THE SUCCESS AND FAILURE OF UK IMMIGRATION POLICY?

In December 2007, I posted a blog entry on immigration that examined its positive and negative impact on the UK economy.

Given the press coverage of the Prime Minister's speech on immigration policy earlier today, I thought it would be worth examining some of those points again.

In particular, it is worth noting that the statistics in the article suggest that the Labour Government's apparent success in developing the UK economy was partly a result of mass immigration to the UK during the last few years.

It is also more pertinent today, given that the Labour Government's failure to deal with the low skill culture amongst 18-24 year olds over the last decade has helped to contribute to the record levels of youth unemployment we have in this country.

Tuesday, December 18, 2007
Immigration skews the UK economy

I hope that policymakers will be reading the report from Ernst and Young's ITEM Club this morning.

According to the Telegraph,

"The study found that although the recent influx has boosted Britain's economy and kept inflation low, it may have increased unemployment for younger Britons and reduced pay increases for all. Since 1997, 1.5 million foreign workers have entered the British workplace, with many of these arriving from Eastern Europe in the past three years since the European Union expansion. This new group typically earns 40 per cent less than British workers.

Since 2004, the number of unemployed British 18 to 24 year olds has increased by 100,000, according to the study. "There is some evidence that the growth of immigrant employment seen in the last few years may have come at the expense of the domestic workforce," the report concludes. "Given the age and skill profile of many of the new immigrants, it is possible that 'native' youngsters may have been losing out in the battle for entry-level jobs.""

However, it also points out the following 'benefits' to the UK economy:

- The typical British family has saved thousands of pounds a year in mortgage repayments as interest rates are calculated to be up to 1.5 percentage points lower than they would have been without immigration.
- New immigrants have pushed down inflation, staving off Bank of England increases in interest rates
- If immigration continues at the same rate as the past two years -190,000 net immigration a year - the economy will grow by about three per cent annually. Without immigration this would fall to 2.2 per cent, knocking £10 billion off the growth in the economy.

So much for the Brown economic miracle under Labour, which seems to be largely dependent on the role of immigrants in taking jobs at a lower wage than the UK worker.

This economic cushion has also stopped the Government from making hard decisions over the development of the economy, especially in terms of skills.

At a time when education is more important than anything to a knowledge-based future, we are experiencing a growing underclass of young people who cannot get jobs because they are being undercut in the marketplace by literate, talented immigrants who are prepared to work long hours for less money.

Immigration has been a blessing for the UK economy in the short term, although it may be a curse in the long term if we continue to ignore the plight of young people who clearly need training and education to develop the skills needed by businesses across the UK.

UPDATE: having watched the three main parties (plus UKIP) putting their cases for immigration across on Newsnight last night, it would seem they, and the BBC, have all missed the point.

The key question here is why we have had greater immigration into the country?

Some have argued that it is because of some conspiracy by the Labour Party to change the culture of this nation. However, if you examine the detailed labour market statistics, then you see that, as I suggest above, this is actually a failure to address the high economic inactivity rates across the country when job opportunities were increasing as a result of a growing economy.

In 2007, the employment rate for the UK was at its highest, with 75 per cent of the working age population in employment. At the same time, the economic inactivity rate was 21 per cent.

Fast forward two years to the height of the recession at the end of 2009 and the employment rate has dropped to 69 per cent. Yet, the economic inactivity rate remains roughly the same at 21 per cent.

Therefore, it would seem that the employment boom of the Labour years did not have any effect on the millions of economically inactive people of this country.

That is the real story of immigration and the failure to address the long term skills issues of individuals living predominantly within our poorest communities.

The question is which party will have the skills policies in place to ensure that this does not happen again when the economy recovers and rather than having to depend on immigrant workers, we can start to reduce the unacceptably high numbers of economically inactive people in this country's potential workforce.

£100,000 PER JOB

According to the UK Government, the much lauded car scrappage scheme will have protected around 4,000 jobs in the UK automotive industry, Government estimates have claimed.

Given that the subsidy from Whitehall amounted to £400 million, the cost has been an incredible £100,000 per job.

One would be hard pressed to find a higher subsidy for any industry during the last decade and shows the lobbying power of an industry that has failed because it has refused to modernise in line with changes in the global business environment.

One can only imagine the effect of £400 million on supporting thousands of small firms across the UK, especially at a time when banks were unwilling to lend money.

Indeed, it makes any support for inward investment over the last twenty years by the Welsh Office or the Welsh Assembly Government pale into insignificance. Even the disastrous LG project would have cost less than a third (per job) of what has been given to the automotive sector by Lord Mandelson.

The problem, of course, is that such short term schemes will still inevitably lead to redundancies if they are not continued until the recovery is well under way. For example, it has been estimated by the Society of Motor Manufacturers and Traders that sales will fall by 10 per cent in 2010 and one has to wonder how many jobs will be lost as a result of this dip in sales.

The same question arises for Wales specific schemes such as ProAct, and one would hope that its impact is measured very carefully after the scheme finishes at the end of June. Indeed, I would expect that, given that the scheme was supported by European money, that there will be a detailed evaluation of this initiative to properly examine its real impact on the economy of Wales during the worst recession since the 1920s.

The last thing we would want to see with this much lauded scheme is for companies, after delaying the inevitable, to continue with redundancies after government support has ended.

FOR WALES, SEE ENGLAND

As predicted on this blog a few days ago, the Welsh Assembly Government has replicated the decision by the UK Government to introduce an enhanced business rate relief scheme for Welsh firms.

At least WAG has finally reacted to the criticism that Wales has a worse business rates regime than England.

Now all we can say is that it is exactly the same and there is no real difference between business rates for English firms and Welsh firms, at least for the next twelve months.

This small step, which is more to do with the largesse of the Treasury than any independent policy decision by WAG, is certainly a step in the right direction.

Of course, the Welsh Conservative Party has already guaranteed that a far greater proportion of small firms will pay no rates and that this change will be permanent - a policy that has been made in Wales for Welsh businesses.

Given the antipathy towards the 'London-based parties' by one half of the One Wales Government, you wonder how its Ministers can possibly agree with merely replicating what goes in England rather than coming up with a solution that benefits Welsh businesses.

