Examination of Witnesses (Questions 400
- 419)
WEDNESDAY 24 MARCH 2004
MR KEVIN
BISHOP, MR
TIM HOOPER,
CLLR MICHAEL
JONES, CLLR
DAVID SPARKS
OBE AND CLLR
GORDON KEYMER
CBE
Q400 Mr Caton: Do any local authorities
who have a Technium within their area provide financial assistance
to their development?
Mr Hooper: Yes. They invariably
provide mass funding along with WDA, National Assembly and funding
from the European structure fund.
Q401 Mr Caton: Are there particular
challenges in attracting the right sorts of businesses to those
sites?
Mr Bishop: I think there are.
Listening to the evidence that you have just received, we live
in a competitive society. Just as we have invented Techniums so
other regions have clusters. They are trying to seek the same
sorts of industries. The issue is how you get those industries
into Wales and how you grow your own. If we had the answers we
would be rich. There are problems. Techniums are a good example.
I also think the role of local government goes beyond the Techniums
and it would be wrong to focus on the Techniums as the high profile
example. Local authorities have a particularly important role
in terms of incubating schemes. Small SMEs are bringing them on
and linking to universities which is what Gwynedd are doing with
Bangor University and which Cardiff are doing with Cardiff University.
Q402 Mr Caton: You have just mentioned,
and in fact you referred to it in your written submission, Mr
Bishop, Baglan Energy Park, and also you mentioned in that submission
Ceredigion's Food Centre Wales. To what extent are these truly
local initiatives and how are they integrated at regional level?
Mr Bishop: I suppose it depends
how you define a local initiative. With the Baglan scheme the
attempts to embed it locally are important there through Source
Baglan and that has provided jobs for local people in providing
economic development opportunities for local industries to provide
services and goods to firms that locate in the energy park. Food
Centre Wales again is about clustering the agri-food industry
around that, providing a capacity within that area, but also filtering
out to a wider regional dimension, and the same you could say
for the Baglan Energy Park.
Mr Hooper: Ceredigion Council,
for instance, set up Food Centre Wales, so that is an example
of direct local authority involvement. There is a Technium being
developed in Camarthenshire as well by Camarthenshire County Council
who have quite an extensive involvement in developing the infrastructure
surrounding that Technium. Clearly a major aspect of the development
of the Technium is the local co-ordination on the ground between
the local authority, the WDA at local level and other agencies.
Cllr Jones: With regard to the
Ceredigion project, this does have a knock-on effect for other
authorities. I represent a neighbouring authority, which is Powys,
a very rural authority, and this is promoting food and the various
ways of exploiting and developing foods and various categories
of food, so that is a local initiative but it is having a knock-on
effect for the benefit of other authorities right across Wales.
Q403 Mr Caton: Also in your submission
you refer to the fact that the Welsh Assembly government made
a request to the Treasury during the Assembly's first term for
tax credits for research and development but this was refused.
What difference would the establishment of those R&D tax credits
have made both in terms of encouraging industry that is already
in Wales to develop their research and development capacity but
also in attracting new businesses to Wales?
Mr Bishop: The Association saw
the tax credits as an important tool within the regeneration kit
bag, if you like. What we were hoping was that it would provide
the ability to move Wales up the value chain. To paint a picture,
we suffer from the fact that Wales in many respects suffers from
drawing on traditional industries. We do not have many high profile
R&D firms within Wales. It was an element that we thought
could attract R&D into Wales. It is also helping existing
firms.
Q404 Chairman: Would you say there
was any tension or conflict between attracting inward investments
to the more beautiful parts of Wales, like Powys—I have
three wards of Powys in my constituency, so I can say that with
impunity—by offering them grants for investment and perhaps
the offer of cheap energy, that kind of thing, and then at the
same trying to promote sustainability in Wales and its greenness
and its beauty?
Cllr Jones: There is a big conflict
at the moment with alternative forms of energy, particularly wind
generation. I have a planning application coming up in my ward
shortly and I am at the sharp end of that, so I am very conscious
of the conflicts that arise from such applications. Whilst some
people see it as the future for alternative forms of power generation,
other people see it as the desecration of the countryside. Bringing
these two together is a very difficult position to be in. The
conflict is enormous and the opposition grows daily. There are
now health scares as well as the environmental impacts from the
visual aspect. The list of objections is enormous and could damage
that very valuable source of energy.
Chairman: That is exactly what I was
thinking about. I do not call them wind farms. I prefer to think
of them as wind factories, and if you tried to build a factory
with 150-foot towers you would not get anywhere near planning
permission. I am a little worried that we may be potentially driving
people out of coming into the rural areas by saying, "come
and live in a lovely rural environment", and we then destroy
it by putting up wind farms. Basically, I was asking about the
conflict and you have answered the question.
