Welsh Day Debate 2008

Mr. Peter Hain (Neath) (Lab): May I say how delighted I am to see you, Madam Deputy Speaker, as a great Welsh woman presiding over this debate? May I also express my gratitude to my right hon. Friend the Secretary of State for what he said about me? I congratulate him on getting the job, despite the surreal, nightmarish circumstances in which I left it. I cannot think of anyone whom I would more like to see holding the post. I replaced him in Wales and in Northern Ireland, and now he has replaced me in Wales. Things are becoming almost politically incestuous. I am also grateful to the hon. Member for Chesham and Amersham (Mrs. Gillan), who has always shown great decency in all the jobs that we have worked on together.

Over the past 11 years, the Welsh economy has been transformed, because of the energy, innovation and dynamism of Welsh businesses, and the skill and hard work of Welsh women and men, combined with the unprecedented annual rises in public investment and economic stability ensured by our Government. Economically and culturally, Wales has enjoyed a renaissance, after the grim decades of mass unemployment and business failure. We should all celebrate that because, working together, we—our Labour Governments in Westminster and Cardiff, business and all Welsh employees—have made it possible for Wales to walk tall with a spring in our step.

However, we are still nothing like where we should be to compete with the competition from eastern and central Europe, let alone from the emerging Asian economies and especially our new global economic partners and the superpowers of the future, China and India—countries of more than 2 billion people, producing 5 million new university graduates a year, two thirds of whom are graduates in science, technology, and information and communications technology. The central challenge that we face is to transform the Welsh economy by building a much bigger private sector. Unless we do that, we will not be able to achieve the world class success that Wales is capable of and deserves.

If I may say so, Madam Deputy Speaker, I have set out these ideas and the argument in more detail on my website, www.peterhain.org. They will also be published as an internet pamphlet, at www.wales2020.com.

One of the elements essential to Wales’s success to date has been the huge real-terms rises in public investment, with the Welsh budget increasing to almost £16 billion by 2011, some 130 per cent. higher in cash terms than in 1997. But that era is coming to an end. Britain has never had a period of such long and consistent steeply rising public spending. However, that cannot continue without unbalancing the economy, causing a return to the instability, high inflation and high interest rates that we inherited from the Conservatives and that plagued all British Governments for a generation and more. That is why the next comprehensive spending review period, from 2008 to 2011, will still see real-terms increases in public investment, but at a lower rate.

That poses challenges for the Welsh Assembly Government, because their entire life has so far been spent under the umbrella of unparalleled real-terms budget increases. From now on, the kind of efficiency measures and reforms that Minister for Finance Andrew Davies is rightly insisting upon will be needed to reduce inefficiency and bureaucracy, and release funds significantly to improve front-line services. It will also be necessary to exercise much tougher choices over priorities.

Those who claim that the Government’s public spending programme has inhibited the growth of the private sector are wrong. Huge public investment in private construction, for example, has stimulated it, while five times more Welsh private sector jobs have been created in the past 11 years than in the public sector. There are many other sectors in which Welsh businesses have themselves benefited and created Welsh jobs by providing services or selling products to the Welsh public sector on the back of rising spending since 1997. That is a stark contrast with the economic instability and public spending cuts experienced from 1979 to 1997, when huge numbers of Welsh businesses went bankrupt and unemployment soared.

However, according to the Library, estimates show that public spending in Wales is equivalent to 59 per cent. of gross domestic product. The figure for Wales is higher than any other part of the UK except Northern Ireland, where it is 64 per cent., although the figure in north-east England is similar. The equivalent estimate for Scotland is about 50 per cent., while the UK average is about 44 per cent. Wales’s ratio of public spending to GDP is broadly similar to, or perhaps slightly higher than, the highest ratio among OECD countries. In Wales, 23.7 per cent. of employees are in the public sector, compared with the UK average of 20.2 per cent. Again, that is similar to the figure for the north-east, but lower than the figure for Northern Ireland, at 29.1 per cent. All other areas of the UK have lower shares of public sector employment.

Public spending is high partly to correct the legacy of historically high levels of relative deprivation, of sparsity, of geographic remoteness, and of the ill health that is a legacy of Wales’s industrial heritage, especially mining. Moreover, our Government have, rightly, been deliberately moving public jobs from the overheated south-east to Wales.

The argument that I make is therefore emphatically not for the cuts in public spending so beloved of the right, still less that the public sector in Wales is too big.

Indeed, I am arguing the exact opposite. The real issue is that the private sector is too small. If both Welsh living standards and the economic competitiveness that underpins our prosperity are to grow as we all want, the private sector needs to grow significantly and at a relatively much faster rate. To achieve at least equilibrium with the rest of the UK and the OECD countries, Wales must move towards a private sector of around 55 per cent. of Welsh GDP. To achieve that in the next 15 to 20 years, we will need year-on-year growth that is around 1 per cent. faster than the UK average—no mean feat.

It is no good simply leaving the task of catch-up to market forces and the private sector, as the right insists. They have a critical role to play, of course, but so does the Government in London and Cardiff, by targeting public investment not only on the “soft” side of public spending—that is, on care and services—but on the “sharp” side, on skills, infrastructure, technology, research and entrepreneurialism. At the height of the industrial revolution 150 years ago, Wales had in Merthyr Tydfil what was considered the most technologically advanced town on the planet, with the most productive ironworks in the world and the development of the first rail engine. We now need new Merthyrs for this century, leading the way in the new technologies of the future.