DECLINING PERFORMANCE OF WELSH EXPORTS A CAUSE FOR CONCERN

Last week, I examined the export performance of the UK economy during 2009.

Today, it is the turn of Wales.

According to government statistics, the value of exports in Wales in 2009 was £9 billion as compared to £10.6 billion in 2008.

This represents a decline of 15.4 per cent over the last twelve months as compared to a fall of 9.8 per cent across the UK.

Only three other regions (Yorkshire and Humberside, Northern Ireland and the West Midlands) had a greater fall in export performance over this period, with Scotland actually increasing its export performance by 4.8 per cent in 2009.

However, it is not all bad news for the Welsh economy. Some sectors did actually grow their exports during the worst recession since the 1920s. For example, oil and gas (41.7 per cent), agriculture (30.4 per cent), creative/media (20 per cent), food and drink (18.9 per cent) and transport (17.2 per cent) have all shown considerable improvements in performance since 2008.

Both the creative/media industries and agriculture have grown at a time when overall UK exports have declined in both sectors although their overall impact is relatively low. For example, the creative/media sector accounts for 2.6 per cent of all UK exports but only 0.2 per cent of Welsh exports. Similarly, agricultural exports account for only 0.9 per cent of the Welsh total as compared to 3.1 per cent of total UK exports. This demonstrates that there is still considerable work to be done in terms of developing the export capacity of businesses in those sectors which currently show considerable promise.

Unfortunately, these growth sectors only account for 9 per cent of total exports coming from Wales. Indeed, four declining sectors – metals, engineering, chemicals and metals – accounted for 70 per cent of Welsh exports in 2009. At a UK level, the same four sectors made up 48 per cent of all exports.

The sector which showed the largest drop in output in Wales was biotechnology/pharmaceuticals, which went down from £456 million in 2008 to £238 million in 2009, a decline of 50 per cent in export performance. This contrasts with the performance of same sector at a UK level, which actually grew by 17.6 per cent over the same period. Similarly, Welsh exports in telecommunications declined by 21 per cent as compared to a growth of 11 per cent in the UK.

Given the emphasis on high technology industries by Welsh policymakers, this finding is worrying as it may suggest that Wales is focusing on areas within these critical sectors which are not growing at an international level.

In terms of destination, 53 per cent of Welsh exports currently go to European Union countries, similar to the UK level, although exports to the EU have declined by 21 per cent for Wales in 2009 as compared to 13 per cent for the UK.

The statistics also demonstrate the importance of North America for Welsh companies, which accounted for 24 per cent of all exports in 2009 as compared to 17 per cent for the UK as a whole, although the fall in export activity to this vital territory has been 12 per cent since 2008, three times the level of the UK decline. In the emerging economies of Asia and Latin America (which account for 13 per cent of Welsh exports), the picture remains mixed, with exports to Asia declining by 8 per cent in 2009, but increasing by 4 per cent in Latin America.

Therefore, what does this tell us about the Welsh economy?

It shows that, during the recession, our export performance has been considerably worse than the average for the UK as whole. Whilst there is positive news from some home grown industries, the picture remains one of overdependence on a few sectors that are dominated by large firms.

More worryingly, it shows that high technology sectors such as biotechnology/pharmaceuticals and telecommunications are actually declining at a time when both sectors are growing across the rest of the UK. Whilst we are outperforming the UK in terms of exports to North America, we have yet to achieve a similar performance within emerging markets, although Latin America looks promising.

Given these statistics, it seems surprising that there has been little discussion about improving the international performance of Wales PLC as part of the discussions during the economic renewal programme, especially given the fact that we remain one of the few regions in the UK which still has a sizeable manufacturing sector.

More worryingly, rather than investing in supporting the internationalisation of Welsh business, the Assembly Government has actually cut its budget for international business support by 31 per cent since 2005.

For a small nation on the periphery of Europe, the export performance of companies is critical in gaining a competitive advantage in the marketplace. Simply put, we have to sell outside of Wales because our home market is far too small.

As the world’s economies emerge out of recession, these statistics demonstrate unequivocally that Wales needs to up its game quickly to ensure that every support possible is given to those Welsh companies, particularly in emerging sectors, that want to sell their goods and services all over the World.

NOT YET OUT OF THE WOODS

The demise of Highland Airways yesterday prompted me to examine whether the tide has really turned and that confidence is seeping back into the economy.

Whilst the official unemployment figures seem to be reducing across the UK, it is clear that this hides continuing job losses in many companies across a range of sectors and in all parts of the UK

For example, a quick examination of the BBC News pages shows that continued to be major job loss announcements in March alone,

North-south air flights grounded -The airline which runs the troubled north-south Wales air route has ceased flying and entered administration (100 jobs)

Jarvis to call in administrators - Rail maintenance company Jarvis announces that it will go into administration after failing to secure credit (2,000 jobs)

Further jobs go at Ethel Austin - The administrator of Ethel Austin and its sister chain Au Naturale has confirmed that a further 81 stores will close. (700 jobs)

Engineering firm hit by recession - More than 100 Teesside engineering jobs are under threat after a fabrication firm calls in administrators (100 jobs)

Jobs at risk at engineering firm - More than 200 jobs are at risk in Lincolnshire at an engineering company which has gone into administration (200 jobs)

Bakery firm under administration - Administrators are called in to Falkirk baker Mathiesons, which employs about 350 people. (350 jobs)

Seafood company in administration - A Grimsby fish processing company goes into administration, putting more than 300 jobs at risk (300 jobs)

Jobs lost as motor company shuts - A car parts manufacturing firm employing about 490 people in Cambridgeshire is to close, it is announced.

52 jobs go at drink firm Britvic - More than 50 jobs are being lost at at the Britvic soft drinks company in Northern Ireland, the employment minister confirms.

Crystal closure 'a dreadful blow' - The closure of Tyrone Crystal's factory is "a dreadful blow for the local area", Enterprise Minister Arlene Foster says. (31 jobs)

150 Toyota jobs to go on Deeside - Around 150 jobs will go at the Toyota plant on Deeside, Flintshire, as part of 750 posts going across the UK.

