Getting the facts on grants

As an academic studying economic development in Wales, one my regular highlights was analysing the papers of the Assembly’s Economic Development Committee.

This was because you could access vital government information that couldn’t be obtained elsewhere, including assessments of WAG’s different support programmes, quarterly economic analyses, reports from Ministers on the state of the economy and a wealth of other material.

In particular, I was always fascinated to see the regular report from the Minister on the number and distribution of Regional Selective Assistance and Assembly Investment Grant offers made every year as this gave a clear indication of how WAG’s main policy instrument was being sued to support the Welsh economy.

Unfortunately, since the establishment of the third Assembly, Ministers no longer turn up to regularly inform members on what happening within their portfolios and, more importantly, to be held accountable for their actions.

Worst of all, very little information seems to be provided, certainly within the new Enterprise and Learning Committee, on the state of the economy. Indeed, the last time any information was given on WAG’s main grant giving programme was May 2006.

Fortunately, you can still get access to the information if you ask nicely and last week, figures were released by the Welsh Assembly Government which analysed the grants awarded to business for 2002-2009.

During this period, the main form of support given by the Welsh Assembly Government since its creation a decade ago has been Regional Selective Assistance (RSA). This was a discretionary grant that was available to manufacturing and service sector firms within certain parts of Wales and had to be spent on capital expenditure (such as property, plant or machinery) and/or the creation and safeguarding of jobs.

Most importantly of all, the companies had to demonstrate that such grant assistance was necessary to enable the project to proceed.

As always, the statistics regarding RSA grants cast real illumination on the approach being undertaken by Welsh politicians and policymakers in supporting businesses.

During the period 2002-2009, £552 million of regional selective assistance (RSA) grants were awarded to 889 companies in Wales. This funding created over 38,000 jobs and safeguarded another 15,398 employees at a cost per job of around £10,000. Of this total amount of grant support, two thirds of the value of grant awarded went to manufacturing companies, which is not surprising given the higher than average dependency on this sector by the Welsh economy.

The statistics also demonstrate the focus, during this period, on inward investment projects as a key part of the strategy for the economic regeneration of Wales, with 56 per cent (or £311 million) going to support non-Welsh based companies. The average grant per job was lower for Welsh firms (£8,160) as compared to overseas owned companies (£11,502) coming into the country.

Controversially, the data shows that £291 million was awarded to 200 large firms across Wales as compared to £220 million to SMEs (small to medium-sized enterprises). This will disappoint many Welsh entrepreneurs who have had to listen to the usual rhetoric from politicians that small firms are the backbone of the economy.

Of course, the case could be made that larger firms are more efficient at using the grant, although an independent report from the London School of Economics and commissioned by WAG showed that actually RSA was far more effective within smaller firms, which begs the question why these grants have been focused on supporting bigger companies?

Finally, there is an analysis of the degree of RSA expenditure by geographical region which, not surprisingly, shows that certain parts of Wales have done better than others. For example, whilst North Wales makes up approximately 21 per cent of the Welsh business population, the region only received 14 per cent of the total amount of RSA grants awarded. This means that North Wales firms have essentially lost out on around £35 million of support during the last eight years.

It is also worth noting that companies in the Central and Gwent Valleys in South Wales have received 30 per cent of the total amount of RSA grant aid despite the area collectively having less than 13 per cent of the Welsh business population.

Despite over £168 million of grant aid being awarded to firms in these two valley regions, the local economy has, according to the latest statistics, only been growing at 75 per cent of the Welsh rate. Certainly, this begs some serious questions as to whether business grants do actually make any significant economic difference to local economies, especially within more deprived areas of Wales.

Given the importance of such data, perhaps the third Assembly Government will, as its predecessors did, be willing to make such information regularly available to Assembly members to ensure that, at the very least, they can be fully informed as to the way that the economic development function of this country is operating and, more importantly, the effect it is having on our communities.

A road too far?

On Wednesday, the Deputy First Minister announced the National Transport Strategy for Wales with the main headline being the cancellation of the M4 relief road, a project with an estimated pricetag of £1 billion.

With the inevitability of significant reductions in the amount of funding coming from the Treasury to Wales during the next few years, this was a relatively easy decision for the Assembly Government to make in order to focus dwindling resources on other areas.

The main question, of course, is whether it was the right decision for a Welsh economy which remains firmly rooted at the bottom of the UK’s prosperity league table and needs every advantage it can get.

Certainly, business groups such as the CBI, FSB and the Chambers of Commerce were outraged at the decision, remaining convinced that the road was the "most important scheme needed to take Wales' economy forward".

