Radical business grants shake-up for Welsh economy

Wind turbines Areas promoting green technology will be favoured under the new plans

The business grant culture of the Welsh economy over the past 30 years is over, the assembly government has said.

Deputy First Minister Ieuan Wyn Jones announced a "radical rethink," focusing on infrastructure projects and on sectors with the potential to grow.

He says the belief that the economy can be micro-managed with taxpayers' money is flawed.

"In the current economic climate our investment needs to be smarter," said Mr Jones.

"We must concentrate our efforts and our resources on areas where we have the greatest degree of control and where their impact will be most widely felt."

The assembly government has a £240m economic development budget.

Analysis

Some brave decisions may have to be made in years to come. The new policy is likely to focus on certain sectors which are thought to have a future, in effect trying to pick winners.

So does that mean our politicians will refuse to sign a big cheque to a foreign firm which is offering to bring potential jobs to Wales but is in the wrong sector?

That's one of the concerns among business leaders, although on the whole I believe this new policy will give company bosses what they've been asking for. A feeling has emerged that grants have created a dependency culture among firms in Wales.

The fear is that some companies are basing their decisions on the availability of grants rather than on business reasons, and that creates a culture in which companies aren't robust enough. As a result, the extraordinary message from groups like the CBI is "stop giving us grants".

In an era of huge public sector cuts that's a message the assembly government should have no problem addressing.

Business grants have played a major role in helping Wales cope with the demise of heavy manufacturing.

Big name firms attracted to Wales in recent decades include Sony and Panasonic.

Mr Jones published the long-awaited Economic Renewal Programme, which reviewed how the assembly government's economic development budget should be spent.

The document signals an end to the long-established business grant culture with the assembly government instead now concentrating on creating a better environment for business.

There is investment in broadband technology and, instead of handouts, financial support will be given in the form of loans in sectors like green technology where there is thought to be a future.

Mr Jones said: "Our single investment fund will be reallocated to serve our two key economic development priorities: infrastructure and our key sectors.

"However, we also believe that we still have a role to play in working with regionally important growth businesses. We will make some of our funding available for this purpose."

But he said the assembly government "reserve the right to continue to be open to strategic projects", including inward investment outside the key sectors.

There are six new key sectors in all:

  • Creative industries
  • ICT
  • Energy and environment
  • Advanced material and manufacturing
  • Life sciences
  • Financial and professional services

Mr Jones, who is also the Economy Minister, fired the starting gun for radical reform back in October when he said "the massive grant culture is over".

Former economic development minister Andrew Davies said the move followed a long-running debate over the effectiveness of grants.

Mr Davies told BBC Radio Wales: "The UK Government's department of trade and industry some years ago was very sceptical of what was called regional selective assistance and whether it had long-term effects.

"That's one of the pieces of evidence that persuaded me as well as wider cultural issues.

"We needed to focus on key sectors and actually develop an investment culture."

Instead of offering multi-national companies large sums of taxpayers' money to locate in Wales, the assembly government is expected to shift its focus to helping companies gain access to bank loans and building up research bases here instead.

RECOMMENDATIONS

  • Creating a more responsive planning system, with a package of reforms to help businesses
  • Improve the co-ordination of processes that lead to regulations that impact on businesses
  • A reduction of bureaucracy in public sector procurement
  • Full integration of the Foreign Direct Investment (FDI) teams
  • International Business Wales (IBW) will cease to exist as a separate function
  • Improved supply of premises for business in areas where there is a shortage
  • Increasing investment in our new priority sectors for research and development
  • Working with business to broaden and deepen the base of skills in Wales, including science, technology, engineering and maths
  • Source: Economic Renewal: A New Direction, Welsh Assembly Government

It comes as a response to changes in the global and domestic economic landscape and a bid to reshape Wales' fiscal future post-recession.

The changes aim to free up more funding for research and development and develop a tailored skills base.

The shake-up follows research by the Institute of Welsh Affairs (IWA) which revealed that Wales has spent more on economic development per head of the population than anywhere else in the UK in recent years.

The budget of £240m per year is equivalent to £80 for every person in Wales.

Despite the high spend, Wales is officially the poorest part of Britain, according to figures from the Office of National Statistics (ONS) measuring Gross Value Added (GVA).

Mr Jones's intervention comes amid the backdrop of European aid to Wales tailing off dramatically after 2013, and less public finance available for business support.

But the overhaul has prompted concern among businesses over how they will be supported in the future.

There are fears it could mark the official end of the big inward investment culture which saw so many Japanese and other foreign firms come to Wales and provided tens of thousands of jobs.

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