Jobs lost as call centre closes - The telephone directory inquiry company 118-118 is closing its Plympton call centre, with the loss of 180 jobs.

These 5,253 jobs lost across these twelve firms are the only ones I can find without more detailed time-consuming research but I am sure there are many others, under the PR radar, in lots of smaller companies across the country.

Most importantly, it demonstrates that there are vulnerable companies which have, to date, staved off their financiers. The question is, in the wake of yesterday’s budget, whether banks will be more lenient with companies over the next six months or whether, as we have seen during the last year, they will put their balance sheets ahead of the needs of their business customers.

BUSINESS RATES, RED HERRINGS AND A MATTER OF CHOICE

In response to yesterday's posting about reducing business rates, I have had a predictable response that Wales can't afford to do this because we haven't got any money to do so.

This is yet another in the long line of excuses fro supporters of the Labour-Plaid Government who have everything to avoid the case for lower business rates in Wales.

To now say that the Assembly has not got the money is simply another red herring.

As was reported from Ieuan Wyn Jones' meeting with business leaders this week in North Wales:

“On business rates, Mr Jones said that any move to bring in additional rate relief of the sort enjoyed by businesses in Scotland would take a £40m chunk out of his department’s £240m budget.”

So there we have it.

Finally, a confession of sorts which clearly states that it is not a matter of money but a matter of choice.

What the Deputy First Minister is indicating is that the current Welsh government is essentially refusing to transfer £40 million from a business support budget - a budget it has had enormous difficulty in spending - to support tens of thousands of indigenous small businesses across Wales through lower business rates.

I would be very grateful if anyone can tell me what is wrong in directly supporting the vast majority of small firms in Wales with a sixth of the economic development department's budget i.e. leaving £200 million to fund the rest of business support programmes?

Of course, if the Minister has problems in cutting this bloated budget - which is higher per head than any other region in the UK - to ensure this happens, then I am sure there are many volunteers in the business community who would be more than happy to help him out.

THE BUDGET AND BUSINESS RATES

Having finally got in from Turku University - we are two hours ahead here - I have had a chance to look at the Budget announced earlier this afternoon.

I am still trying to digest all the information but the one issue that really did catch my eye, given my policy interest in the area, was the proposal on business rates.

Having checked this up on the Treasury website, the following information was provided:

"To provide help with the fixed costs of starting and running a small business, the Government will fund a temporary increase in the level of small business rate relief, so that eligible small businesses occupying properties with rateable values up to £6,000 will pay no business rates for one year from October. In addition, small businesses benefiting from the rate relief taper (rateable values up to £12,000) will receive significant reductions. It is estimated that over half a million businesses across England will benefit, many by well over £1,000. Around three quarters of all small business units, two thirds of smaller shops and over half of offices and smaller industrial premises will qualify if occupied by an eligible business."

Of course, given that we have quite a different rate relief system to England, we will wait to see how (or if) this applies to Wales (strangely, there is no announcement on the press release for Wales from the Treasury).

The main point about this announcement is that it contrasts with the attitudes of Labour Assembly members, and their Plaid Cymru colleagues, who have vehemently opposed introducing any cuts in business rates as a method of alleviating the recession for tens of thousands of small businesses across Wales.

They could have, at any time during the last twelve months, have introduced a similar scheme to support Welsh firms but they refused to time and time again.

Will any of us be surprised if they will all now hypocritically jump onboard the bandwagon to announce what a brilliant idea it is to cut business rates for small firms across Wales?

Just a shame they had neither the imagination nor the political courage to do when Welsh businesses needed this cut the most at the height of the recession last year.

WELSH UNIVERSITY CUTS AS EXPECTED

As predicted on this blog last week, Welsh universities are facing a stark reduction in their budget for 2010-2011.

The Higher Education Funding Council for Wales (HEFCW) confirmed £403 million in grants to universities, compared to £434 million in 2009-10, equating to a 7 per cent cut.

This a similar reduction to that implemented across the border in England and suggests that Welsh universities, despite the rhetoric from Cardiff Bay as to their importance in driving forward the new innovation and skills agenda, must to get used to further cuts in the future.

Glyndwr University, with a 3.4 per cent reduction, has taken the biggest hit with Lampeter, soon to be merged with Trinity University College, actually getting an increase of 0.32 per cent.

Interestingly, the fund for widening access has increased by 28 per cent (or £1.54 million), whilst there is an increase of £78,276 (or 6 per cent) for Welsh medium education.

Despite the positive press releases from the sector, universities across Wales must be disappointed with this settlement. With a growing gap in funding between universities in England and Wales, it might have been expected that the budget could have at least been frozen.
Alternatively, and more imaginatively, the cuts of millions of pounds in teaching funding could have moved across to research funding to boost the innovation potential of key areas such as biosciences, cleantech or digital technologies.

Given that the First Minister has stated that his government would look to increase education spending by at least 1 per cent above the block grant it receives from the UK Government, does this suggest that it will be schools which will be the subject of his largesse over the next year?

Indeed, one can only be perplexed as to how the decision to cut £8.7 million off the teaching budget at Welsh universities tallies with the First Minister’s New Year’s message, in which he was “convinced that the key to success depends on the education and skills of our people.”

£24 BILLION DECLINE IN UK EXPORTING

One of the few silver linings of the economic turbulence of the eighteen months, at least for manufacturers, has been the decline of the pound relative to other major currencies such as the dollar and the euro.

In theory, this should have made our goods more competitive in overseas markets as we would be able to compete with other countries on price as well as quality.

Unfortunately for UK PLC, this has not been the case.

An analysis of recently released government statistics on our overseas trading performance shows that the value of exports has plunged by an incredible £24.4 billion in 2009 as compared to the previous year, an overall decline of 10 per cent.

The trade with Europe – which is half of the exporting trade of the UK – accounted for three quarters of the decline in overall UK export performance, a fall of £17.5 billion between 2008 and 2009. The second biggest market, the USA, which accounted for 17 per cent of the UK export market in 2009, saw a drop of 4 per cent during the same period.

In terms of sectors, the dependency of the UK on a few key sectors exacerbated the decline in export performance.

