Can any political party turn around the Welsh economy?
Jonathan Edwards
Way back at the start of devolution, the first National Assembly had an economic target of raising Welsh Gross Value Added (GVA) to 90% of the UK average.
There was such a definitive focus on economic rebuilding because creating a political structure to help improve Welsh economic performance after the ravages caused by Thatcherite deindustrialisation was central to the argument developed to win the devolution referendum of 1997.
While there are a host of statistical ways of measuring economic performance, and I will leave the economists and academic social scientists to bash it out amongst themselves, GVA is a key productivity metric and gives us an idea how different geographic areas are performing.
In other words it’s safe to assume if GVA is comparatively low then the geographical area in question faces significant economic challenges.
At the time of the creation of the National Assembly, Welsh GVA was 72.4% of the UK average. Today, after a quarter of a century of devolved governance, the latest figures I can find from 2022 published by the Welsh Government notes Welsh GVA as 72.1% of the UK average.
Not only has performance remained stagnant at best, Wales finds itself at the very bottom but one of all UK countries and regions.
During the last 27 years the Welsh Government has assumed more powers over the economy, yet it remains true that the main economic levers remain under Westminster control.
However, the failure to make a dent in the GVA deficit between Wales and the UK average indicates that devolution hasn’t delivered on its founding promise to the people of Wales. The GVA target was quickly dropped in Cardiff Bay.
I very much agreed with Rhun ap Iorwerth when he stated in a speech at Cardiff University in 2024 that his first economic policy proposal was to reintroduce an ambitious target to close the GVA gap. While targets themselves are abstract, their purpose is to give a clear direction to the work of government and help measure the success or not of policy.
They indicate a seriousness to get to grips with Welsh economic decline, without which there is no real possibility of dealing with the major social problems we face as a country, be it poverty or ill health.
The party’s manifesto writers, perhaps mindful that they will soon be holding the Welsh Government reins, have quietly dropped any mention of closing the geographical gap with the rest of the UK.
A new Fiscal and Economic Commission will be set up to help compose internal Wales targets and measure success but gone is the specific aim of improving Welsh performance compared to the rest of the UK.
Specific targets
Similarly, none of the other parties commit to a specific target to improve Welsh GVA comparatively to the UK average. All the main protagonists have interesting ideas and there is much symmetry between the parties. Regrettably it is difficult to say with confidence that anyone contesting the election has the imagination to overturn the economic fortunes of our country.
Glaringly missing from all manifestos is a clear vision of how Wales needs to position itself for the Artificial Intelligence economic revolution that is currently accelerating at speed.
Wales will either find itself at the head of the curve or trailing in its wake, and it is the responsibility of those who seek to lead us to make sure that the people of our country are ready for the transformative changes ahead.
On a side note, readers may be interested to learn that in Albania, Prime Minister Edi Rama last year appointed a Cabinet Minister made up from the work of AI named Diella. Diella has been tasked with the issuing of public procurement contracts to make sure they are 100% free from corruption.
The key point being that AI is about to wipe out a whole range of knowledge-based jobs and logistical/manual jobs down the line as robotic abilities improve. When the political parties emphasise skills and education, what exactly is the economy we are preparing our young people for?
Considering the implications for public revenue generation, the next Welsh Government is going to have to think very quickly about how an AI based economy will impact on taxation.
Data centres
Does the Welsh Government for instance use the abundance of electricity generation capacity in Wales to secure investment for data centres and other AI infrastructure and then find a way of taxing the assets directly?
If this is the plan, how will the planning system support development and will our elected members have the backbone to withstand the NIMBYism that dominates political discourse in our country.
Political parties obviously want to try and fight elections on their chosen ground; it is understandable that they don’t want to venture onto terrain that they probably don’t understand.
However, these big changes are fast advancing. If the next Welsh Government doesn’t get its policy right, there will be little hope of advancing from the bottom of the UK economic performance table.
