House of Commons - Welsh Affairs

Select Committee on Welsh Affairs Fourth Report

40. On 1 October 1998 the WDA, the DBRW and the Land Authority for Wales (LAW) were formally merged. The organisational structure of the new WDA consists of a Strategic Policy Division, a Business Development Division, four Regional Divisions (for North, South West, South East and Mid Wales (the old DBRW area)), an International Division and a Land Division (the old LAW), together with a supporting division providing marketing and communications, finance, human resources and legal services.[73]

41. The WDA is to increase the number of staff it has in the regions by some 20%. The four regional offices are to be in St Asaph, Penllergaer, Treforest and Newtown. The Mid Wales region will continue to operate the DBRW's second office, in West Wales, though this is moving from Machynlleth to Aberystwyth. The North Wales region will, in addition, continue to have use of a desk in Parc Menai.[74] We welcome the increase in "front-line" resources and in principle approve of the WDA getting close to those it serves. However, we remain concerned that there is some duplication between the WDA and other public sector organisations at regional and local level and that the different roles of the various organisations have not been properly thought out.

42. The DBRW had an excellent reputation in its area for supporting indigenous industry, and for understanding the problems that face businesses in rural areas. Unlike the WDA it did not lose its responsibilities for small business support in 1993, and it has enjoyed a much higher rate of funding per head of population than has the WDA. The merger of DBRW with the WDA promises to benefit rural areas which did not fall within the DBRW area, but there is much concern in mid-Wales that the old DBRW area will lose out from the change.[75] There is also more general concern that the rural concerns will lose focus in the new WDA. We welcome the decision to create a special Rural Policy Unit within the WDA and to place it in the Strategic Policy Division, at the heart of the organisation. The Chief Executive of DBRW (now Managing Director of the WDA's Mid Wales Division) was confident that rural issues would not be marginalised in the new WDA, and that resources in Mid Wales would be sustained.[76]

43. Unlike the WDA, the DBRW had the power to fund social development projects, and this has been used to great effect in mid-Wales. In a rural area funding to build a sports centre or playground, for example, can make a tremendous difference to the life of that community. This power has been extended to the whole of the new WDA, but without any promise of additional funding. Funding for social development outside the DBRW area has been channelled through the local authorities and the Minister told us that there were no plans to pull this back.[77] Therefore, either the WDA will not exercise its power to fund social development outside the old DBRW area, or the DBRW's resources will be spread much more thinly. WDA's Chief Executive acknowledged that "we are not going to be able to deliver the same level of service that has been available in mid Wales throughout the rest of Wales".[78] It would be a great pity to miss the opportunity to build on the DBRW's experience of assisting communities throughout Wales. The new WDA should be given additional resources to fund both economic and social development across rural Wales.

44. As we discuss above, it is vital that everything possible be done to maximise the "linkage" of inward investors with indigenous suppliers. The WDA's Source Wales programme is crucial in this regard. It has worked well in the past but we believe it could work even better. To date it has been targeted at the bigger companies - the first tier of the supply chain. The goal should be to roll the Source Wales programme out to the next tier of companies, perhaps in partnership with the local enterprise agencies. Linkage should lie at the heart of the WDA's strategy. We are concerned, therefore, that the staff of Source Wales are being entirely devolved to the WDA's regional offices.[79] This seems to us regrettable. There should, in our view, be a Head Office team responsible for linkage strategy and the development of innovative new products. We recommend that the WDA reconsider the management of its Source Wales programme. It must demonstrate that linkage is a major part of its strategy.

45. Some witnesses suggested that the remit of the new WDA should be even wider than in it is, extending to all sectors of the Welsh economy, including agriculture and tourism.[80] In our Second Report of this Session, on the crisis in the Welsh Livestock Industry, we recommended that the new WDA be given clear responsibility for developing the food industry in Wales; and that it should play a leading role in assisting farmers to form cooperatives to produce locally branded products, and in encouraging the development of innovative enterprises within Wales which add value to agricultural produce.[81] While the WDA has recently been given responsibility for food promotion in Wales, agriculture remains the direct responsibility of the Welsh Office.[82] It may be that it is best to leave the administration of the vastly complicated, and specialist, agrimoney schemes with the Welsh Office, but it is essential that CAP funding should be properly co-ordinated with other forms of economic development funding. Agriculture must not be not seen as outside the WDA's remit. Agriculture is of vital importance to our rural economy and must lie at the heart of the WDA's rural policy. As farmers increasingly diversify into tourism and leisure they will need support that is outside the expertise of the Welsh Office Agricultural Department. We recommend that the WDA be clearly empowered to engage in the development of agriculture, and agricultural diversification in particular.