For example, three sectors – metals, energy and automotive, accounted for 36 per cent of the UK export market in 2008, yet by 2009, this had fallen to 30 per cent, a decline of £23 billion pounds or 78 per cent reduction in one year in export performance.

However, there were some sectors that, despite the recession, did improve their export performance between 2008 and 2009. These include biotechnology and pharmaceuticals (18 per cent growth) and telecommunications (11 per cent growth). Yet these two high technology sectors account for only a tenth of the exports produced by the UK in 2009.

There seems to have been no imperative whatsoever by the UK Government in supporting our exporting industries to get their goods and services out to the marketplace. One can only hope that the next government will as reversing this downward trend could be the salvation for the UK economy.

SO WHAT ABOUT WELSH UNIVERSITIES?

The Higher Education Funding Council for England (HEFCE) has announced that three quarters of English universities are facing a real term cut of £573m from this year's budget, with unions warning of hundreds of job losses.

Indeed, some are facing cuts of up to 14 per cent in their budgets for next year.

As yet, universities in Wales has not been told of the financial settlement from the Higher Education Funding Council for Wales (HEFCW) but if assume the Barnett formula, this could amount to as much as a £30 million cut in Welsh higher education.

Will HEFCW ensure that all universities have to cut proportional to the grant they receive or will they, thanks to intense lobbying by certain vice chancellors, try and protect some institutions from the worst cuts. For example, three institutions - Cardiff, Glamorgan and Swansea - receive over half of HEFCW's funding. Will these three also therefore be subject to the same proportion of the cuts expected in government funding? Will there be 'chwarae teg' for all universities in Wales?

In addition, there is the question, as higher education policy is devolved, whether such cuts will passed on in full to universities in Wales or, as the First Minister has promised, will "education will increased by at least one per cent above the block grant allocation"?

CAR CRASH TELEVISION ON BBC WALES

I have struggled with my conscience over whether I should write this blog piece today.

I rarely criticise a fellow academic in the pursuit of their subject - when it comes to reviews of academic papers, I am always the soft touch who thinks that the paper should be published in the journal after some changes - never a rejection.

It is therefore with a heavy heart that I utterly and totally condemn the car crash television that epitomised "Ban the Boss" last night on BBC Wales, presented by Dr Paul Thomas of the University of Glamorgan Business School.

This was like an episode of "The Office" that had been scripted by anyone but Ricky Gervais.

I cannot believe that the BBC had decided to put licence payers money into this total disaster of a 'reality TV programme' that, despite the heavy editing, was the equivalent of Fawlty Towers without the funny lines.

Who authorized this programme?

On what basis did someone think that thousands of pounds of taxpayers’ money should be spent on a programme that ended up with long serving hard working managers having to leave their jobs on the word of an external consultant?

As someone who has been calling for more business-oriented programmes on Welsh television for the last fifteen years, this parody has put back the cause for another decade.

Worst of all, one cannot believe that Blaenau Gwent County Council actually participated in such a programme and, via a dubious 'business experiment', completely undermined managers who had given years of their lives to their job in such a cavalier and heartless fashion.

Indeed, it actually made me, a Conservative supporter, want to phone up Unison and ask what the hell was going on and how the employees could be treated in this way. One thing I can assure you that if the Conservatives win the next election, I shall do everything in my power to ensure that this philosophy never rears its ugly head anywhere within any policy sphere of the next government.

It is clear that Dr Thomas simply does not understand the difference between good and bad management and therefore believes that getting rid of management altogether is the solution. How wrong can one individual be and, more importantly, how wrong can the BBC and Blaenau Gwent County Council be in giving vital public resources to support such a view.

As someone who worked for four years in Pontypridd, I am shocked and saddened that the Business School has come to this, especially as the aim of the programme was, according to Dr Thomas, "to raise the profile of my work and that of the Glamorgan Business School.”

All I can tell you, after speaking to a number of businesses and academics today about this programme, is that whatever reputation the University of Glamorgan Business School had with regard to management prior to last night has now disappeared forever.

Ironically, given the management issues within many university departments in Wales, one can only wonder whether this programme should have taken place within the University of Glamorgan itself.

Indeed, as Clarice Starling states so eloquently in the Silence of the Lambs

“You see a lot, Doctor. But are you strong enough to point that high-powered perception at yourself? What about it? Why don't you - why don't you look at yourself and write down what you see? Or maybe you're afraid to. "

Now that would have been great TV.

FIDDLING WHILE WALES BURNS

Yesterday, the latest unemployment figures showed that Wales had 133,000 officially unemployed. If you add those who are economically inactive to that figure, it means that ONE in THREE of working age adults in Wales are not in a job.

Predictably, the reaction by politicians to these statistics is a sterile debate over whether the figures are accurate and whether we should trust the jobseekers allowance data which is itself flawed as an accurate depiction of those who are looking for work.

As this blog stated back in December,

"The fact that JSA doesn't actually cover everyone who is looking for work at this present time. For example, contribution-based Jobseeker's Allowance is only paid for 182 days and excludes the self-employed whilst income-based Jobseeker's Allowance is based on income and savings and is only for those on a low income. Therefore, it is clear that the JSA will miss out a significant proportion of those looking for a job who, for various reasons, will not qualify. In addition, it is clear that after six months, the chances are that you will no longer qualify for JSA support and will fall off the register."

In fact, the only good piece of news is that the number of self-employed has increased slightly since last year but this is mainly because many are being forced, through the recession, to find jobs for themselves. Indeed, it would be interesting to find out whether WAG support services in enterprise are being inundated with requests or not for help in starting a business or, as I suspect, people are just getting on with it.

The fact of the matter is that since WAG decided to finally take the recession seriously at the end of last year, an additional 23,000 people have found themselves unemployed. This is despite the 'success' of Pro-Act which, as many of us have pointed out, seems to be the only instrument which this government is capable of utilising to stop the haemmoraging of jobs from Wales.

Of course, WAG will argue that it is currently 'consulting' on the Economic Renewal Programme for Wales but surely there are enough people working in the Department of Economy and Transport to come up with solutions to deal with this crisis without having to ask every person in Wales what should be done? If not, what are they there for?