Jonathan Edwards was the MP for Carmarthen East & Dinefwr 2010-24
Support our Nation today
For the price of a cup of coffee a month you can help us create an independent, not-for-profit, national news service for the people of Wales, by the people of Wales.
The short answer is “No”. Politicians seriously overestimate the influence they have on a global economy – even those with real fiscal powers. And, as with so many other areas, they lack the courage to do what might make a difference anyhow.
By some estimates responsibility for the Welsh economy is split 80/20 between Westminster and Cardiff Bay and the original promises wrongly assumed a good faith partner controlling the 80%.
But it’s not fair to say nothing has improved under devolution because Wales has handed the wooden spoon to North East England in 2018 which now lies at the bottom of the GDP per capita table.
This small but significant improvement should be acknowledged to recognise that growth is possible within that 20% even when the odds are stacked against it by the devolution settlement and bad faith partners.
it’s a devolved responsibility; it’s shirking responsbility to say anything different.It’s quite a unionist argument – some tories opposed devolution for this very reason. They get blamed for WG ineptness.
And the NE has always been largely bottom of the table – has been since 1990. Occasional changes, but on average it’s the poorest region.
If it’s all devolved as you say why didn’t the Welsh Gov knock a few percent off corporation tax for companies based here. That would’ve transformed the economy just as it turned Ireland into the second richest country in the world.
I agree with both of you. Economic development is devolved pretty much in name only; but the truth is that Labour has no interest in business. Eluned Morgan admitted as much with reference to Drakeford.
Both positions can be true. It’s not possible to create an Irish success story with the current powers, but it’s still possible to do much more.
The recent investment summit was excellent example that left many asking why haven’t we done this before. Let’s hope that becomes an annual event.
Not sure about investment “summits”. They pander to politicians who like glitzy projects which often over promise and under deliver. The inward investment ship largely sailed 25 years ago (in the direction of Eastern Europe and Asia). I would much prefer an incoming Plaid government to concentrate on small to medium sized businesses who account for about two thirds of employment in Wales. That’s what WDA 2.0 needs to do, particularly in the Valleys and rural areas.
Both. It’s not a choice. Home grown enterprises are important, especially scaling small success stories into global success stories, but so is investment.
And one aspect of the old WDA need to be resurrected and that is the ability to establish businesses and get them going before passing them on to other operators. As far as i am aware, the old WDA never availed themsleves of those powers, but Cymru has certainly been very short on R&D, something that should be addressed by WDA 2.0 and the university sector along with existing SMEs. Nor should the state sector be ignored – there is nothing fundamentally wrong with the state running businesses, and the old chestnut about state run business is largely rubbish –… Read more »
On corporation tax, the idea that you could be part of many trade agreements and unilaterally cut corporation tax is for the birds. Almost all trade agreements have subsidy control and ‘fair competition rules’.
But remember this has limited use nowadays as companies already profit shift, implement group structures, place IP in low tax locations.
It was great for ireland in 1980s, but times have moved on.
So in summary, if that was devolved, it’ll be pretty useless or low level that it wouldn’t change much.
It’s not just about profit shifting. It’s about choosing where to start a business. The ship that’s sailed is being the gateway to the EU.
Couldn’t hurt to have the same corporate tax powers already provisionally granted to Northern Ireland. With Dublin on the doorstep it’s just as important to Wales as Northern Ireland.
