Financial powers are over-centralised in the UK and should be further devolved to a local level within Wales, according to a new report by the OECD.
The report says that “actual devolution at the UK subnational level remains low” compared to other EU countries with less regional inequality.
The report says that decentralising both spending and revenue-raising power is “strongly associated with GDP growth”.
“Otherwise, there is a risk of exacerbating territorial inequalities, including in the accessibility, type, diversity and quality of services that subnational authorities are able to provide, as well as in investment capacity,” the report says.
“In general, decentralisation in the UK is low compared to other OECD countries when measured by subnational government contributions to GDP and total tax revenue.”
The report unfavourably compares the lack of financial powers held by the Welsh Government to those of the Brussels-Capital Region, Flanders and Wallonia in Belgium.
“This latest reform transferred additional responsibilities to regions in several areas and significantly increased regional own-source tax resources in order to reduce the vertical fiscal gap,” the report says.
The report also says that Wales is facing and needs to invest in transport networks, research and development (R&D) and innovation, and the skills of the Welsh workforce to boost productivity in Wales.
“High-performing transport networks, including green transport networks, improve accessibility within functional urban areas (FUAs), which contributes to well-being and productivity,” the report says.
“In Wales, the metropolitan area of Cardiff demonstrates very low performance in both public transport efficiency and labour productivity, relative to other European metropolitan areas.
“Conversely, metropolitan areas with high public transport performance (e.g. Helsinki, London and Oslo) display among the highest levels of labour productivity.
“Inter-regional transport networks can also boost productivity in some rural remote areas by increasing proximity to the benefits of metropolitan areas.
“Additionally, high-performing transport infrastructure can facilitate integrating rural areas into regional or global value chains, helping unlock the potential of rural remote areas (e.g. Carmarthenshire or Powys) and contribute to better regional economic and social cohesion in Wales.”
Lamia Kamal-Chaoui, Director of the OECD Centre for Entrepreneurship, SMEs, Regions and Cities said there was potential in Wales to reverse trends of low labour productivity.
“Special attention to investment that increases the skills of the Welsh labour force and addressees youth unemployment, improves access to internet connectivity and generates high-performing transport networks, and advances R&D and innovation by small, medium and large enterprises alike could all contribute to successful growth and well-being in Wales,” she said.
“We would like to thank all of the Welsh organisations that have contributed to this work and provided valuable insight over the last 18 months.”
The Welsh Government said that the report provided evidence to support the Welsh Government’s approach to regional economic development in Wales.
“I am delighted the OECD has supported this work,” Minister for Economy and Transport Ken Skates said.
“Our overall aim for regionalism and a place-based approach is for decisions to be made at the point most valuable to the people of Wales.
“This approach is very much built through partnerships with the public, private, and third sectors as well as local communities.
“The changes we have outlined through the Economic Action Plan to boost regional economies across Wales are profound, as is our ambition for stronger regional partnership working in Wales to boost inclusive and sustainable growth.
“There is no-one better to help us deliver this than the OECD and I thank them for their work.”
Counsel General and Minister for European Transition Jeremy Miles said it was clear that they would need to continue to invest to address existing, and new, economic challenges Wales faced.
“We are not looking to simply replicate the EU model in Wales – we are committed to creating a new, made-in-Wales approach that reflects international best practice, builds on our distinctive legislative landscape, and delivers for all of our businesses, communities and people,” he said.
“This partnership with the OECD will help strengthen our approach and give confidence to our partners that new and dynamic partnerships can be formed to innovate and share policies in fresh and imaginative ways.”