The beauty of devolved government is having the ability to do something immediately to deal with an economic crisis, not the ability to talk to every Tom, Dic and Harri about what should be done.

Action does speak louder than words and it is about time this government got on with the job instead of just talking about it.

THE FUTURE OF HIGHER EDUCATION IN WALES?

Whatever your views on the new Minister for Education (and I have had the odd run in with him in the past), you can never say that he is a man who does not take his job seriously and is more than willing to make a real difference to his brief.

Leighton Andrews' call for a review into the governance of higher education in Wales has certainly set the cat amongst the pigeons and has let the university sector know who is actually paying the bills at a time when there is clear inevitability about future cuts in expenditure.

Regardless of your politics, you cannot help admire a masterstroke move from one of WAG's more adept political operators which has completely wrongfooted the sector.

If WAG does complete its bonfire of the quangos by abolishing the Higher Education Funding Council for Wales, will each university then get its own remit letter from WAG stating exactly what is expected of them in terms of the use of government funding for research and teaching?

That will, of course, strike at the very soul of the university sector, namely its independence, and it will be a real test for higher education as to how it responds to this review and any such threat, perceived or not, to setting its own future.

This may also be a first step towards a real change in the shape of higher education in Wales.

If it is, then what sort of shape will that take?

Back in 2002, when I was more passionate (but naive) about the higher education system, I wrote the following letter to the Time Higher Educational Supplement

Federal factions 1

18 January 2002

Dylan Jones-Evans

In the Cardiff-centric National Assembly, it is easy to forget the contribution that the four university colleges of Wales at Swansea, Bangor, Aberystwyth and Lampeter have made to Wales for more than 100 years.
Any demise in these constituent colleges of the University of Wales ("Breakaway Cardiff fuels federal split", THES , January 11) would be detrimental.
Given the ambitions of the universities of Cardiff and Glamorgan to become the main Welsh research and teaching institutions, perhaps it is time for the universities of Swansea, Aberystwyth, Bangor and Lampeter to abandon the federal system and form a multi-campus University of Wales.
This would allow each to focus on investing in its world-class research while ensuring economies of scale in marketing and administration. Most important, it would ensure a viable alternative to the increasing concentration of higher educational resources around Cardiff.

Dylan Jones-Evans

School for Business and Regional Development

University of Wales,

Bangor

I suppose you have a very different view when you are 36, living in North Wales and still an angry young man!

In addition, you have since had the emergence of a new university sector which is making great strides in a number of fields, as Glyndwr University showed last week.

However, given the pressure on reconfiguration, might we actually see two such universities emerging in the future (Cardiff and a Bangor-Aber-Swansea grouping), with the third group being the University of Wales' Alliance along with Glamorgan, as a new confederated "Technological University for Wales?

Stranger things have happened and, as Confucius said, we live in interesting times...

TALENT - AN INTERVIEW WITH MICHAEL MORITZ

Despite an incredibly successful and intense visit to California last week, certainly in terms of academic outcomes for the University of Wales and links for Welsh businesses, the highlight of the trip was the hour spent with one of this nation’s most successful business exports, Mike Moritz.

Michael Moritz was born in Cardiff in 1954 and, after being educated at Oxford and Wharton, started working for Time Magazine, where he wrote a seminal book on the history of Apple.

In 1986, he joined Sequoia Capital, one of Silicon Valley’s most successful venture capital companies which subsequently invested in a range of companies that have epitomised the internet revolution during the last fifteen years, including Yahoo!, Google, PayPal and YouTube.

The initial public offering of Google in 2004 catapulted Mike Moritz into one of Wales' richest men and a position as one of the most influential dealmakers in the World. Therefore, this sixty minute meeting was an opportunity to learn from a man who is widely seen as one of the leading gurus of the internet age.

One of the reasons I wanted to meet with Mike Moritz was to discuss his philosophies regarding the development of knowledge-based industries, especially following his speech to Cardiff Business Club in 2007 when he stated that “I invest in people who are under 30, do not have a history degree and have a surname I can’t pronounce”.

As a result of this declaration, the University of Wales was inspired to establish the Prince of Wales Innovation Scholarship programme to bring in the best of young graduates from around the World to support Welsh businesses.

Therefore, it was not surprising that the main topic of our discussion was talent, and how access to that talent is critical to the success of Silicon Valley.

During an animated discussion, Mike emphasised the need to identify the best young people, nurture them and give them the opportunity to make the most of their talents.

He specifically mentioned the day that the two founders of Google, Larry Page and Sergei Brin, came in to pitch their idea.

Unlike others looking for funds, there was no business plan and no elaborate powerpoint presentation, just enthusiasm, an enormous intelligence and a working prototype search engine that was based on the combined research of both these Ph.D students from Stanford University.

Arguing that making investment decisions is more of an art rather than a science, Mike recognised real scientific talent when he saw it and the two fledgling science entrepreneurs were subsequently backed by Sequoia.

Within a few months, an internet revolution was born that has changed the way that hundreds of millions of people across the World accessed information. Not only that, Sequoia's $12.5 million investment into Google was, within five years, worth just over $2 billion, cementing Mike Moritz’s reputation as one of the sharpest investors in the venture capital game.

Of course, the question is whether such an environment for rapid and commercially successful innovation can be repeated elsewhere and quickly outside of Silicon Valley?

In Mike’s opinion, there is only one other place where this has recently happened, namely Israel.

In the space of 20 years, a country of seven million people where oranges were once the main export is now second only to the USA in technological innovation in telecoms, microchips, software, biopharmaceuticals, medical devices, and clean energy.

In 2008, Israel produced 483 venture-backed companies with just over $2 billion invested. Not surprisingly, Sequoia has recently opened an office in Israel to take advantage of the opportunities being created, a rare event for venture capital firms which tend to stick their own backyards.

Therefore, it is all about scientific and entrepreneurial talent.

Like Silicon Valley and the Route 128 developments around MIT in Boston, Israel has partly succeeded because it has invested in the talent of its young people over a generation, both those born in Israel and those who have subsequently emigrated from Russia in the 1990s.

It currently has the highest number of university degrees relative to the population and more scientists per capita than anywhere else in the world. Additionally, Israel has the highest number of start-up companies in the world outside of the United States.