46. Tourism, too, is a vital industry, particularly in rural Wales. It is estimated that tourism supports approximately one in ten jobs in Wales.[83] The development and marketing of tourism is the responsibility of the Wales Tourist Board (WTB), whose performance has been subject to much critical comment in recent months.[84] Several witnesses have suggested that the WTB should be brought under the umbrella of the WDA. It is argued that tourism businesses are businesses like any other, the great majority SMEs or "microbusinesses", and that, as a key part of the Welsh economy, tourism must play a major part in the WDA's strategy for economic development. It is also suggested that marketing Wales as a tourist destination could benefit from better integration with arts and heritage promotion, export promotion and the attraction of inward investment: that all these should be promoted under "Brand Wales". The WTB, not surprisingly, argued strongly that tourism required a separate strategic organisation and a national focus.[85] An alternative suggestion is to leave the WTB in existence as an independent marketing body, but to transfer its grant-giving responsibilities to the WDA. The WTB maintain that their grant regime is cost-effective (on a cost per job basis, some £5,000) and that they have full grant take-up.[86] While we accept that the system works quite well as it is, there would, in our view, be merit in integrating tourism grants with other business development grants. We are not advocating immediate change. It is certainly best to leave the WTB alone until after the Rugby World Cup in the Summer of 1999. We urge the National Assembly to consider the future of the Wales Tourist Board at the earliest opportunity

47. There is a risk that the new WDA will be too big and unwieldy to be fully effective. We were interested that in Ireland they have chosen to split the functions of attracting inward investment (the IDA) and stimulating indigenous growth (Forbairt[87]), under one co-ordinating body (Forfas).Those we talked to in Ireland felt that this division ensured that the interests of indigenous industry did not lose out to the greater glamour of attracting inward investment. The IDA and Forbairt appear to work very closely together (sharing offices at regional level) in ensuring linkage between inward investors and indigenous suppliers. Indeed, we felt that linkage was achieved more effectively than it is in Wales. The Chairman of WDA was strongly of the view that the integrated WDA model was better.[88] The Minister appeared to have more of an open mind, though he suggested (probably rightly) that other factors, such as the rate of corporation tax, are more significant in Ireland's economic success.[89] We are not suggesting that the WDA should be split up so soon after it has been merged. Far from it, we are enthusiastic about the merger and believe it offers great opportunities for co-ordination of strategy. But the Irish model might perhaps be applied within the WDA, by creating a division clearly responsible for developing indigenous industry. We would recommend that the National Assembly review the internal organisation of the WDA, perhaps after a year in operation.

48. It is important, meanwhile, that the WDA should be given targets that ensure it gives sufficient attention to indigenous industry. The targets set for the old WDA for the first half of the year (as contained in the annual Strategic Guidance letter from the Secretary of State[90]) were: to create or safeguard at least 4,800 jobs, of which not less than 50% are outside the eastern M4 and A55 corridors; to lever in at least £215 million of private sector investment; to secure inward investment projects which create or safeguard at least 3,150 jobs (of which 1,250 should come from new overseas projects) with associated investment of £180 million; to secure through the Business Development programme at least £13 million worth of business; and (for the full year) to complete reclamation of 370 hectares of land. The DBRW's targets were (in the first half of the year) to create or safeguard 600 jobs of which not less than 35% are outside Powys; and (for the full year) to generate receipts of £10 million and to lever in £15 million of private sector investment.[91] The current targets for the new WDA have recently been published.[92] To a great extent they follow the old pattern: the merged WDA is to create or safeguard 11,250 jobs and lever in £480 million of private sector investment in the full year. The geographical spread of activity is to be measured by reference to the new NUTS II areas: 5,650 of the jobs supported and £175 million of the private sector investment levered in is to be in West Wales and the Valleys. The new WDA is to create or safeguard 6,300 jobs through inward investment (2,550 of them from new overseas projects). It is notable that, in many respects, the 1998-99 targets are well down on those for 1997-98, presumably in part because of the diversion of effort to the merger.