The tax system in Estonia has shown your comment to be not the case. Devolved corporation tax can, as it has shown, can be used in different ways. Cuts in corporation tax can lead to a race to the bottom, but Estonia taxes not profits as our tax system does, but distributed profits, eg dividends. Retained profits are tax exempt, leading to inward investment, investments in technologies and company expansion. It also leads to workers skills training. Estonia has found that due to to company expansions and the attraction of new business, tax revenues have increased. Estonia is recognised as… Read more »
Estonia works because much of economy is export focused, high tech, small-medium companies. They have highly skilled tech sector. We have much smaller private sector, lower tech, lower productivity companies- and crucially fewer home grown firms. Therefore exempting profit doesn’t mean it will be reinvested. In fact, msot welsh companies will almost certainly hold on to those savings without expanding, thus actually erroding the tax base. Have a think about what the local welsh economy looks like to you. In flintshire, it is large foreign companies and smaller companies like cafes. Changing the tax system is also a risk. Estonia… Read more »
Retaining profits has as much incentive to grow the company in Wales as it does in Estonia. The same incentive to use those profits for improving the skill and increasing technology. Even more so with the large companies you elude to. The problem with Welsh business is as the Americans put it, they don’t scale up. This is one incentive to do so. Estonia has a lot of cafes too. Changing the tax system is not a risk, but essential for Wales to succeed, the UK system, which Wales mirrors, is a mess as any accountant will tell you. It… Read more »
“Estonia works because much of economy is export focused, high tech, small-medium companies”
Was this true before they changed their tax system or did changing the tax system help them create this economy?
If it’s the latter it’s an odd self-defeating argument to make, that Wales shouldn’t change the tax system to create a better economy until it has a better economy.
Wales has good growth potential, if managed correctly. Universities network and will sort out their size / funding in next 5-10 years. Lots of small companies such as bedigital / Fleet EV are growing in Wales and into England. Celtico should grow and complement other small Welsh based engineering organisations to capitalize on net zero / renewables Cardiff Capital Region seems a strong network and Cardiff can grow thanks to better train links from Welsh Valleys that enables a greater pool of resources. The worst performing organisation is NFU Cymru. They should never have allowed onhttps://www.bbc.co.uk/news/articles/cwy82lk40wpo to have happened and… Read more »
You pretty well answered your own question, when you pointed to the lack of GVA growth, although it GVA, or its big brother GDP, is a poor measure. It is crude and indiscriminate. However as you said, it is the popular measure and by its measure Wales is not making progress, nor under the present constitutional arrangement will it. This is also the opinion of the Silk Commission on Devolution and also Ron Davies one of the architects. It cannot grow its wealth. A different approach can make a difference. The present situation is in a large part the result… Read more »
A tough thing to do while westminster still controls most of our tools to become successful.
Another article worrying about the spectre of AI when it’s far from certain that AI actually works.Granted, at the moment the ‘promise’ of AI is cutting jobs, but I believe that the world will relatively soon discover that cutting those jobs and condemning thousands of workers to penury will prove to be a premature move. AI has it’s uses but it cannot do people’s jobs, and it makes horrendous mistakes… At present AI is just another ploy by employers to cut staff and amass profits AI does have a role, but rather like Google Translate (itself a form of AI)… Read more »
Best discussion about the real Wales for a long time. Frustrating not to be able to read the ‘Read More’ bits, or is that just me? So much of the ‘discussion’ about what’s best for Wales is hot air. We need to talk more about the hard subjects like the economy. And face the hard comparisons – with small countries who are not only independent but also dynamic and to be congratulated. Estonia – based on so much talent eg Skype and Transferwise. Israel – threw off a Wales/East Germany-style economy, most of GDP being governmental, and has amazing strength,… Read more »
Good to read that someone is thinking about the impact of AI. However, my main argument with this interesting take by Jonathan Edwards, is that it is people, not politicians (or their parties), who really make the economic weather – at best, a government (ie. a bunch of politicians) can provide a societal framework (boundaries) within which an economy can (should) work. Wales has had inumerable well-meaning governmental schemes over the decades all of which seem, depressingly, to have had little or no impact on the overall economy (of course, BREXIT hasn’t helped). So, basically, what does this mean? Does… Read more »
The problem is the UK’s economic level playing field that without mechanisms to correct it inevitably creates one super wealthy economic centre that attracts new business, investment and ambitious people keen to be where the most money is, because to not set up, invest or take a job in the wealthiest part of the economy means not being as successful as you could be.