Q405 Mr Williams: I too come from
Powys and I visited a manufacturer in my constituency the other
day, only employing 80 people but that is pretty substantial in
our area because we do not have much of a manufacturing presence.
The managing director told me that one of the difficulties was
that he felt he was operating alone almost and that he did not
have an environment of manufacturing to support him in terms of
training and other companies that could provide engineers. Do
you think it is practical that in rural areas you can have development
of a critical mass of manufacturing?
Mr Bishop: I think that the role
of the local authorities there is through things like business
forums and networks. I know there are many authorities in Wales
that have those and that is about putting businesses in touch
with each other and growing industry and economic development
through that contact. The benefit we have today is that they can
be virtual networks, so the fact that you might be based in Powys,
which is such a large county, if you are at one end of Powys getting
to the other end of Powys is not that easy so a virtual network
is important. That is the advantage, hopefully, of Wales being
a relatively small country. We all know each other, it would seem,
and putting people in touch with each other should be a lot easier
and we should be able to implement much more successful partnerships
than perhaps in other parts of the UK.
Cllr Jones: I see our role as
local authorities in providing good material and well-educated
people to enter the workforce, and also to provide a good infrastructure.
That is one of our main tasks as local authorities, not to get
directly involved in promoting businesses but to support them
by having good infrastructure, by having good road networks and
by providing people who are qualified and trained and give them
the incentive to go into hi-tech industries.
Mr Hooper: I would like to flag
up two good examples in Powys where there are signs that such
a critical mass is being developed, which Cllr Jones will know
and you probably know as well, and that is Control Techniques
of Newtown, an American owned company. There are indigenous spin-off
companies developing from that, using starter units provided by
WDA. It is a good example of where public intervention has been
successful in developing critical mass. You also have the example
of the Centre for Alternative Technology in Machynlleth, which
is also trying to establish a centre of excellence, including
provision of training and starter units for SMEs engaged in renewables.
There are two good examples there of public intervention. Links
with universities are being forged in the same way as they are
on the Technium sites elsewhere in Wales.
Q406 Mrs Williams: In your submission
you argue for continuing state and EU aids beyond 2006. If that
aid is continued where would you like to see it directed?
Cllr Jones: It is a continuing
process. I do not think you can get to a state where you can cut
off this aid because geographically we are disadvantaged because
of our distance from the markets etc. I think it is very difficult
to abandon the existing industries which have been set up. We
are looking to add value to the products that are promoted in
Wales. I am a farmer as well and our Member of Parliament is a
farmer, so we have a vested interest in promoting existing industries.
We have timber industries and growing indigenous industries is
very valuable but we need to add value to the product so that
we can maximise the income from it. At the moment it is very depressed,
as you will appreciate. If we can get investment into the added
value sector that would help to sustain it in the long term. It
is not something that could be invested in one day and get it
to a certain level and then abandon it and it will be sustainable
because I do not think it will.
Mr Bishop: We see future EU aid
as being an important mechanism to improve our regional competitiveness
and the focus on innovation and business support and developing
a skills portfolio in the Welsh labour force are important ingredients
for our future direction.
Mr Hooper: A further point to
stress is that it is too early to be making decisions on future
priorities. The priorities for the Welsh economy and society in
2007 may well be different from what they are now. A critical
issue for us as local government is that future funding is sufficient
for the needs of the Welsh economy but it is also delivered in
such a way that ensures that it can be applied according to regional
and local circumstances. We think one of the main aspects of added
value provided by the current structural funds is the degree of
regional and local delivery in that programme and the fact at
mid term review, which has just been completed, the Welsh Assembly
Government in conjunction with others has been able to incorporate
new priorities into the programme, such as town centre regeneration
and support for tourism infrastructure. Clearly flexibility is
a key issue for us. In terms of what is on the table, we generally
are pleased by what is in the third Cohesion Report. We tend to
be siding with the Commission's thinking as opposed to the UK
Government's thinking at the moment. A critical issue for us in
terms of post-2006 funding is that wherever the money comes from
there must be sufficient European aid combined with domestic aid
to cover the needs of the Welsh economy. It should not be an either/or
situation. The two must be applied seamlessly to areas of Wales.
Cllr Keymer: The point about using
local aid is important because we have to realise that the whole
game has moved on in 2007 with enlargement and therefore available
funds for UK generally and Wales are going to be far scarcer and
therefore we have to look for other available funds that come
to us, including the third Cohesion Report.
Q407 Mrs Williams: But given the
hitherto ineffectuality of such aid over decades in closing wealth
gaps, which we discussed earlier, are you therefore arguing for
resources to manage relative decline or do you still believe the
public sector can be a catalyst for a step change in regional
performance?