49. The Welsh Office plans to "review fundamentally the definition and nature of targets for the new WDA from 1999-2000".[93] There appears to be consensus that it is no longer appropriate to evaluate projects, or the WDA's performance, solely in terms of jobs created.[94] The WDA acknowledges that "we need to develop new ways of measuring our performance to reflect the priority to be given to increasing GDP and spreading prosperity and increasing support for indigenous firms and rural areas".[95] The success of the WDA will be measured by its impact on the Welsh economy and it may be that it should be set targets related to Wales's productivity and economic growth. Targets for business start-up, and specifically for indigenous jobs created, have been suggested.[96] The WDA's performance has had plenty of critics in the past. Reports that a number of senior people are leaving the Agency are worrying: reported problems of morale must be addressed. It is up to the new WDA to demonstrate that it is an effective organisation, able to meet its targets and deliver its programmes efficiently.

50. Our main concern about the new WDA is that it is being given vast new challenges without any additional resources. Indeed, it is being required to begin by reducing its merged running costs by £3.5 million. This is to be achieved in small part by reducing the staff complement from 510 to 460, at the same time increasing staff in the regional offices from 182 to 217.[97] The WDA's Chairman was confident that these savings could be achieved without any diminution in service. He maintained that to operate optimally, however, the WDA could do with another £50 million.[98] To suggest that the Government should give the WDA an extra £50 million would be unrealistic, but we are seriously concerned that the ambitious plans for economic regeneration set out in Pathway to Prosperity will be undermined by a lack of resources. We believe that investment in the new WDA, if properly channelled, would pay itself back. The Government must provide the WDA with the resources needed to do the job.

Organisational change

51. The Minister has warned against "institutionalitis and organisational restructuring for its own sake".[99] We accept that there has to be very good reason to instigate change, which is always costly in time and resources. It is clear that there is an element of self-interest and empire-building in the submissions we have received. Naturally enough, some organisations are keen to expand at the expense of others and others are determined to protect their patch. Nevertheless, in our view, there are too many organisations involved in business support in Wales. Wales has markedly more organisations than Scotland (which has twice the population), for example, for no very clear reason, and this cannot be cost-effective. This is not to say that everyone does not at present provide a useful service, just that it is not the most effective means of providing that service. While we accept that the Secretary of State is unlikely to instigate further institutional change in advance of the National Assembly, we recommend that the Welsh Office start preparing plans for streamlining the structure of business support services in Wales.

FINANCIAL SUPPORT

Grants

52. A complex range of grants and schemes are available to assist industry in Wales. In terms of cost to the Exchequer (some £76.2 million in 1997-98 alone) by far the most significant grant is Regional Selective Assistance (RSA). This scheme aims to reduce disparities in employment opportunities by providing grants to support investment projects in areas of need (the Assisted Areas) which create or safeguard jobs and which would otherwise not take place in those areas.[100] The Assisted Area map, which dates from 1993, identifies areas of greatest need (the Development Areas - Anglesey, Pembrokeshire and much of the Valleys) which qualify for higher levels of support, and areas of relatively less need (the Intermediate Areas - most of South Wales and North West Wales and parts of North East and South West Wales) which qualify for lower levels of support.[101] These areas were established by reference to a number of criteria which attempt to assess the level of relative deprivation in an area such as the long-term unemployment figures, activity rates and various social characteristics such as people on sickness benefit but take no account of factors engendered by rurality, such as population sparsity, poor access to services and the higher cost of service delivery, high transport costs and limited employment opportunities. Rural Mid Wales, for example, does not qualify for RSA at all, although other types of assistance are provided.[102] The Assisted Area map is currently under review UK-wide, a review that is linked with the European Union's review of Structural Funds. We trust that the unfairness of the current system to rural areas will be addressed. However, we share the Minister's concern[103] that, if South East Wales loses Assisted Area status, it may adversely affect Wales's ability to attract inward investment projects which will only consider locating in that area.