Well yes, Charlie. I’m sure you’re right. But this is an argument about the relevance of politicians in the ‘real’ economy. The contention is that they are a minor player in the success or otherwise of an economy. I keep thinking about how an area in N.Carolina was transformed, over about 20 years, from deep rural poverty stricken swamp land populated by snakes and vicious insects to a scientific and tech hotspot (known as Research Triangle Park RTP) with a GVA (whatever that is) surpassing the entire economic output of Cymru almost x3. How was this achieved? It wasn’t through… Read more »
Ask yourself this. Would North Carolina have attracted that investment if the US has a level playing field so they couldn’t set their own rules and taxes. Or would that investment have ended up in the US capital. And on AI I agree the data centres won’t bring much direct benefit but like your NC example they could seed development in otherwise dead areas if the local councils use the revenues to expand local infrastructure to support other tenants. These businesses won’t serve the data centre as such they’ll just be happy setting up in a smart new tech park… Read more »
The US is the most successful economy in human history. It achieved that success precisely because it was 50 separate jurisdictions competing with each other. Had everything been run from Washington for the ease and convenience of their civil servants they’d be an economic backwater today. The UK’s level playing field is the problem not the solution. Regions and nations need to be able to differentiate to attract, retain and develop their economies that would combine to make UK plc far richer than today. Those that fear a race to the bottom need to look at corporation tax in Switzerland… Read more »
Yes, politician’s are law makers (laws that frame an economic climate) – but I have always believed that they have little or no ‘influence’ on the actual ‘economy’. As a business, my investment decisions of where to set up, who to employ or with whom to trade are only marginally affected by what politicians do or say and that is as it should be given the poor quality of the people currently ‘in politics’. It is demand in the market that dictates. As to their ‘big budgets’ this money, in Cymru, mostly goes on social support (NHS etc) and a… Read more »
There’s no economy without a rule book and lawmakers (politicians) write the rulebook. Of course there are good rules and bad rules but only the most powerful (originally aristocracy and monarchy but increasingly corporates and billionaires) who can use their might to force their will on others argue for no rulebook. It’s these same folks who fear democracy. To stop ordinary people from writing a fairer rulebook they undermine democracy by convincing us that our representatives are powerless and corrupt. If we hate them all we can’t tell the difference between those trying to improve things from those milking the… Read more »
Compare the economy to a football tournament. It’s true that there would be no football without talented individuals kicking balls about. But it’s also true that there could be no professional football without a football association organising it all, making sure there’s an actual pitch to play on, paying fans turning up, a rulebook everyone follows and referees to enforce them. A legitimate debate on offside rules and VAR would never see people arguing that football would be better if the whole rulebook were ripped up so teams could field as many players as they could afford so it’s baffling… Read more »
I have a home in RTP North Carolina, so I’ll throw in 2 pennyworth. NC is a model for Wales, has many Welsh influences and was not poverty stricken etc. You’re thinking of somewhere Deeper South, though NC has the pocosin and the usual snakes. It rejected the slave plantations of S.Carolina and was more artisanal: fishing, agri, wood (naval supplies and furniture). Yes it got tobacco + slaves, but didn’t dominate. Was nominally Confederate but in fact divided. The Union ran the Blockade from Beaufort NC. Needed a boost by 1950s and got RTP with IBM. NC is a… Read more »
Thanks for your interesting intervention. I lived and worked in Chapel Hill for several years which is, as you say, not ‘poverty stricken’ by any measure. Many parts of NC were though (maybe still are?) at the time of RTP’s founding. It’s a fantastic US State to live in – one of the best.
There is indeed a great deal of Welsh history and influence in NC. I wish we would learn from them. I don’t imagine any current politician in the Senedd has ever been there. At the very least, there should be regular trade missions.
Yes, politicians in Wales face constitutional limitations, but this is not the whole story. The WG/Senedd inherited the role of a spending authority from the Welsh Office with nearly half that spending going on the NHS. That inevitably impacts the perceptions and priorities of elected politicians and the bureaucracy; just as the financial service sector does for Westminster. Although there are many small, innovative businesses in Wales, their existence is not as visible or seen to contribute to local economies in the way the mining, quarrying and metallurgical industries did. Because of their low profile, there may be little political reward… Read more »