As Mike Moritz suggested throughout our discussion, nurturing, developing and attracting the best talent is the key economic strategy that Wales should focus on.

Indeed, he was adamant that, despite being an advocate for his own industry, the lack of venture capital isn’t the problem as good ideas will always get funding from somewhere.

If there was a simple message for government, it was to encourage the import of global scientific talent whilst, at the same time, providing the resources necessary at the primary and secondary school level to nurture the home grown scientists, engineers and technologists of the future.

For example, by stimulating and supporting science within Welsh schools, Mike Moritz believed that you could develop a whole new generation of idea-driven young people that could help develop the industries of the future.

It is a simple message but again one that has been largely ignored by policymakers and politicians.

All of a sudden, it was 330pm and the meeting was over. We gave Mike a copy of the Encyclopaedia of Wales, a bottle of Penderyn and I managed to get him to autograph a copy of his updated book on Apple Computers.

Like J.P. Morgan before him a hundred years earlier, Michael Moritz has utilised the world of money to change the industry landscape around him and it is incredible to think that the two financial giants of their respective eras both have their roots in Wales.

And the simple message for Wales from this polite, thoughtful and highly intelligent man who has become one of the most influential business exports this country has ever produced?

Nurture, develop and attract young talent within science, engineering and technology and surely as day follows night, venture capital will follow that talent to create the industries of the future.

TRANSITIONAL RATE RELIEF

Following the recent article on business rates which appeared in the Western Mail and the Daily Post, as well as on this blog, I have been inundated with emails and telephone calls from businesses in Wales who simply cannot believe that we have a worse relief regime here than in either England or Scotland.

However, another issue which is related to the large increases faced by many small firms in their rates bills in just over three weeks time is that of transitional rate relief.

If you remember, the Welsh Conservatives proposed as an emergency measure to help with the higher bills faced by 40 per cent of the business population in Wales as a result of the recent revaluation exercise. This system, if enacted, would have enabled any large increases to be phased in over time rather than in one large bill this April.

Of course, critics of applying such a system to Wales have assumed that we would merely adopt the same transitional rate relief system as England for business rates. To be fair, they shouldn't be faulted for such an assumption as WAG has meekly followed England with regard to business rates with on exception - we do not have the same generous level of rate relief as our friends across Offa's Dyke.

Why should that be the case at all? Surely, as I stated in my previous article, the whole point of devolution is the ability for Wales to do things differently.

As the Federation of Small Businesses pointed out recently, rates, along with rents and salaries, are the three biggest expenses faced by small firms.

To introduce higher business rates for 40 per cent of the business community in Wales at a time when these firms are trying to save every penny to ensure their survival is irresponsible and threatens the recovery of the Welsh economy.

That is why the Welsh Conservatives also proposed that, amongst a range of emergency measures to deal with revaluation during a time of recession, Wales should introduce a specific transitional rate relief to alleviate this increase.

So what would be the principles of such a "Made in Wales" intervention?

First of all, the aim of any transitional relief scheme should be to provide stability and certainty and to allow those facing large increases over time to adjust to their new liability.

During a recessionary period or the months immediately after it, transitional relief could support the finances of businesses until the economy recovers from recession. In this case, this could be funded to ensure transitional relief for the next two years.

Unlike England, transitional rate relief should not be self-financed by the imposition of the penalty of downward transition as this is fundamentally unfair. Instead, this should be seen as a recession interventionist policy by Government - a type of temporary tax break - to support the business community through the recession.

This relief should clearly be targeted to ensure that it reaches those in most need. Therefore, unlike England, any transitional rate relief system in Wales would be focused towards small firms only and exclude large businesses i.e. the Tescos and Asdas, as claimed erroneously by Plaid Cymru, would not receive any transitional relief.

It could also be targeted towards key sectors - such as tourism - which have faced far higher increases in the valuation of their properties.

Those are the simple principles of a transitional rate relief scheme that is made in Wales for Wales. It does not benefit large firms, focuses on those most in need, and is a temporary measure to deal with the recession.

How would it have been paid for?

The funds would come by considering this as an emergency measure such to support Welsh businesses such as Pro-Act, where nearly £50 million has been committed by Ministers. However, unlike ProAct - where two thirds of the money has gone to support large firms - this measure would be focused on supporting small businesses across Welsh communities.

Given the millions of pounds currently underspent within WAG's business support programme, there are certainly spare funds in the system although a detailed analysis would have to be made to determine (a) the money available and (b) the threshold at which such transitional relief could apply.

Unfortunately for the small business community in Wales, any such discussion about transitional rate relief is purely academic as, yet again this week, the One-Wales Government categorically ruled out any additional support to alleviate business rates in Wales. Therefore, whatever the potential merits of a Welsh transitional rate relief scheme, it will not be implemented under the current Labour-Plaid administration.

Very few of those 60,000 businesses getting lower bills will thank government as most believe they are getting charged too much in the first place. However, for the 40,000 who will be facing higher bills, the reality of the situation will finally hit home when the bills start landing on their doormats over the next few weeks.

DYSON'S REPORT ON INNOVATION AND TECHNOLOGY

Being in Finland this week, I may have missed the news about the launch of Sir James Dyson's review for the Conservative Party on Tuesday.

It certainly is an inspiring document and seems to have been influenced by a lot of work that has emerged from NESTA during the last few years.

The full 57 page report can be downloaded from here and is worth reading alone for the detail on the relative position of the UK economy in areas such as high technology, postgraduate education, patenting and financing. It also seeks to look at what has worked well in places such as the USA, Israel and Singapore and how they can be applied here.

In short, the recommendations are as follows:

• Cultural change to develop high esteem for science and engineering, including a major national prize scheme for engineering and commitments to ‘grands projets’ such as high speed rail and nuclear power to demonstrate a Conservative Government’s ambitions for the country.


• Changes at university level to encourage more young people to choose science and engineering degrees, including: industry scholarships for engineers, where the costs of bursaries to students are shared between industry and government; greater freedom for universities, for example to develop shorter courses where appropriate, or more vocational degrees.


