic growth model, based on increasing levels of public and private sector debt: an unbalanced model, overreliant on the financial sector and on the economy of the south-east of England. Since then, the UK economy has of course been hit by a series of further shocks, including the eurozone crisis. Returning the UK to strong, sustainable, balanced growth is the top priority for the UK Government.
We had welcome news last week of course, with confirmation that the UK economy is officially out of recession. We had particularly welcome news in Wales. The noble Lord, Lord Roberts, drew attention to the recent statistics on the state of the economy in Wales. Employment statistics tell a great story for Wales in the last quarter: 40,000 more people in work, 7,000 fewer people unemployed and 32,000 fewer people economically inactive. I disagree with the noble Baroness when she says that the Government’s economic policies are not working for Wales.
I am pleased to be able to say that the increase in the employment rate in Wales over the past quarter was the largest of all the devolved countries and English regions and well above the increase seen across the UK as a whole. The figures may have been stimulated by the Olympics; I can assure noble Lords that Wales did not benefit disproportionately from the Olympics but still did very well indeed in these figures. However, there is no room for complacency, and no one is more alive than I to the challenges that we continue to face in Wales.
The Government are investing in Wales, illustrated by our commitment to electrify the south Wales main and valleys lines, which several noble Lords referred to. Wales is expected to benefit directly and indirectly from almost £2 billion from the programme to modernise the rail network. I can assure the noble Lord, Lord Jones, that we have repeatedly indicated our desire to look at infrastructure improvements in north Wales and we are committed to working with the Welsh Government and the local community in considering the business case for electrifying the north Wales line. The noble Lord, Lord Thomas of Gresford, drew attention to the number of regular commuters in this area and hence the need for this improvement.
We have made considerable investment in broadband infrastructure. The Government have provided the Welsh Government with almost £57 million to help bring broadband to everyone and super-fast speeds to 90% of homes and businesses in Wales. In July, the Welsh Government announced that they had matched our investment and had awarded the contract, which is worth £425 million and also includes European structural funds.
Several noble Lords referred to the importance of enterprise zones, and we wish to see these flourish in Wales. By granting enhanced capital allowances to the Deeside enterprise zone, we have demonstrated that we can work very closely with the Welsh Government to ensure that that zone is a success. But we need to find ways to further accelerate major infrastructure investment, and I hope that we will see Welsh projects benefit from the £50 billion UK guarantees scheme that we have introduced. The noble Lord, Lord Carlile, drew attention to the need for venture capital funding, which will also need to be stimulated in some cases by those government guarantees.
I welcome the recent agreement reached in principle that the Welsh Government should have access to capital borrowing powers, which was also welcomed by the noble Baroness, Lady Gale. Those borrowing powers are necessary in order to finance infrastructure, and there are ongoing discussions with the Welsh Government on infrastructure improvements along the M4 in Wales. We look forward to considering the report from the Silk commission, due to be launched on 19 November, which has assessed the case for borrowing and taxation powers. I agree with the noble Lord, Lord German, that increased fiscal responsibility is important for the development of devolution.
I recently had a very productive meeting with Edwina Hart, the Welsh Government’s Minister for Business, Enterprise, Technology and Science, in which we discussed how the two Governments can work together to ensure that enterprise zones work properly for Wales, and I welcome the news that the Welsh Government will soon be announcing proposals for more enterprise zone sites, which could benefit from enhanced capital allowances. The noble Lord, Lord Thomas, gave us international examples of economic co-operation. If it can be done on an international basis, it can be done within the UK.
Edwina Hart and I also discussed how our two Governments can work together in response to the report on city regions by Dr Elizabeth Haywood, which highlighted the need for the Welsh and UK Governments to work together to strengthen the Mersey Dee Alliance to deliver growth and jobs for north-east Wales. That report was referred to in detail by the noble Lord, Lord Thomas. There are important cross-border opportunities that we are committed to take forward with the Welsh Government.
In addition to the challenges that we face to improve infrastructure, it is vital that we do all that we can to enhance the skills of the workforce in Wales. Improving skills will not only support indigenous business but help Wales to attract more inward investment. It is excellent, as the noble Lord, Lord Jones, said, that Airbus and Tata Steel, for example, continue to operate effectively in Wales and to run apprenticeship schemes that are examples of best practice. I know that the Welsh Government have a number of such schemes running to support young people into work across Wales.
Of course, many aspects of skills policy are devolved to the Welsh Government, but that does not mean that there are not opportunities for the Governments to work together in this important area. Wales’s higher education institutions have a world-class track record. I am very pleased that the noble Lord, Lord Aberdare, chose to highlight the importance of the higher education research contract recently won by Swansea University. We can celebrate that it will team up with BP to create an Energy Safety Research Institute which is worth £38 million in partnership.
There is clearly still more to do if we are to improve the economy in Wales, and tonight’s debate has raised some interesting and important points. In my last couple of minutes, I will try to answer some of the points that noble Lords have raised. The noble Lord, Lord German, emphasised the need for new thinking to spread prosperity across Wales. Within the Wales Office, we will need to give careful consideration to his proposals for joint working; he had some very interesting ideas. The noble Lords, Lord Roberts of Conwy and Lord Jones, referred to the abolition of the WDA, which has undoubtedly had an adverse impact. Sadly, the figures say it all on that. However, both the Wales Office and the Welsh Government are working hard with UKTI to market Wales abroad. The two organisations are having success and we hope to continue that and redouble our efforts.
The noble Lord, Lord Jones, referred to the Secretary of State and the First Minister being in close contact. I am aware that they are, but I cannot answer the question about which language they speak in their meetings. I am very grateful for the intervention of the noble Lord, Lord Wigley, who brings a different perspective to our debate.
Finally, the noble Lord, Lord Carlile of Berriew, talked about the lack of venture capital in Wales. I am pleased to be able to tell noble Lords that Welsh businesses are benefiting from the enterprise finance guarantee. So far, 784 loans have been offered in Wales with a total value of nearly £72 million. I also welcome the announcement that Finance Wales recently made its first investment from the new £40 million Wales SME investment fund.
I hope that noble Lords will bear with me. When I read Hansard tomorrow, I will write to anyone whose questions I have not had time to answer here today.