The Welsh Assembly government has a new approach to economic development – aiming to become an enabler and stepping back from grant funding. By Karen Day
Wales is taking its economic development policy in an entirely new direction, setting it apart from the rest of the UK. The Welsh Assembly government’s grant-based system of funding for business has already been swept aside and replaced by loans to reduce the traditional dependency culture and protect scarce public funds.
The WAG has pledged more targeted intervention in the economy, providing support only where the private sector cannot. This is a fundamental change and one that will be watched closely by the UK government.
The WAG’s overhaul of economic development policy has been eagerly anticipated. The principality has traditionally lagged behind the economies of the rest of the UK and the Plaid Cymru/Labour coalition government has been criticised for its slow response to the tough economic climate. Its blueprint, Economic renewal: a new direction, which was published in July, attempts to create a more coherent policy across government and pushes economic development further up the political agenda ahead of next year’s WAG elections.
Cautiously welcomed
The devolved government’s main priority is making Wales more economically competitive and attractive to business, and the changes have been cautiously welcomed. The most fundamental shift will be in how the WAG intervenes in the market.
Deputy first minister Ieuan Wyn Jones has made it clear that the government will become an “enabler”, stepping back from directly funding or investing in economic development. In the future, the government will provide loans and intervene only where the private sector is unable to. Gone are the days when it outbid developers for land.
The WAG has already cancelled its Single Investment Fund for business and switched the cash to infrastructure projects, pledging to give all businesses broadband access by 2016.
The Department for the Economy and Transport, which held all the assets of the former Welsh Development Agency, has transferred them to a new arm’s-length vehicle – the Regeneration Investment Fund for Wales (see feature, p70). This has been set up through the European Union’s Joint European Support for Sustainable Investment in City Areas (Jessica) initiative and all access to regeneration funding and land assets will now be through RIFW, which will provide equity, guarantees and repayable loans.
It holds around £55m in cash and assets, although fund managers Amber Infrastructure and Lambert Smith Hampton have been tasked with matching this with private investment by 2015.
Miles Thomas, director of development at Savills, says the fund will have a significant effect in Wales: “Once a grant is given, it’s gone. There is an opportunity here to recycle investment.”
Funding benefits
Thomas says that the WAG will receive a share in any investment made, as well as “enjoying the uplift” in the future value of projects. He points out that the fund will be particularly helpful in the current economic climate. “No matter how good a scheme is, it’s tough to find funding in this market,” he says. “The beneficiaries are also likely to be local authorities struggling to bring sites forward.”
The Welsh planning system will also get a few tweaks, and although it will not change fundamentally, the WAG wants to make it more “responsive to the market”. This means that its 25 planning authorities will be encouraged to look more favourably on development and not stick so rigidly to guidance in the now outdated Wales’ Spatial Plan, which is also being reformed.
Robin Shepherd, a director at planning consultancy Barton Willmore, says: “This is a step in the right direction. It has been very easy for local authorities to resist developments such as wind farms, but the issue is how this will be developed and taken forward.”
Geraint John, head of planning at Savills, shares Shepherd’s caution. He says the biggest challenge will be encouraging a change in planning culture. “There has to be a presumption in favour of development in planning,” he says. “Until that is the mindset in local authorities, how can it be achieved?”
Both agree that proposals for a Wales Strategic Infrastructure Plan, to replace the current spatial plan, could set the mandate for local authorities and push this forward. “The plan is currently very woolly and this would make it more of a tool for investment,” says Shepherd.
However, concerns about the WAG’s new economic development strategy have focused around the future of inward investment with the abolition of International Business Wales. Its workforce has already been subsumed into the DE&T, which is consulting on its future role and making significant redundancies.
King Sturge partner Chris Sutton says it is still not clear what will replace it, if anything, and he fears that the needs of big business may be ignored. “Wales has been very good at attracting business in the past and we need to focus on what we’ve already got,” he says.
“A subtext of this is the appeasement of the SME lobby. We need to be more accommodating to big business and make it easy to invest in Wales.”
Economic development changes in Wales at a glance
• The WAG will become an “enabler” for economic development rather than a funder or investor
• It has moved from a grant-based system of funding for business to repayable loans and investment
• The Regeneration Investment Fund for Wales will provide equity, loans and guarantees to regeneration projects
• It has reduced direct business support and switched cash to providing infrastructure, including broadband access to all businesses by 2016
• International Business Wales has been subsumed into the Department for the Economy and Transport. Teams will focus on six sectors – ICT, energy and environment, advanced materials and manufacturing industries, life sciences, financial, and professional services
• The WAG will develop a new Wales Strategic Infrastructure Plan (replacing the Wales Spatial Plan)
• The planning applications process will be speeded up and streamlined
• Skills training will be improved and new incentives offered for businesses to provide apprenticeships