• Changes in the way we exploit new knowledge, so that the UK becomes world-class in taking the best new ideas out of universities and onto the market. Proposals include more focused funding for knowledge transfer in universities and new ways of promoting collaboration through public-private research institutes.


• Changes to improve financing for high tech start ups, by increasing the generosity of the Enterprise Investment Scheme (EIS) relief for angel investors that support hi tech companies, and a government guaranteed business loan scheme to encourage more lending by banks to innovative businesses.


• Changes to support high tech companies, by refocusing R&D tax credits on high tech companies, small businesses and new start-ups, and delivering on ambitions to deliver 25% of procurement and research contracts through small and medium sized enterprises (SMEs)

There isn't much that one can disagree with over this document and again demonstrates that the real ideas over the recovery is not emanating from the UK Government.

THE FAILURE OF PUBLICLY OWNED VENTURE CAPITAL FUNDS

It would seem that Wales isn't the only region that has problems with public investment into businesses.

According to an article in yesterday's FT, an investment by taxpayers of £74 million into regional venture capital funds has been marked down to just £5 million according to a report that is highly critical of the government’s wider venture capital programme.

Since 2000, the Department for Business has invested £338 million in 28 venture capital funds – through seven umbrella schemes – that have provided seed money to more than 800 companies.

According to a report from the Commons’ public accounts committee:

• Funds were structured in a way that taxpayers bore a “disproportionate” share of the risks involved when compared with private sector co-investors.


• Whilst the Department for Business has provided “scant information” about the performance of the funds, using “restrictive” confidentiality clauses, it appears that many made annual losses.


• One of the seven umbrella schemes - the Regional Venture Capital Funds (RVCF) - has reported an interim rate of return of -15.7 per cent, far worse than the -0.4 per cent delivered by other similar European funds.


• Many of the funds have been paying high costs to private sector fund managers. The RVCF, for example, spent £46 million in fees against £130 million invested up to December 2008.


• The taxpayers’ investment of £74 million in the RVCF is now worth only £5 million – a drop of about 93 per cent
  
• According to the National Audit Office, venture capital funds had taken a loss on four out of five investments they had sold – 189 write-offs since 2000 against just 45 profitable exits.


• The Department of Business failed failing to establish basic economic and financial objectives when it was setting up the funds and did not evaluate them for eight years

Given this performance, one has to question whether putting more money into publicly funded venture capital funds, as suggested by the Deputy First Minister recently, is the way forward.

FOR THE AVOIDANCE OF DOUBT

It would seem that there have been various commentators suggesting, quite erroneously, that the Conservatives don't have any policies to get the country out of recession.

Whilst that may suit the spin emanating from No 10, nothing could be further from the truth. Indeed, the Conservatives have already announced as series of policies for growing the UK economy whilst the UK Government remains largely silent on the issue.

For the avoidance of any doubt, these include the following policies which have already been announced by David Cameron, George Osborne and Ken Clarke:

• Creating the most competitive corporate tax environment in the G20 and starting by cutting the headline rate of corporation tax to 25p and the small companies’ rate to 20p, funded by reducing complex reliefs and allowances.
• Making the UK a more attractive location for multinationals by simplifying the complex Controlled Foreign Companies rules
• Improving the corporate tax system by consulting on the merits of moving towards a territorial corporate tax system that only taxes profits generated in the UK.
• Improving Intellectual Property protection by creating the most attractive tax environment for intellectual property of any major economy that will encourage intellectual property to reside in the UK.
• Restoring the tax system’s reputation for simplicity, stability and predictability by setting out a five year road map for the direction of corporate tax reform, providing greater certainty and stability to businesses.
• Reducing the burden of red tape on business with a ‘one in one out’ rule for new regulations, mandatory sunset clauses and regulatory budgets for departments.
• Making it easier to start a business by reducing the number of forms needed to register a new business and moving towards a ‘one-click’ registration model with the aim of making Britain the fastest place in the world to start a business.
• Helping social tenants start their own businesses by ending restrictions on people starting a business in social housing, to enable social tenants to become entrepreneurs.
• Helping small businesses win more government contracts by opening up government procurement to SMEs by reducing administrative requirements.
• Create a presumption in favour of sustainable development in the planning system, with incentives for local communities to foster a pro-development culture, greater certainty for developers with a single unified local tariff, and a fast track process for major infrastructure projects with inquiries subject to binding timetables.

I am sure other equally impressive ideas will emerge over the next few weeks, especially when Sir James Dyson gets his task force on high technology manufacturing gets into gear but this is seriously long way from the 'lack of Tory business policies' line which has gone out largely unchallenged by those who should know better.

Perhaps those commentators will now focus on what Labour will do to get the country growing - or will we have to wait until the Budget for any such ideas to emerge?

MANUFACTURING OCCUPATIONS FALL BY 38 PER CENT

As Chevron announces plans to sell its refinery in Pembrokeshire to focus on gas and building up its market in Asia, Forbes magazine worryingly suggest that they may not be able to find a suitable buyer in the near future

This begs the real question whether they will take the hit and just close it down, especially as Chevron has indicated that it intends to cut 2,000 jobs this year and will continue reducing its work force through 2011.

This would be a serious blow to the industrial sector within Wales, which has already seen major job cuts during the last eighteen months.

Indeed, the employment statistics related to occupations showed that, during the period Jun 2008-Jun 2009, over 34,000 posts were lost in Wales, a reduction of 3 per cent.

However, according to statistics wales, whilst managerial and service occupations only declined by around 4 per cent, jobs such as process, plant and machine operatives - the key workers in production industries - went down by 11 per cent and accounted for over 38 per cent of the occupations lost in Wales during this period.

This demonstrates the declining state of the manufacturing sector in Wales, and the urgency to have a coherent strategy to stop the decline of this vital sector.

DAVID CAMERON'S SPEECH

I have been reflecting on David Cameron's speech to the Welsh Conservative Spring Conference earlier today.

It was certainly a more confident speech than last week's effort.

More importantly, it carried clear messages which, although not 'sexy' as some political commentators noted, will certainly strike a chord with many voters.

First of all was his statement on the economy and what the Conservatives would do to encourage enterprise.