Whilst the cost of the road has now become prohibitive at a time of austerity, the delays by politicians and civil servants in making a decision regarding this scheme means that many of the alternatives to the relief road - such as encouraging local drivers not to use the motorway, upgrading the southern distributor road south of Newport, and opening a seven-mile private dual carriageway through the Corus site at Llanwern – have been delayed.

This will, undoubtedly, result in increased congestion within the South East Wales area which, in turn, will drive up the cost of doing business in the region.

More generally, there will be disappointment that there is no long term and visionary solution to the problem of traffic congestion such as that experienced on the M4 around Newport.

Indeed, if the government and business groups were actually serious about solving this problem, then they would look to adopt a far more radical approach to that of just throwing money at it.

For example, businesses could encourage staff to avoid rush hour traffic altogether by offering staggered work hours in which staff can arrive at different times as agreed with their employer, thus reducing the ridiculous amount of commuting that goes on during the peak hours of morning and evening. Such practices are widespread within major economies such as the USA or Germany but have yet to be adopted widely in the UK.

Research has shown that a third of all schoolchildren now go to school by car, a figure which has doubled in the last twenty years. The school run by parents across the UK accounts for one million tonnes of carbon dioxide emissions each year. This adds enormously to congestion around traffic hotspots such as Newport where the roads are practically empty during the school holidays at peak hours.

This could be eased by staggering the opening times of schools (backed with pre and after-school clubs) so they do not open at the same time as the daily commute. This could make a real difference.

There is also the alternative of providing a properly subsidised school bus system on the American model which would, according to some, cut 130 million car journeys a year across the UK.

Certainly, these solutions would cost considerably less than the estimated £1 billion bill for a new relief road.

Government also needs to focus more resources on getting freight off the roads and onto the railway system. Whilst this is an issue which the National Transport Strategy says will reduce greenhouse gas emissions, air and noise pollution, there is almost no funding being made available to support the development of the infrastructure needed to make this work.

For example, the Freightliner terminal in Cardiff is ideally placed to enable transport companies to bring goods into South Wales and then distributing them around the region and yet little funding is being made available to support this site which could help reduce the amount of traffic coming through the Newport area at peak times.

Therefore, rather than dealing with the issue of why there is too much traffic at a certain time of the day, the only response to date has been to assume that we need more roads to deal with the problem. That is clearly not the only solution and perhaps it is time for a bit more lateral thinking from politicians and policymakers to deal with the growing economic and transport challenges we face in Wales.

Two sides of the coin

Once the latest unemployment figures had come out, I didn't think it would take too long for the Plaid Cymru press machine to start praising the Deputy First Minister's 'decisive actions' in 'driving forward' the ProAct scheme.

This is despite the fact that it actually falls under Jane Hutt's skills portfolio rather than his. So much for partnership working across the coalition government when they fall over themselves like dogs over a bone to claim the credit for this programme.

Of course, I suppose I should be flattered, given that this blog suggested a scheme such as ProAct as long ago as November, well before the economic summits even got round to discussing this issue.

As I said then,

"Rather than watching impotently as firms lay off key workers, why doesn’t the Assembly Government set up a multi-million- pound key fund which enables businesses to temporarily move their workers, during the current economic crisis, onto skills training courses?

Not only would this enable businesses to retain their skilled workers through government support over the next 12 months, but it would provide opportunities for upskilling and, critically, enable firms to be in a more competitive position when we emerge from recession.

It would also provide a boost to the business and training support sector of the Welsh economy at a time when firms may, inevitably, be cutting back on this aspect of their business".

Who would have thought that this Labour-Plaid Government would have taken any notice of advice from a Tory of all people?

Certainly, Pro-Act has been useful for some companies but not all have seen the value of participation - just ask the 390 workers facing redundancy in the Deputy First Minister's own backyard at Angelesey Aluminium.

However, just one final thought before some people get carried away with the latest statistics which many experts still consider a blip.

The Welsh Assembly Government seems very eager to claim credit for the small fall in unemployment of 1,000 people in the latest Labour Force Survey.

However, let's not forget also that under their stewardship of the economy, there has been an overall net increase in Welsh unemployment of 31,000 during the last twelve months.

When they start dealing with that properly, then they can start opening the champagne bottles.

Much ado about nothing?

As Valleys Mam notes, there seems to be an enormous amount of fuss generated about the expenses of International Business Wales in the press today.