Cllr Sparks: The general consensus
in terms of England, Scotland and probably the whole of the European
Union is that the number one priority is that those areas within
the expanded 25 states that currently qualify for Objective One
status, that is, with less than 75% GDP, should continue to receive
aid. That then does not include Wales. In UK terms it includes
Cornwall but not West Wales. The Objective One area in Wales does
not qualify under that definition. Therefore, the second priority
and our number one priority is to ensure that those areas within
the UK that are currently Objective One continue to receive aid.
The best way of describing these regions is Objective One regions
that ceased to be Objective One because of statistical effects,
ie, there is no change in their Objective circumstances but, purely
because of the way the numbers work out with the expansion of
the European Union, they no longer qualify. Clearly that is unacceptable
to us as a local government association. We would argue that that
has to be our priority. The battleground is in what remains. That
as currently described is Objective Two or Objective Three and
is going to be the battleground in relation to the arguments between
the Member States. Our representation on behalf of local authorities
to the UK Government that there is insufficient support in the
Member States in terms of the Government's position on the structural
funds has been met by the government saying that that may be the
case but there is increasing support for our position in relation
to other Objectives. That is where the argument is really going
to be deployed. It is a question as to whether the budget level
that is recommended in the Cohesion Report is adopted or whether
it is the budget level that is recommended by the UK Government.
Our position as a local government association is that it should
be that which is in the Cohesion Report because only that will
allow us to have sufficient funds to ensure that places like Wales
and the rest of the UK have structural aid, a significant amount
of money, that goes beyond just the Objective One regions. The
reason why we are arguing for that is that it has been clearly
shown over the period when we have been able to tap into that
funding that it has been beneficial in relation to the regeneration
of our regional funds.
Mr Bishop: I think there was a
second part to your question about the role of the public sector.
Q408 Mrs Williams: Yes: can it be
a catalyst for a step change?
Mr Bishop: I would answer yes
to that. We have to hope that it can be. The public sector is
particularly important to the Welsh economy. Something like 30%
of the workforce work in the public sector. Local government spends
something like four billion pounds in the Welsh economy. We have
to get more bang for our buck and that is about being more creative,
about procurement, also being a bit smarter about working with
business in terms of fostering the businesses we have at present,
and also hopefully spreading prosperity within Wales so that we
move boom time from Cardiff and spread that prosperity up the
valleys and make sure that all parts of Wales benefit from that.
There is also a problem of just measuring economic development
as GDP. If we focus on that it is a narrow measure. In fairness
to the Welsh Assembly, at least they are starting to look at alternative
measures such as the footprint concept and the index of social
and economic welfare.
Cllr Sparks: There is another
point in the question which is fundamental to regeneration and
it is not something that a lot of people have faced up to. You
made the point: are we merely managing decline? The essential
point in relation to Objective One funding in particular is that
that must only be looked upon as a strictly limited amount of
funding for a particular timescale. No region, defined in terms
of the European regions, should rely on Objective One funding.
The outstanding success of the Irish in using that funding to
regenerate their economy is that you are not looking at managing
decline. You are looking for a short term boost for investment
in terms of prosperity. This is fundamental to the economic regeneration
because some places do just look for grant allocations and that
is not the point. It is about how you use that money.
Q409 Mr Williams: Some people would
point to the structural funds being used more successfully in
Ireland than in Wales or other Objective One areas in Britain
and some people might say the difference is because Ireland used
fiscal incentives that they were allowed to as an adjunct to the
structural funds in terms of reducing corporation tax and various
other techniques. How would you reply to that and why are we not
doing as well as Ireland anyway?
Cllr Keymer: You are absolutely
right. Ireland took the opportunity that was offered and used
it. Unfortunately, I am worried about the way we have come to
the end of the current Objective One funding and I am worried
that it has not been used as effectively as it could have been,
not just in the UK but in other Member States as well. I think
we should learn from Ireland. They have had other problems that
have come with it, of course, but if you look at the graph of
GDP it is now way ahead of the rest. We are about the same as
Germany and France but they are way ahead. There is a big lesson
there.
Mr Bishop: It is probably too
early to draw hard and fast conclusions from what is happening
in Wales. At the moment we know the input side of the equation.
We do not know the output side of the equation (although we know
that for Ireland) but we also know that the rules and regulations
governing how you can spend structural funds are rather different
now from when Ireland enjoyed Objective One status, so I would
be wary of drawing direct comparisons.
Q410 Mr Williams: Why did they change
the rules on spending structural funds, if it was successful in
Ireland, to a way which made it unsuccessful in other areas?
Mr Bishop: I would not want to
answer that one on behalf of the European Commission.
Q411 Mr Williams: It seems very strange.
Mr Hooper: The current generation
of the structural fund programme was drawn up in the context that
Wales had undergone a primary stage of development, the hard infrastructure
investment. You will be aware that the focus of current programmes
is very much towards supporting enterprise, supporting entrepreneurship,
supporting human resource capacity, those softer forms of investment.