"Take the economy. We understand that in the end it’s not government that will get the Welsh economy growing……it’s enterprise, it’s entrepreneurs, people with a great idea and the courage to start their own business. That’s why we’ll cut corporation tax rates, abolish taxes on the first ten jobs created by new businesses and get people off welfare and into work."

Clear, simple and unambiguous - cut taxes for entrepreneurs to help them get the economy working and establish a contrast with a Labour Party that is increasing taxes on industry.

Secondly, on further devolution:

"We want a relationship of co-operation, not confrontation, between Westminster and Cardiff. I will be a Prime Minister who acts on the voice of the Welsh people and will maintain strong relationships with the Assembly Government. That’s why I’m happy to come to the Assembly each year and make myself available to answer questions on any subject. It’s why I want Westminster Ministers appearing in front of Assembly committees – and Assembly Ministers appearing in front of Westminster committees. And it’s why I will always support devolution and make sure it works for the benefit of everyone. And if people in Wales want a referendum on full law-making powers that is a matter for them – so a Conservative Government will not block it."

Again, a simple but effective statement that kills stone dead any fantasy from nationalists and the Labour Party that David Cameron would stall any referendum on further powers.

Indeed, I fully expect that when the Conservatives win, they will push ahead with a decision on a referendum date quickly.

Finally, the message on government waste:

"So after all this waste, all this failure and now all this debt, it falls to us, the modern Conservative Party, to restore hope in all those Labour have let down. Showing government can be smarter, better, more imaginative and more competent. Explaining how we can make things better without just spending money, how we can deliver more for less. More for less is not some pie-in-the-sky political promise. It’s something that businesses up and down the country do day-in, day-out. They think: how can I deliver more for my customers while reducing my costs? Businesses are constantly looking for creative ways to get more bang for their buck. Reforming work practices. Buying wholesale when they can. Eradicating duplication. Innovating new delivery systems. Cutting out waste. We need to bring that business sense and imagination to government. We’re going to shape government in a way it has never existed before so we use our instincts as Conservatives, our understanding of how people and communities really work and the latest technology to deliver more for less. And this means doing three things in particular. First, tackling the root causes of our social problems so that we can make millions of lives better while at the same time reducing the costs on the state. Second, reforming our public services so we deliver both choice and efficiency. And third, making government more local and more transparent so we cut waste as well as improve outcomes."

Actually, this is where the political commentators safe in their Cardiff Bay bubble may have really misunderstood the electorate.

This may be a boring message but reducing costs is what millions of families across the UK have had to do to ensure that they survive the recession. They, more than anyone else, can understand the need to cut their coat according to their cloth and this message will resonate with all those families who have had to cut down whilst government continues with its spending.

Indeed, this may be a masterstroke if the message continues to be pushed by the Conservative Party to the wider electorate.

After the phony wars of bullygate, Ashcroft, polls and posters, the real election started today.

BROADBAND - OPENING A HIGHWAY TO RURAL WALES

A report from the Wales Rural Observatory has expressed concerns about the viability of Welsh rural communities.

Its criticisms were wide ranging and included a lack of rural focus from the Welsh Assembly Government, unrealistic budgets for rural local authorities, non-existent employment prospects, inflated house prices, a withdrawal of services (particularly local schools) and a high cost of living.

In addition, four key areas – broadband provision, public transport, house prices and access to services – were highlighted by residents as being critical in addressing some of the deep rooted problems facing rural areas.

While factors such as a sympathetic and empathetic rural planning system, more affordable housing and subsidised travel were suggested as possible policy solutions to these issues, probably the most important factor in stimulating economic regeneration from a business point of view is the development of a better broadband service within these more remote areas.

As the report argues, this has enormous potential to stimulate entrepreneurship, sustain existing businesses and provide a critical platform for rural sustainability.

Not surprisingly, other rural regions around the world have also identified broadband availability as critical in improving the competitiveness of existing businesses, promoting opportunities that can lead to more entrepreneurship, and providing access for education and training vital for improving the ability of businesses.

For example, a recent article in The Economist has enormous resonance with much of rural Wales.

Entitled Fibre In Paradise, it examines how a small city in a rural part of Virginia in the USA is replacing old industries with technology jobs through establishing broadband capability via US government grants.

And it seems to be working.

Northrop Grumman (the giant US American defence contractor) and CGI (an international IT consultancy) have announced that they would be hiring 700 technicians, consultants and call-operators at offices within one of the more remote areas in Virginia, citing the presence of high-speed broadband as “absolutely critical”.

On the other side of the USA, a report entitled “Broadband for All? Gaps in California’s Broadband Adoption and Availability” also indicates that broadband policy, even within an advanced economy such as California, should focus specifically on increasing availability in rural areas.

Indeed, it showed that the effect of broadband was stronger within those areas with low population density and that the “superhighway” had as much effect on the economic potential of remote areas as building a road had done 200 years earlier.

In dealing with these issues of broadband availability within rural areas, one has to say that the reaction of Welsh Assembly Government has, so far, been encouraging, and it has recently announced plans for utilising European Structural Funding to improve high-speed broadband coverage in rural Wales.

Of course rhetoric and action are two quite different creatures and one can only hope that this project is pushed through quickly rather than being subject to the usual public sector prevarication, especially as other rural regions of the UK are already benefiting from improved government investment in broadband.

For example, the Highlands and Islands region recently received £70m to deliver high speed internet connections across the rural parts of north and west Scotland.

This was in response to a report which warned that this remote Scottish region could lag behind the rest of the UK in the roll-out of next generation broadband access that is critical for the development of knowledge-based sectors of the economy.

Therefore, while we are currently several years behind many other rural regions in terms of providing the vital 21st century services that are vital for economic competitiveness, we now have the opportunity to create a coherent strategy for broadband adoption that addresses the whole of Wales rather than just select areas along main arterial routes such as the A55 or the M4.

If we can establish the high technology infrastructure that can attract the industries of the future, then an economic transformation could begin in our rural communities.

BACK FROM THE USA

Finally back after a highly successful week in the USA.

Some really exciting results which I will try and blog about over the next week, including a visit to speak with one of Wales' most successful business exports.

Watch this space!