Far be it for me of all people to defend the Welsh civil service (that would be a first!) but there seem to be some incongruities in the claims that have been released under the Freedom of Information Act.

In the Western Mail, Kirsty Williams is quoted as saying

"Every taxpayer in Wales deserves an explanation from the Labour-Plaid Government. While we’re in the middle of a recession, it’s disgusting to know that public officials are flying first class, staying in the most expensive hotels, eating in the best restaurants – all at the swipe of the Welsh credit card."

For example, I haven't a clue whether there is actually any evidence for "flying first class" but as far as I am aware, it is civil service policy that staff take business class flights for all long haul flights to destinations such as the Far East and the USA.

In addition, Virgin Atlantic don't actually have first class, only business class, and that the £36,000 spent with the airline would account for around 12 flights between the UK and the USA (we are not talking Ryan Air here!). Similarly, £24,000 with Cathays Pacific would amount to around six business class flights from the UK to the Far East.

As I say, some strange conclusions but nevertheless a very good headline for the Lib-Dems.

p.s. Having visited the place, I would also doubt if "Margarita Murphy's" - one of the restaurants frequented by IBW staff according to the WM - can be classified as a "high-end NewYork eatery" given that the most expensive meal is a steak at a cost of $17 (which is roughly a third of the price that most AMs could claim for daily meals before Sir Roger Jones' review stopped this practice).

Mixed messages for the construction industry

Last week, a story in the Western Mail suggested that

"nearly 30,000 jobs could be created in the Welsh construction industry in the next five years.....the research from the from the Construction Skills Network forecast that employment in Wales can bounce back more quickly than any other part of the UK".

However, this optimistic prediction is in complete contrast to figures published by the Welsh Assembly Government show that:

• Production output in Wales for Q1 2009 fell by 7.2% compared to the same quarter in 2008. The UK index fell by 5.1% over the same period
• The index of construction for Wales for the last four quarters fell by 13.8% compared to the previous year. The UK index fell by 2.8% over the same period
• Construction output in Wales for Q1 2009 fell by 4.6% compared to Q1 2008. The UK index fell by 2.4% over the same period

The Ashes in Cardiff

Having been walking past Sophia Gardens for the last three days and hearing the shouts of the Barmy Army echo across the Taff, I am finally going to see the Ashes Test Match today although, typically, rain is promised.

It is still an amazing thought to think that the first Ashes Test match between England and Australia has been held here in Cardiff and not in Lords, Old Trafford or any of the other traditional test grounds around the country.

Of course, the exposure for Wales as a result of the test match has been tremendous and a welcome boost for Cardiff business at a time of recession. Some of the local firms have done tremendous businesses with pubs and restaurants reporting over 200 breakfasts every morning for supporters!

Whilst, there are estimates that the Sophia Garden development could generate £80 million for the Welsh economy during the next five years, the real fact is that millions of people who didn't know about Wales will have had a highly favourable view of the capital city and the local people.

In particular, the world's largest group of middle class consumers - the cricket mad Indians - will probably have seen the fantastic scenes from the camera on the BetFair blimp above the ground.

This has provided a spectacular bird's eye view of the beauty of the city's parks, Cardiff castle, and the walk down to the Millennium Stadium with Cardiff Bay in the background. What we need now is for a massive follow-up campaign to the Indian sub-continent to attract tourists to Wales as a result of this sporting event.

If the rain does come today, the match will probably peter out into a draw but whatever happens, Wales is most definitely the winner in this first Ashes Test match.

Coulson, News International and the Labour Party

As Sun Tzu said, victorious warriors win first and then go to war.

In this case, it would seem that the Labour Party has failed this simple test of political strategy. It has tried its best to get this story rolling through its friends in the Guardian and has failed miserably, despite the BBC's best efforts to keep the story alive.

Of course, the biggest mistake is that they have taken on the world's most powerful media mogul to simply get back at the Tories over the Damian McBride affair.

Well, guess what.

Rupert Murdoch is not some third rate spin merchant and Labour have now ensured that the whole might of News International will, rightly or wrongly, be turned against them over the next ten months up to the next general election.

One can only imagine the files his organisation has on senior politicians within the Labour Party. The storm is most definitely coming.

£41 million is a drop in the ocean

An additional £41 million fund to provide an "economic stimulus" to help Wales deal with the recession has been announced by the Assembly Government.

£41 million looks like a lot of money and I am sure that politicians will make the most of this.

However, let's not forget that, compared to the funding available from the Convergence Fund, it is merely a drop in the ocean.

According to the latest information from the Welsh European Funding Office, only 35 per cent of the £1.81 billion available has been committed to projects.