That was very much the thrust of the Objective One programme in
Wales. As Kevin said, only time will tell if that is a sound rationale.
Q412 Mrs Williams: I would like to
refer to paragraph 40 in your submission where you state that
attracting further direct investment is wholly consistent with
supporting indigenous entrepreneurs. Can you tell us how this
works in practice?
Mr Hooper: There are plenty of
examples of where attracting FDI has resulted in benefits to local
economies.
Q413 Mrs Williams: Can you give us
a few examples?
Mr Hooper: A very good example
is the Source Baglan initiative, which was referred to before,
which was when a highly efficient gas-fired power station company
was attracted to locate in Neath. One of the actions of the council
was to set up a Source Baglan initiative. The purpose of this
initiative was to persuade this inward investor to source and
recruit locally. There were two specific actions taken by the
council. One was to provide a directory of local government services
for the company. Another was to set up a job shop on the Baglan
Energy Park site and that has proved quite effective in terms
of generating local employment opportunities. The other example
I alluded to was the foreign firm in Newtown spawning indigenous
companies. Of course, on the other side of the coin you would
be able to find examples of where that may not have been the case,
where the focus on FDI may have been too great and not enough
on indigenous inward investment, but I think it is a mistake to
view this as a dichotomy. The two are intertwined. You often get
large indigenous companies being taken over by foreign companies.
The watchword here is pragmatism, I think, and doing what is best
for the local economy.
Q414 Mrs Williams: That leads on
neatly to my next question. If the WLGA had access to an extra
indivisible one million pounds of money would it spend it on FDI
attraction or indigenous business support?
Mr Bishop: If the WLGA had the
money we would obviously pass it down to our constituent members,
the 22 unitary authorities.
Q415 Mrs Williams: I do not think
you understand what my question is.
Mr Bishop: I do understand what
you question is. It would be up to our members to determine how
they spent the money.
Q416 Mrs Williams: Is that politically
correct?
Mr Bishop: Let me attempt to answer
that question. It would depend on the particular circumstances,
obviously, but in the past maybe we have paid too much attention
to inward investment and not enough to promoting indigenous growth.
You have to have a balance and whereas inward investment today
is someone else's inward investment tomorrow, which is what we
have seen in recent years, if you like, with the move of industries
away from Wales, if we had a real choice what we would be doing
is getting inward investment into R&D, the high skills, and
making sure they are embedded in the local economy and that they
have spin-off benefits in providing local high value jobs so that
we move people up the value chain. In Wales we do not really have
a problem in terms of unemployment but we do have a problem in
terms of a low paid workforce and often a low skilled workforce.
That is what we have to tackle, getting people up the value chain,
and that is how we would want to use that money.
Q417 Mrs Williams: You have discussed
this with your members, have you?
Mr Bishop: This is something that
we are discussing through the work of the Futures Group which
Sir Harry Jones as our Leader chairs, and which Cllr Michael Jones
is a member of, and it is about plotting the future through regeneration
activity in Wales.
Cllr Jones: If that sort of money
came to Powys County Council, being such a large geographical
area I think the advantage would be to promote indigenous businesses
because you could attract perhaps one business but that would
be very isolated from the rest of the county and it would have
a very marginal effect, but if you could promote businesses the
length and breadth of Powys, which is a considerable distance,
the knock-on effect of that would probably be more beneficial
and more sustainable in the long run, and that is what we are
looking for. We have many small businesses. With a little bit
of support they can develop. They are there for the long term,
they have been born and bred in the county, whereas the foreign
investment is perhaps looking for a quick buck and if the grant
moves somewhere else they will possibly move with it; I do not
know. I am a great supporter of all indigenous businesses.
Q418 Julie Morgan: We have had a
bit of discussion already with Mrs Williams' question about the
comparison between the effectiveness of the European structural
funds in Wales and other parts of the United Kingdom, but are
there any formal comparisons?
Cllr Keymer: As I understand it
there have not been any formal comparisons yet. There is still
a major divergence between Wales and parts of the UK and also
Europe as a whole which is not narrowing as fast as had been expected.
Q419 Julie Morgan: So there is no
academic study or any specific study on it yet?
Cllr Sparks: In the publications
coming out of the Commission they are stating that they now have
evidence of the success of structural funds but the evidence,
from what I can remember, does not differentiate between different
parts of the UK.
Mr Hooper: What we do have for
every single structural fund programme across the EU is mid term
valuations which were completed from mid-2003 onwards. I concur
with the others that there are not any comparative documents at
the moment but clearly this is an opportune moment for doing so.
Hopefully one of the roles for the European Commission should
be to go through these things. It would be a labour of love for
somebody but it needs to be done.
| 