53. It is commonly held that RSA is spent disproportionately to attract inward investment. In fact, over the last ten years payments of RSA to foreign-owned companies (£266.8 million) have only slightly exceeded payments to UK-owned companies (£228 million).[104] Similarly it is held that RSA is spent disproportionately on large projects. In fact, the number of small firms assisted greatly exceeds the number of large firms assisted. Over the last 5 years, 26% of RSA offers were for less than £25,000 and a further 48% were for less than £250,000.[105] However, the total value of RSA payments to large firms greatly exceeds the value of payments to small firms.

54. A number of criticisms have been made to us about the operation of RSA.[106] CBI Wales point out that it is often a problem for indigenous companies to prove their mobility (in order to meet the criterion that but for the grant the investment would not take place in that location).[107] They suggest that the criteria for RSA should be less rigidly applied for indigenous companies, and that grants should be assessed not solely by cost per job but by reference to the quality and importance of the investment to the locality (since a small project in West Wales may be more valuable than a large one in the South or North East). The job-related criteria also, they suggest, acts against encouraging high-tech, high-capital-intensive projects. We share the view of the Trade and Industry Committee that the system of RSA is in desperate need of overhaul and that "there is a case for a new assistance scheme better able to reflect national priorities and requirements".[108]

55. A number of grants are available to assist small firms wishing to innovate. Regional Innovation (RIN) Grants[109] of up to £25,000 are available to small firms of up to 50 employees throughout Wales.[110] Under the SMART (Small Firms Merit Award for Research and Technology) scheme small firms of up to 50 employees can compete for awards of up to £45,000. Under SPUR (Support for Products under Research) awards of up to roughly £150,000[111] (and in exceptional circumstances, under SPUR Plus up to roughly £400,000) are available to firms of under 250 employees. Together SMART, SPUR and RIN grants benefit around 100 companies a year, totalling around £3.3 million.[112]

56. Surprisingly perhaps, the take-up of grant is, in some cases, low. In our scrutiny of the Departmental Report earlier this year we noted a fall in applications for RSA and RIN. The Welsh Office suggested that the fall in RSA applications (more marked amongst foreign-owned companies) was probably due to economic difficulties in the Far East and that this might also have impacted applications from indigenous suppliers. They were unable to explain the fall in RIN applications.[113] Part of the reason for low take-up may be lack of awareness or perhaps sheer bafflement at the range of grants available. We welcome the Welsh Office's undertaking to implement an awareness-raising programme for smaller businesses and to target particularly those areas which make less use of regional support programmes than might be expected.[114] We recommend that the Welsh Office make widely available a clear and concise guide to the grants and schemes available to businesses in Wales.

57. The view of business people we met was that the main reason for low take-up of grants is not so much lack of awareness but the discouraging complexity of the application process. The Federation of Small Businesses Wales told us that some of the paperwork was very hard to understand and the time required to fill it in meant that applying for smaller grants was simply not worthwhile.[115] CBI Wales suggested that a de minimis principle could be applied to small grants[116]: in other words the assessment requirements could be less onerous where smaller amounts of money are involved. They also stressed that decisions on applications should be speeded up: time is often critical for businesses. We welcome the undertaking in Pathway to Prosperity that "the Welsh Office will streamline payment procedures for smaller grants, to reduce the burden on small companies, and ensure that payments are made more quickly".[117]

58. CBI Wales suggested that there should be greater openness about the aid packages provided to industry.[118] The Welsh Office publishes only aggregate RSA statistics in its Departmental Report,[119] whereas the Industrial Development Board for Northern Ireland publishes in its annual report details of all grants over £50,000. Nowhere in the UK is there published the overall value and composition of the total aid package (which may include site infrastructure, property assistance and training grants). CBI Wales proposes that "broad indicative figures" showing the total aid packages to inward investment projects, as well as estimates of assistance given to indigenous industry, should be published in the Annual Report of the new WDA. They propose further that the Regional Economic Fora and the relevant National Assembly Committees should have access to the precise details on a confidential basis. These proposals seem to us to be very sensible. Some companies will doubtless argue that revealing financial information may undermine their competitive position, but this does not, in our view, justify withholding details of public expenditure. We note that the Trade and Industry Committee has recommended greater transparency of financial aid packages.[120] We believe this is an area in which the Government should demonstrate its commitment to open government.