This means that over £1.1 billion remains to be committed to projects during the period 2010-2013 or around £200-£250 million per annum.

The question is whether how quickly this remaining fund will be spent this year to counter the recession? More importantly, is there any effort by Ministers to focus on fasttracking capital projects to ensure they have an immediate impact on the recession in Wales?

Culling the quangos

Both the Conservative Party and the Labour Government have stated today that they intend to cut the number of quasi-autonomous non-governmental organisations (otherwise known as quangos) to ensure that public funds are used more efficiently during the next few years.

Of course, this would apply only to England as Wales had its own cull (or bonfire) a number of years ago. However, the absorption of the Welsh Development Agency (WDA) and the Wales Tourist Board into the Welsh Assembly Government is a move that was regretted by individuals from across the political spectrum.

For example, Peter Hain criticised the closure of the WDA, stating that it was ‘a successful, worldwide brand, the most successful development agency ever'. Dafydd Wigley, the former leader of Plaid Cymru, is on record that he remains opposed to the merger of the WDA with the Assembly Government.

The question, of course, is whether the move was driven by the real need to improve public services or was merely an act of revenge by politicians who had always despised the power and status of these non-elected bodies?

Professor Kevin Morgan - the Chairman of the Yes for Wales Campaign – suggested that the decision to cull the quangos was not only related to public service reform but had wider implications for the new fledgling devolved nation that is Wales.

In a subliminal paper on the matter, he raised the critical question of whether Wales will “become a less pluralistic, more state-centric society in the wake of the decision to abolish six quangos and merge their functions with the WAG? In other words, is there a creeping centralism at work in Wales which belies the notion that devolution creates a more robust and more accountable governance system?"

Of course, some quangos still remain in Wales, including the Welsh Language Board and the Higher Education Funding Council for Wales.

Some in the Labour Party believe this is an anachronism given that both could easily be managed from within the culture and education portfolios. Others would argue that issues as important as language and higher education need to be at an arm’s length from Government.

The current Assembly Government would argue that the prosperity of Wales has benefited by the abolition of the quango state although many companies have told me that, despite the best efforts of the civil servants, the whole process of business support has become risk-averse and political, with many senior managers delaying decisions because they are more worried about what the Minister might say rather than whether their actions will have a positive effect on the Welsh economy.

Perhaps the time has come, as Dafydd Wigley said during the last election campaign, for a thorough investigation by the Auditor General for Wales to see whether the promised benefits of the merger have been achieved. Given that we are in the middle of a recession, such a review is highly unlikely over the next few months.

However, as April 2010 is the fifth anniversary of the bonfire of the quangos in Wales, there could no better time for the Minister for Economic Development to order the detailed review requested by his predecessor as Plaid Cymru leader. As well as potentially showing the benefit of public sector reform, it would determine, once and for all, whether the abolition of the WDA and other similar quangos has had any significant and lasting impact on the prosperity of the Welsh economy.

The future of Welsh manufacturing

There were mixed messages for the Welsh manufacturing sector this week.

In North Wales, 200 workers at the Air Products factory in Wrexham have lost their jobs as the company, which produces gas plant equipment, is moving to China.

At the same, Anglesey Aluminium has offered voluntary redundancy to 140 staff as they play a high-stakes poker game with the British Government to try to obtain cheap power for their plant.

If, as many expect, this fails to materialise, the result could be the final loss of 500 well-paid jobs in the poorest county in the UK – an outcome which could devastate the economy of Anglesey.

In other parts of Wales, there was better news.

Hundreds of jobs were saved when the Ministry of Defence awarded General Dynamics, based in the Gwent Valleys, a £231m contract to upgrade the Bowman military communication system.

In addition, Compact Orbital Gears of Rhayader, which manufactures and supplies high-quality engineered products and services, has safeguarded 25 aerospace jobs after winning three contracts in the past few months.

Given these different messages, the jury remains out as to whether manufacturing is recovering sufficiently, although it is clear that most of the effort is now going into safeguarding jobs rather than creating new ones. There are still worries over what will happen to some companies and their previous commitment to the Welsh economy.

For example, few believe that Tata will keep both of its steel plants open in Wales, which could mean a major blow to the economy if either Port Talbot or Llanwern were to close.

So what is the future for Welsh manufacturing?

The statistics show that the output from the sector in Wales has declined by more than 5% during the last decade, while most other sectors have grown.

