Wales is more in need of a boost to its economic development and a rebalancing of its economy than any other part of the UK.
It ranks bottom for GVA per head, and while the rest of the UK has been struggling to get out of the downturn, Wales has been cushioned by a heavy reliance on the public sector. But with £1.8bn due to be cut from its public spending over the next four years, it is business that will have to lead future growth.
The Welsh Assembly government has already recognised this dilemma and, in a major divergence from the rest of the UK, ceased all grant funding for economic development last year.
In its place, it launched an arm’s-length investment and loans vehicle, the Regeneration Fund for Wales, transferring cash and assets to get the £55m fund started. In this one move, the government signalled it would no longer dominate Wales’ development industry and would gradually cease to be the country’s largest property owner. Instead, it will be an enabler for the private sector.
This new strategy and its economic renewal policy, which focuses on developing six key industry areas and ensuring nationwide broadband access by 2016, has bumped economic growth up the political agenda.
In the recent Assembly election campaign, the number of political pledges covering economic development, infrastructure, planning and skills far exceeded those in the 2007 poll. But as the new Labour government settles into office – despite not securing a majority – there are fears that it will fail to finish what was started and fail to enable the private sector to develop the right infrastructure to stimulate growth and wealth creation.
Development hiatus
Despite the launch of the economic renewal strategy last summer, there has been a development hiatus across Wales. The private sector is still in the doldrums and as the Welsh Assembly has switched from promoting sites to disposing of its property assets, little has come forward.
“There is inertia and uncertainty,” says Robin Shepherd of Barton Wilmore. “The momentum has been lost and sites are no longer being promoted. Economic development policy is not as joined-up as it needs to be. The government won’t become an enabler overnight, but in the meantime it has created uncertainty and that’s not good for investment.”
Steve Gibbon, director of GVA, says there is still confusion about the direction of economic development policy and the private sector’s role in it. “The Assembly needs to educate the property industry on what it is trying to do,” he adds.
Chris Sutton, partner at King Sturge, says the government must be bolder and more aggressive to make Wales a more competitive place for growth. He says deregulation will be crucial in attracting and stimulating the private sector, and suggests longer periods of business rate relief on new speculative developments as one way to kick-start it.
“The Assembly could introduce a two-year void period for speculative development,” he says. “This would actively encourage developers and would cost the Treasury nothing in lost rates as no one is building now anyway.”
Sutton would also like to see the Assembly take its foot off the pedal on sustainability, after introducing new building regulations at a much faster pace than England (see feature, p64).
“It’s like a super-tax on Welsh development,” says Sutton. “It will bring investment and development to a complete halt and it will end up costing 10% more to build in Wales.”
Potential to pull back
Shepherd says the new regulations have already made some developments unviable, but with the retirement of Jane Davidson, the minister leading the sustainability drive, there is some potential for the Assembly to pull back.
“There’s a 60,000 shortfall in housing in Wales,” he says. “We need to encourage the development industry and give them a bit more free rein to invest.”
What does appear to be going in the right direction, however, is planning. The Welsh government has already commissioned two major reports – one into streamlining planning applications, which was published last year, and one on the role of planning in economic development, which is expected shortly.
A slew of consultation papers is due now the election is over and there are growing calls for the government to use its new legislative powers (gained after the March referendum) to take control of planning rather than be covered by England’s proposed Localism Bill. It is Welsh politicians who are leading this drive, urging ministers to give Wales planning independence under a bill to consolidate and streamline the system.
The Assembly’s sustainability committee made a number of recommendations before the election. In a report, it suggested a bill with a presumption in favour of development (similar to that in the Localism Bill), an emphasis on encouraging the right sort of development rather than being prohibitive, and allowing businesses to be consulted as part of local authorities’ local development plan process.
Ben Lewis, principal planner at GVA, says: “The Localism Bill is creating uncertainty in England and this is an opportunity for Wales to create a straightforward system.” He adds that with fewer planning regulations and a clear system, developers are more likely to forsake England and come to Wales to do business.
Sutton says there should be simplified planning policies to target sectors that would bring growth to Wales, such as renewable energy or specific locations that need an extra boost to aid growth. He says the Assembly, which has a history of using innovative financing vehicles such as the Regeneration Fund for Wales, should continue this and look at using tax increment financing.
The country’s recent qualification for a further round of EU Objective One funding should also be an opportunity for the private sector to take a lead on its distribution, rather than being an exclusive public sector initiative, he adds.
The property sector is also looking anxiously at England’s 21 new Enterprise Zones, announced by the chancellor in Cardiff. Wales has yet to get any and it is understood there is little money available from the Treasury to fund a Welsh version. However, EZs do bring additional benefits, such as capital allowances and business rate discounts, which could be a boon to inward investment and there is a push for the Assembly to consider them.
“It needs to look at this and perhaps come up with a diet version for Wales,” says Sutton.
Gibbon warns that Wales cannot afford to be left behind. “You have to have similar encouragement for development in Wales, otherwise new business will go to England,” he says.
Labour goes it alone
Labour won half the 60 seats in this month’s Welsh Assembly government election – enough to win, but not an overall majority. There was speculation that it would continue to govern in coalition with Plaid Cymru but the nationalists had a poor turn-out in the election, losing four seats.
With animosity between the Liberal Democrats and Labour running high over the former’s coalition with the Conservatives in Westminster, the chances of the two joining forces in Wales were always going to be remote.
So it was not entirely a surprise when Labour leader and Wales first minister Carwyn Jones announced last week that the party was going it alone. Its lack of overall majority will mean it has to work hard with the other parties and no doubt all eyes will be on whether it will, or indeed can, fulfill its pre-election pledges, which were to:
? Build strong links with anchor companies and develop mutually beneficial relationships
? Establish a single Assembly government Capital Infrastructure Fund, working collaboratively with the public, private and third sectors
? Explore innovative, collaborative ways in which the Assembly and local authorities can manage assets and raise capital for investment.