Although we need higher labour productivity, Wales cannot and should not try to compete on cheaper labour costs, with China and India, for example, paying manufacturing workers just 60p an hour. As Rhodri Morgan has so eloquently said—and as the Secretary of State repeated—the Wales of the future will be a “small but clever country”, with private sector growth in the right areas, and raised levels of educational attainment, skills and innovation to add value. At present, although Welsh spending on research and development is rising, it remains too low, and this must be addressed urgently, with ever closer partnership between—and ever more targeted spending by—the Governments at Westminster and Cardiff, our universities, colleges and Welsh businesses.

Our vision is for a Wales that acts as a centre where companies can innovate in partnership with our educational institutions. I identify seven immediate priorities. First, we must secure graduate retention, develop technical skills and inspire entrepreneurship from school upwards. Secondly, we must make tough public spending decisions, with a moratorium on handouts and a switch to supporting greater competitiveness. Thirdly, we must compete in the high added-value areas such as financial services, electronics, nanotechnology, biosciences, molecular mechanics and information and communications technology, with many more start-ups and high-tech businesses. Fourthly, we must support vital new energies, including renewables and biofuels. Fifthly, we need to support our economy with a welfare system that gets people off benefit and into work, and provides our work force with the skills that they need to progress in employment. Sixthly, we need to ensure that we have a political, economic and social culture in Wales that is truly internationalist. Finally, we need smarter government, local and national, with a more dynamic Welsh public service.

Universities need to be at the heart of our economic growth. And that can be done, as Singapore, a country roughly the same size as Wales, has demonstrated: on a per capita income basis, it is now one of the top 20 countries in the world. Our universities are already making a significant contribution to business, and substantial increases in the Government’s science and innovation budgets are enabling them to improve this still further, as I have seen myself during visits to Cardiff, Swansea and Bangor universities, for example.

I have also visited the North East Wales institute of higher education—NEWI—in Wrexham, and I look forward to its getting its university status. The emergence of techniums throughout Wales is hugely important in exploiting the talents of Welsh graduates to enable them to start up new companies, and in providing excellence for the knowledge economy that is our future with new, world-class employment opportunities for young skilled people, whether from Wales or elsewhere, especially in growing and important areas such as financial services, nanotechnology, biosciences and ICT.

By inspiring our young people, we can add to the natural desire to succeed that is already there. The Government need to prioritise funding to enable our universities, colleges and schools to provide much better foundations and opportunities for these potential business men and women of tomorrow, to enable them to go on to realise their aspirations.

Wales has an abundance of natural resources, with a coastline and landscape that lends itself to a variety of offshore and onshore wind and other renewable energy developments, including wave and tidal. The Government are moving forward with a feasibility study into the potential for a barrage across the Severn estuary that would generate fully 5 per cent. of UK electricity needs. It would be the biggest renewable energy project by some distance on our island, creating tens of thousands jobs, first in construction, then permanently.

There is also a potential for growth in the Welsh coal industry, but that will not, and should not, happen unless Welsh coal becomes green coal. The Governments in Westminster and Cardiff should work together to develop innovative carbon capture and storage procedures, as well as ensuring that we have clean coal power stations and realising the enormous benefits that could be gained by exporting to countries such as India and China.

Although new technologies and back-up services are the source of potentially huge numbers of new Welsh jobs, there are currently some 50,000 vacancies across Wales, because we do not have enough people with the right skills or because they are not being given the right support to fill the vacancies. We need to move tens of thousands more people off benefits and into work, tailoring support to their needs. Opportunities should be maximised by Jobcentre Plus in Wales and by the Welsh Assembly Government to match European convergence funding and to create many more new skills and job preparation schemes in west Wales and the valleys.

Despite having come down in the past few years, the level of economic inactivity is still far too high in Wales, reflecting the dismal heritage of the 1980s and 1990s, when the number of people on incapacity benefits more than trebled and mass unemployment was a curse. When I say that the majority of people on incapacity benefit could work, and should work, it is not an attack on them. It is an attack on an outdated system that deprives them of the opportunity to share in the rewards of work that go far beyond financial independence, important though that is. Work is inherently good for people of all ages. It is good for their health, good for families and good for communities.

Clearly, government at all levels will have to raise its game. Decisions need to be taken more quickly and the Government’s streamlining of planning for infrastructure and energy projects is vital to overcome endemic nimbyism. This is certainly not about riding roughshod over local views, however. It is about grasping the nettle and acknowledging that strategic policies need to be implemented much more quickly if Wales is not to fall further behind.

Business also needs much smarter local government, modelled, I believe, on Neath Port Talbot council’s record of excellence for quick decisions, implemented speedily. The culture of cautious conservatism that is so rife in Welsh public services—from the civil service to local councils—needs radical reform if we are to build a truly competitive economy. As I know from working with them, there are many fine Welsh public servants, including in the Wales Office. But, for Wales to succeed, our risk-averse, can’t-do culture must be replaced by a dynamic, can-do culture.

Wales continues to improve, but we cannot stand still. The alternative is to fall back. We must think and act globally, not merely nationally. We must be a small country with a big global vision. Using all our institutions and talents, we must make the most of new skills, new technologies and new opportunities. We must re-prioritise our public spending to prioritise sharp rather than soft services, favouring skills, technological innovation and business support rather than free schemes. We must also rapidly grow the private sector so that it overtakes the public sector in size and creates a vibrant, more balanced economy and an even brighter, stronger future for a Wales that is reaching up to be genuinely world class.