European Structural Funds

59. The Welsh economy has benefited greatly over the past twenty years from European Structural Funds moneys. Pathway to Prosperity points out that in the past five years Wales has benefited from Structural Fund grants of some £0.5 billion, leading to total investment of over £1 billion, and creating or safeguarding some 27,500 jobs.[121] The future of the Structural Funds is currently under review throughout the European Union.[122] The Trade and Industry Committee has reported in some detail on the proposals for reform.[123] Wales is pressing for the South Wales Valleys and West Wales (including Conwy and Denbighshire) to be given Objective 1 status. If, as now seems likely, Objective 1 status is granted, it is essential that Wales makes maximum and most effective use of the grants available. Regrettably, existing Structural Fund moneys have not always been put to the best possible use.[124] We welcome the Welsh Office's assurance that a European Task Force has been set up to prepare "a development strategy to ensure Wales derives the maximum economic benefit from Structural Funds assistance post 1999".[125] Wales will only be able to benefit fully from Objective 1 status if additional match funding is made available.

60. It is, in our view, very important that the administration of European money (CAP, as well as the Structural Funds) be integrated with other forms of grant aid. If responsibility for administering European funds remains with the Welsh Office, there must be very close co-ordination between the Welsh Office and the new WDA to ensure maximum impact in those areas of Wales which most need investment. We must attempt to generate a critical mass of funds to tackle the deep-seated problems of the proposed Objective 1 area.

Investment finance

61. Many of the businesspeople we met complained to us of the difficulty that small businesses, especially start-up businesses, have in getting investment funding. We were told that, while venture capitalists are greatly increasing their investment in Wales, only a small proportion of this is on business start-ups.[126] The Federation of Small Businesses Wales suggests that a Development Bank for Wales should be considered, in order to facilitate long-term funding for small firms.[127] The WDA runs a "Business Angels" service called Xenos introducing small businesses to potential investors. This appears to have been modestly successful, though it is still early days.

62. In Ireland we were told that Forbairt frequently takes an equity stake in start-up businesses. In return they have a representative on the company's board, which allows them to monitor its performance closely and, where necessary, intervene to avoid disaster. While equity financing carries some risk, Forbairt's attitude is that some companies prove spectacularly successful, so they can afford a few failures. Prior to 1991 the WDA and DBRW were similarly involved in equity in small companies, as well as in a loans service: small business support was then transferred by the then Secretary of State to the Welsh Office. The new WDA is keen to reinstate their funding programme for small businesses and are hoping to launch two investment funds later this year.[128] We urge the Welsh Office to authorise the WDA to provide direct equity funding to small businesses across Wales, though it should operate wherever possible in partnership with private sector venture capitalists and banks. Every effort should be made to exploit private sector sources of funding.

Taxation

63. While outside the responsibility of the Welsh Office, the Government's fiscal and monetary policy is, of course, crucial to the economic development of Wales. UK interest rates and levels of taxation have huge impact on the profitability of businesses in Wales. There is considerable dissatisfaction in Wales that UK interest rates are set to suit conditions prevailing in the South East of England. Similar arguments may be made about levels of taxation. There was agreement among all those we met in Ireland that their low rate of corporation tax[129] (10% until 2003, and 12.5% until 2025) has been crucial to their economic success. The IDA consider that this tax rate gives Ireland a crucial competitive advantage in attracting inward investors, and that this factor is much more important than any grants or European Structural Fund money that may be available. The Irish point out that, in terms of revenue generated, the low rate is more than offset by the increased economic activity. We accept the Minister's view that reducing UK rates of corporation tax to such levels, or Wales pursuing a separate fiscal policy, is not "a serious agenda", at least in the short term.[130] Doubtless these are matters that the National Assembly will wish to address.

