The Welsh economy and Covid-19: Interim Report Contents

3Impact on the Welsh economy

12.Prior to the pandemic, statistics published by the Welsh Government had shown that Wales ranked 11 out of the 12 UK nations and regions for Gross Value Added (GVA) per head (£20,738) and for Gross Disposable Household Income (£17,100), was in eighth place for employment (Wales’s employment rate was 74.4%) and for its poverty rate (23%).13

13.According to the Centre for Towns, Wales, with the second highest levels of employment in the most affected sectors in the UK, faces particular difficulties as a result of the pandemic.14 Their research suggests that many towns in Wales are likely to be amongst the hardest hit.15

Impact on seasonal sectors

14.The Covid-19 crisis has already dealt a sharp blow to seasonal industries in Wales, like agriculture, tourism and hospitality, that rely on the spring and summer months for their revenue. For such sectors, the pandemic is said to have created a “year of three winters”.16

15.Tourism is a particularly significant sector of the Welsh economy, generating an estimated £6.2 billion in visitor spend in 2019 and providing 130,000 jobs. The impact on the tourism sector has been substantial, with the pandemic resulting in “the immediate shutdown of 97% of businesses with 80% of staff being furloughed. The figures are higher in comparison to any other economic sector”.17

16.On 8 July 2020, the Chancellor announced, as part of his Summer Economic Statement, that VAT would temporarily be reduced from 20% to 5% for food and non-alcoholic drinks purchased from restaurants, pubs, bars, cafés and similar premises across the UK, as well as for accommodation and admission to attractions across the UK. The temporary discount will apply from 15 July 2020 to 12 January 2021.18 The Chancellor also announced the creation of a ‘Eat Out to Help Out’ scheme, running during August, and which would offer a 50% reduction, up to a maximum of £10 per person, to all diners who eat and/or drink-in in participating restaurants and other dining establishments.

Impact on other sectors

17.The scarring effect of the pandemic is likely to extend beyond seasonal, service sector jobs to key sectors of the Welsh economy such as aerospace, higher education, steel, retail, the creative arts including journalism and automotive manufacturing. The automotive sector, which employs over 13,000 people in Wales, and which was already facing significant challenges, has seen production during the pandemic dwindle—resulting in only 197 vehicles being produced across the UK this April as compared to the 100,000 that would normally be expected.19


18.The Aerospace industry is a source of high-value employment in Wales, with approximately 23,000 workers employed in more than 160 companies (including Airbus, BAE Systems, GE, Nordam, Babcock and British Airways). In his evidence to our inquiry, John Whalley from Aerospace Wales warned that 7,000 or 8,000 jobs in this sector risked being lost as a result of the pandemic.20

19.On 20 May 2020, BBC News reported that up to 1,000 British Airways jobs in South Wales were under threat, while on 24 June it was reported that 240 jobs could be lost at Magellan Aerospace’s factory in Wrexham.21 On 2 July 2020, Airbus confirmed that 1,435 jobs would be lost at their site in Broughton, North Wales.22

Higher Education in Wales

20.Higher Education (HE) is another important pillar of the Welsh economy which is facing significant pressures as a result of Covid-19. HE in Wales generated over £544 million of export earnings in 2015/16, contributes 35.2% of research and development spending in Wales, and employs 17,300 full-time members of staff and spending by students and visitors supports an estimated 50,000 jobs across Wales.23

21.The vulnerability of Welsh universities arises from their greater dependence (54.7%) on tuition fee income than universities across the UK more generally (50.2%).24 Universities Wales warned of “large scale financial challenges” facing the sector and the damaging knock-on effect that losses could have on the local, regional and the national Welsh economy.25


22.According to the House of Commons Library, in 2016 the steel industry employed around 9,000 workers in Wales.26 The industry has not been immune to the effects of the pandemic and significant employers in Wales, such as Tata Steel and Celsa Steel have sought financial assistance from the government. Celsa, which employs 800 workers in Wales, secured a £30m emergency loan from the UK Government in addition to a £2.9m loan and £690,00 emergency resilience fund payment from the Welsh Government.27 Tata Steel, which employs around 8,000 workers across the UK, including in Port Talbot, has reportedly sought a rescue package worth around £500m from the UK Government.28


23.According to the British Retail Consortium (BRC), prior to lockdown Wales was already experiencing some of the worst vacancy rates in the UK—around 16% of shops were vacant. During April, the first month of lockdown, retail destinations saw 85% less footfall, “around 14% of BRC had shut down their operations entirely, even if they’ve got an online operation, and around 70% of our non-food members have said that, that their sales have been significantly impacted over this period”.29

Concluding comments

24.The pandemic has revealed vulnerabilities in the structure of the Welsh economy and Wales faces a real risk of the worst effects of the pandemic falling on those who are least able to afford it.

25.Covid-19 has created a perfect storm for key sectors of the Welsh economy. For some of Wales’s most important employers, the short term impacts of the pandemic have converged with longer term challenges to restructure to deliver sustainable growth.

26.The impact of Covid-19 risks undoing much of the progress achieved in recent decades in raising employment levels in Wales.

27.We intend to return in the autumn with recommendations on how the UK and Welsh Governments may work together to mitigate the risks of the pandemic and build a successful and sustainable economic recovery for Wales.

13 Welsh Government (30 June 2020), Welsh economy in numbers: interactive dashboard

14 These are accommodation, retail, food and drink, and arts and leisure. These sectors provide 21.7% of Welsh jobs. Wales is behind only South West England in its reliance on them. See Centre for Towns The effect of the COVID-19 pandemic on our towns and cities April 2020, p.18

18 HM Treasury, (8 July 2020), A Plan for Jobs 2020

20 Q4 (12 May)

23 Cian Sion (May 2020), Briefing Paper: Covid-19 and the Higher Education Sector in Wales, Wales Fiscal Analysis (Cardiff University); Universities Wales (COV0050)

24 Cian Sion (May 2020), Briefing Paper: Covid-19 and the Higher Education Sector in Wales, Wales Fiscal Analysis (Cardiff University), p.4

26 C. Rhodes (2 January 2018), UK steel industry: statistics and policy, House of Commons Library Briefing Paper

29 Q47 (21 May 2020)

Published: 21 July 2020