Failing to stimulate the Welsh economy

While some of the media have been looking to stir up a row over the relatively insignificant figure of less than £400,000, plans for spending a far greater amount were announced by the Welsh Government yesterday. This is from their news statement:

Capital investment for growth and jobs will accelerate in Wales, says Jane Hutt

"We remain a Government committed to the provision of infrastructure and the creation of jobs", Finance Minister Jane Hutt said ahead of the publication of the Wales Infrastructure Investment Plan for Growth and Jobs.

The Wales Infrastructure Investment Plan for Growth and Jobs – a commitment in the Programme for Government – will outline how the Welsh Government will invest more than £3.5bn over this Spending Review period and around £15bn over the next decade in capital projects.

Welsh Government, 22 May 2012

It's meant to sound impressive, but in fact isn't. In response to the criticism, Jane Hutt is reported as saying this about it:

Finance Minister Jane Hutt accepted a number of projects had already been announced or are already underway. But she stressed the plan was also designed to raise new money, potentially more than £1bn to cope with a 40% cut in the capital budget.

New sources of finance could involve specially-designed companies to borrow the money needed for specific projects.

BBC, 22 May 2012

When the ConDem coalition undertook its comprehensive spending review in 2010, it drastically cut (by 41%) that part of the Welsh block grant which is reserved for capital investment. In fact it cut it more severely than the equivalent figures for Scotland (a 38% cut) and Northern Ireland (a 37% cut) but that's a different story. The figures are in Table 2 of this document.

For the next three years the capital expenditure part of our block grant will be £1.2bn, £1.1bn and £1.1bn, and this accounts for the whole of the £3.5bn mentioned in yesterday's announcement after rounding. Although the devolved administrations are free to spend some of the revenue part of their respective block grants on capital projects, they are not allowed to shift any of the capital budget into revenue expenditure. So in blunt terms the Welsh Government is saying that it intends to spend the absolute bare minimum it is legally obliged to spend on capital projects, and no more. In essence, the plan just explains how the existing allocation of money in the block grant is going to be carved up. There's nothing in it that I can see (the full document is here) that will raise "potentially more than £1bn" of new money.

As for their ten-year projection, no-one is in a position to know what the next Westminster CSR will contain, but £11.5bn over the remaining seven years is only £1.65bn a year. As the baseline figure for 2010-11 was £1.7bn, they seem to be assuming that levels of investment won't return to what they were before for at least a decade.

So in short there is nothing ambitious or groundbreaking in the Welsh Government's investment programme, and absolutely nothing to justify the idea of "acceleration". It's just a lot of spin with no increase in speed.

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It's a shame, for things could be very different. An ambitious Welsh Government—knowing that increased investment in infrastructure would be a very good way of protecting Wales from the worst effects of the cuts and do more than anything else to create jobs and help our economy become competitive—would surely have tried rather harder to find ways to invest more money in improving our infrastructure. An ideal way of doing it would be to use the Build for Wales model developed and advocated by Plaid Cymru, details of which are here.

It's not exactly as if this Labour government are lazy good-for-nothings, despite Carwyn Jones' natural propensity for taking things easy instead of standing up for Wales. In fact it recently put a lot of effort into an innovative way to increase borrowing by coordinating the existing borrowing powers of local authorities, as I mentioned in this post only last week. In principle it's a clever idea; except that it will misdirect this borrowing into revenue expenditure on road maintenance rather than capital expenditure on new infrastructure. This is exactly the sort of bad borrowing that was a major contributory factor to the debt crisis we now find ourselves in. Labour in Wales are doing exactly what Labour did when they were in power at Westminster.

This is a missed opportunity that will have severe long-term consequences for our economy. We have a passive and incompetent government that is more comfortable pointing the finger of blame at the Tories in Westminster rather than getting off its backside to take responsibility for stimulating our economy through increased capital investment.

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8 comments:

Siônnyn said...

Jane Hutt is indeed spectacularly unimpressive - in both word and deed! And Labour's lack of ambition for Wales is stifling.

Though in the sentence "New sources of finance could involve specially-designed companies to borrow the money needed for specific projects." I thought I detected a hint of Labour stealing Plaid's buildforwales clothes. Was I deluded? They did, after all, dismiss the idea as ludicrous when we proposed it.

MH said...

That's what's so odd, Siônnyn. They talk about things that could happen. They even go so far as to put a figure of "potentially more than £1bn" against it. But that simply isn't reflected in the hard figures. The hard figures are no more than the bare minimum included in the block grant.

I think even Labour realize that Build for Wales is a good idea, and because there aren't going to be any big elections in Wales for a few years I'd have thought that this might be the time to tweak the idea, give it a new name, and claim that they thought of it first. They've had a long time to work on it behind the scenes.

As I see it (and the WG specifically say this in section 3.7.2 of the plan), what Labour really want is to for the Welsh Government to be given its own powers to borrow; but because they're fixated on that, they aren't prepared to go for any alternatives. That's what I mean by passivity. The Tories and LibDems in Westminster won't give Wales borrowing powers unless we also accept some major taxation powers, and so we're stuck in a political standoff when we could and should be building up our own economy. Labour are putting party politics with the Tories ahead of doing what is good for the economy of Wales.

We could use mechanisms like Build for Wales to lever many billions of pounds of infrastructure investment; and this would be a sensible and wise thing to do for those projects which have positive benefit-to-cost ratios. All such investment will eventually pay for itself, so there is nothing to be lost by pressing ahead with such schemes right now. Not least because it's so cheap to borrow.

Siônnyn said...

Spot on, MH. Money has never been cheaper. And the arms length companies like Glâs Cymru avoid all the pitfalls of excessive profit-taking in privatised companies, and of managerial ossification associated with nationalised ones.

I just notised THIS suggesting a massive u-turn in England, with government led capital investment. We have to make sure we get our full share - but I am not confident that Hutt is the one to secure it for us. Labour is a fairly talent free zone in the assembly at the moment, apart from Andrews, but maybe Mark Drakeford would do better as finance minister?

Anonymous said...
This comment has been removed by a blog administrator.
MH said...

You can't just post a link without a word of explanation, Anon.

Oversetter på net said...

What would the advantages be with an independent Welsh?
I remember when Yougoslavia was diveded, the first the all did was to apply for an EU membership.

Siônnyn said...

Oversetter - you are right! Far better to have a dependent, poor Wales, at least we have the luxury of blaming someone else for all our ills! And what does Yugoslavia have to do with anything?

Neilyn said...

Oversetter pa net,

Norway's very fortunate in terms of having huge oil and gas reserves and a small population, but your governments have also been very smart with the proceeds. You don't need the largesse of the EU, but Wales does and will continue to need structural funding for some time whilst we re-industrialise our fragile economy. Hence nationalists feel it's better to be a full member state than a semi-autonomous nation in a British state hopelessly dominated by England. Remember your nation's previous domination by Denmark and Sweden!

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