64. In local taxation Wales has potentially greater discretion. The Federation of Small Businesses Wales complained very strongly to us of the disproportionate burden placed on small businesses by business rates.[131] Their figures suggest that for businesses with a turnover of less than £50,000, business rates represent 7.7% of turnover, 13.7% of overheads and 35.9% of profits. For businesses with a turnover of between £500,000 and £1 billion, in contrast, business rates represent only 1.4% of turnover, 3.7% of overheads and 15.2% of profits.[132] We share their view that the business rates burden should be spread more equitably, taking account of size and turnover. Unlike domestic council tax payers, businesses are unable to claim hardship relief. We have heard that it is frequently a business rates bill which forces a marginal business to close. We note that the Government is currently reviewing the business rate regime UK-wide. The Welsh Office White Paper "Local Voices, Modernising Local Government in Wales" envisages a national non-domestic rate for Wales, as now, with a supplementary local rate or local rebate.[133] The Government plans to promote legislation to introduce such a local rate scheme "as soon as Parliamentary time and other legislative priorities allow" and at the same time will "consider changing the rating system to reduce the rates bills of small businesses". The Minister did not think the case for Wales going alone on business rates had been made, and warned of possible cross-border effects.[134] There will always be cross-border effects in any incentive scheme: as between, for example, an Assisted Area and those outside. We believe that the merits of Wales forging its own policy on business rates should be considered very carefully.

INFRASTRUCTURE

65. Many of our witnesses have emphasised the importance of infrastructure to both inward investors and indigenous industry alike. In the WLGA's words, "Direct investment in industry will not be successful unless there is sufficient investment in physical and social infrastructure to ensure that businesses prosper and that the people of Wales benefit from economic growth".[135]

Transport

66. As Pathway to Prosperity acknowledges, good, integrated transport links are essential to Wales's economic development.[136] We welcome the commitment to improving public transport and to encouraging environmentally friendly means of transport, as set out in the Government's recent White Paper and Welsh Office statement.[137] We welcome, in particular the commitment to improve rail freight services, including the plans for a European Railfreight Terminal at Wentloog. However, freight and passenger rail services in many parts of the country remain poor. CBI Wales complained of the "pretty abysmal" rail service to North Wales.[138] The fact that railways are not clearly a Welsh Office responsibility (and therefore will not fall within the remit of the National Assembly) militates against their improvement.[139] In our view, there would be benefit in devolving some aspects of rail regulation to the National Assembly.

67. While we share the Government's keenness to encourage a shift from road to rail transport, the reality is that in many parts of Wales there are no railways and people are dependent on sometimes very poor roads. Travel in our rural areas can be pitifully slow. While we welcome for the most part the outcome of the Welsh Office's trunk road review[140], we are concerned that identification of a core network of nationally important trunk roads may mean that other routes, equally important to their local communities, are neglected.

68. In a land of poor roads and difficult topography, internal air transport provides an attractive, if expensive, alternative. Regrettably there is still no scheduled air service between North and South Wales, though the Government is hopeful that this will be achieved shortly.[141] There are a number of small airports in operation in Wales: Pathway to Prosperity mentions Withybush, Pembrey, Hawarden, Swansea, Welshpool and Caernarfon. During our visit to West Wales we visited the airport at Aberporth, which the local business community would like to develop commercially. While air links can contribute to the economic development of a rural area, particularly by increasing their accessibility and appeal to inward investors, it is important to be realistic about their commercial prospects. We are concerned that there are a number of proposals to develop regional airports, with little apparent co-ordination.

69. Access to international air services is also crucial. We were told that many inward investors refuse to contemplate location more than two hours' drive from Heathrow. Development of direct international services to Cardiff International airport, particularly from the USA, would remove a major disincentive to inward investment beyond South East Wales. More too should be done to increase awareness of the accessibility of North Wales via Manchester Airport.[142]

Telecommunications

70. Vital to economic development, particularly in remote areas, is the existence of advanced telecommunications. BT asserts that the impression that the telecommunications network in Wales is underdeveloped is mistaken.[143] 98% of BT's customers have access to ISDN capacity, and, BT suggests, a key priority should be to ensure that existing technology is used to best advantage. Some rural areas are not yet served by digital exchanges, which effectively prohibits the development of call centres in those areas. Pathway to Prosperity acknowledges that "much more needs to be done ... to ensure the creation of an all-Wales broad-band network". It assumes that "competitive pressures between telecommunications companies should provide the investment required".[144] We are less confident of this. According to BT, operating telecommunications in the rural areas of Wales is unprofitable and other companies are not interested in it.[145] We suspect that ensuring network access throughout Wales will require public sector support.