In 1997, manufacturing in Wales was responsible for 28% of GVA (the index which tracks prosperity levels), but had fallen to 18% by 2006, the same as business services. In addition, there are over 60,000 less manufacturing jobs in Wales, with many more expected to be lost by the end of the year.

Certainly, the days of being able to attract large inward investment projects to Wales are over and our economy must adopt a very different approach if Welsh firms are to succeed in a highly-competitive environment.

The future of manufacturing will no longer be based on attracting jobs based on the lowest salaries, but on higher value-added factors such as skills, innovation and productivity.

That is hopefully the message that International Business Wales is sending out across the globe, and I was heartened to read that energy companies in the USA are expressing a preference for setting up operations in Wales because they want to work alongside our higher education sector.

At a time when every other country is looking to the world’s largest economy for any sign of new investment, we must take every opportunity to show that we have world-class opportunities and, more importantly, that we are ready to work with the best companies in the world to ensure that they invest in Wales.

One can only imagine the impact that investments from global giants such as Google or Microsoft would have on this nation and its ability to attract other inward investors.

You can just imagine firms across the world saying that “if Google and Microsoft have come to Wales, why shouldn’t we?”

We also mustn’t forget that we have an indigenous manufacturing sector in Wales that, despite the recession, has shown enormous resilience in surviving through the last six months.

However, this sector must now start preparing for the upturn and government, where possible, must ensure that when the time comes, Welsh manufacturing firms are equipped for the competitive battles that will resume once this recession is over.

If government is to intervene in developing our indigenous producers, then it must develop a coherent manufacturing strategy which provides more support for research and development, skills and new process technologies.

It must encourage companies to invest in capital equipment and the training that will improve their competitiveness and enable Wales to close the productivity gap with the rest of the UK.

Despite the decline in its relative importance, I believe that manufacturing has a vital role to play in creating a world-class economy in Wales.

However, we must take the sector more seriously and ensure that the resources are provided to close the productivity gap with our global competitors and ensure a high-technology, high-skills future for the manufacturing industry in Wales

BBC expenses - a reflection

Just when you thought that those who live off the public purse had finally been told that their behaviour is unacceptable, along comes the BBC’s top executives with their expense claims for corporate entertainment, hair styling, insurance claims for a stolen handbag and champagne and flowers for their ‘stars’.

Don’t get me wrong. I don’t think anyone objects to the fact that people should get remunerated for expenses incurred as a result of their job. The main objections are when people push the boundaries of what is acceptable, especially when public funds are involved.

At a time when the majority of workers in the UK are facing pay freezes, pay cuts or even redundancy, this type of behaviour has brought the salaries of those paid by the public purse into sharp focus.

During a week when some staff at British Airways had agreed to work without pay for a month to save their jobs, we discovered that not only were they milking their own expenses system, but that the top fifty executives in the BBC cost the licence fee payer nearly £14 million last year.

As we enter an age of new puritanism brought on by the ravages of the worst recession since the Second World War, it only right that taxpayers asks how their money is being spent by the public sector.

This is not the politics of envy but the politics of accountability and we should set new standards for those working within any organisation which is dependent on the public purse, which includes not only government, but also the BBC, S4C, local authorities and health trusts.

If the top executives of such organisations were in the private sector, they would be rightly rewarded for creating wealth for the shareholders who have invested in their company but, equally, would find themselves out of a job if they did not perform as expected.

Is the same true of those executives within the higher echelons of the public sector who have secure jobs for life, pensions some of us can only dream about and salaries which are higher than some of the most influential people in the land?

Indeed, many of those executives within the BBC were actually earning an annual salary that was higher than that of the Prime Minister himself. In Wales, the chief executive of S4C gets a salary of £156,000 as compared to the £130,000 earned by the First Minister every year.

The usual line that is peddled out for such differences in salary is that those working for public organisations would be paid far more if they were in the private sector.

Who are they trying to kid?

First of all, many of those in these posts have been in the public sector most of their working lives and have been promoted internally. Secondly, if the private sector was more attractive, then many of these individuals would have jumped ship long ago except for the simple reason that they know in their own hearts that they simply wouldn’t cut the mustard and, unlike the public sector, failure would not be an option.

More importantly, I doubt if there are any vacancies within the private sector at the moment and if so, there are hundreds if not thousands of better applicants with direct experience of working in the real world of business.

Of course, if anyone wanted to test whether the public sector is paying too little, then advertise the current senior jobs at half the salaries being paid. I can absolutely assure you that not only will you get a deluge of candidates with the right experience and track record but, in most cases, they would be a massive improvement on the incumbents.