Power

71. A necessary aspect of infrastructure is the guaranteed availability of power.[146] CBI Wales witnesses complained to us of the consequences for industry of continued uncertainty over gas exploitation and the development of power stations. The Chairman of the CBI in North Wales referred in particular to the threat posed to Anglesey Aluminium by the uncertain energy supply in North West Wales.[147] CBI Wales also suggested that the National Grid's closure of all but one supergrid feeders in Pembrokeshire would deter manufacturers from investing in that area.[148] A properly-planned energy policy , though largely outside the remit of the Welsh Office, is vital to the economic development of Wales.

Property

72. The availability of sites and premises is also essential to economic growth.[149] CBI Wales complained of a serious shortage of medium to large industrial properties in Wales, which prevents expansion and deters inward investors.[150] Their witnesses suggested that inward investors want properties which are immediately available, not sites which will take years to develop.[151] Some of those we met argued strongly that the public sector should provide "advance property" for industry. Providing advance property carries its risks. In Ross and Cromarty we saw that building advance properties had successfully attracted inward investors to the area but we also saw costly buildings lying empty. In Dundalk we visited units for start-up businesses attached to the local Institute of Technology. Both local authorities and the WDA have a role in ensuring that sites are available. Merging LAW with the WDA should facilitate this, though we were concerned that the new organisational structure suggests that LAW has just been tacked on rather than properly integrated.[152]

Education and training

73. Perhaps the most crucial infrastructure requirement for industry is a skilled workforce. While training is beyond the scope of this inquiry, we have been struck by the importance which is attached to it by almost every employer we have met. It is disastrous that Wales is behind its competitors in skills development at almost every level. [153]

74. In Ireland we were told repeatedly that education is the key to economic development The first point that the Irish Minister of Agriculture told us was that the skills base was vital to rural prosperity. While there is much talk of education in Britain, it is not regarded as so central to our economic policy. People are regarded as Ireland's greatest asset, and they seem to have used their Objective 1 funding to great effect by investing it in skills development. We believe that we in Wales should learn from the way in which the Irish foster their human resources.

75. Many of those we met stressed the importance of technical innovation to Welsh competitiveness and the need to promote closer links between the higher education sector and industry.[154] Much is already being done. The Welsh Office administers a number of schemes to encourage links and the WDA operates a "Graduate Wales" programme, arranging work placements and university support for SMEs and has identified 36 specialist "Centres of Excellence" at universities throughout Wales. [155] The Regional Technology Plan for Wales, developed with the aim of improving the commercial application of technology, has been widely welcomed.[156] Much more remains to be done, particularly to make new technology accessible to small businesses in Wales.

76. The development of a dynamic indigenous industrial base in Wales will require a change in attitudes. Wales is not a traditionally entrepreneurial society. Prosperity has been linked in people's minds with steady employment, not risk-taking. A cultural change is required. Attitudes are forged at an early age, in the home and at school. British Steel emphasised the need to change the perception of manufacturing within the education system.[157] The work done by WISE to encourage more women into science and engineering is much needed.[158] We welcome the Welsh Office's commitment to establish a new Entrepreneurship Action Plan for Wales along the lines of the Regional Technology Plan.[159]

IV The Way Forward

77. We hope that our ideas and recommendations will contribute to the debate that is going on in Wales in the run-up to the National Assembly elections. While it will be for the National Assembly to take these ideas forward, it is essential that all the players in the field of economic development in Wales respond to the challenge that faces us without delay. The Welsh Office document "Pathway to Prosperity" makes a good start in outlining the problems: the Welsh Office must now map out potential solutions for the National Assembly to implement. We have a great opportunity to reshape the Welsh economy, and we must not let it pass.

73 Q 306. Back

74 Q 311. Back

75 Q 334. Back

76 Qq 334-335. Back

77 Qq 414-419. Back

78 Q 396. Back

79 Q 314. Back

80 Evidence, pp 116, paragraph 5; 121, paragraph 11; 189. Back

81 Second Report of the Welsh Affairs Committee, Session 1997-98, HC 447: see especially paragraphs 37 and 39. Back

82 See Qq 455-456. Back