Business' response to change in Wales

He said he would go at some point, but when he made the announcement no one outside his immediate circle saw it coming. Mark Drakeford, First Minister of Wales, will be gone by the end of March. 

Speculation has been swirling since. Why now? Five years ago, he said he would step down in five years. He has fulfilled that promise. To the day. But was this entirely his decision or were there other hands at work, mindful of a Westminster election in 2024?  

Even his opponents concede that Mr Drakeford is a decent and honourable man who became a politician to do good. But he is a man of the Left who at the last election was a cheerleader for Jeremy Corbyn. He was one of Mr Corbyn’s earliest backers in the Labour leadership race in 2015 saying he was the candidate “whose views most closely reflect my own.” And when Mr Corbyn was suspended from the party five years later, Mr Drakeford declined to comment.

During Covid, the First Minister’s handling of the outbreak in Wales won plaudits and received brickbats in a land where the lockdown was locked down tight. There was criticism for the rule that forbade the sale of what he considered to be “unnecessary” goods in supermarkets. Toys were cordoned off and covered up. Second homeowners were threatened with arrest if they sought refuge in the hills and the coast, away from English cities. But there was general praise too from many in Wales that his caution was motivated by the best of intentions – to keep Covid at bay.  

Recent criticism of the introduction of 20mph speed limits and an NHS on its knees are sharpening the Conservatives attack against Labour in Westminster - an illustration they say of what Labour in power delivers.  

So, what next?  

In the Welsh business community, whispering it quietly, there are many who will not be sorry to see Mark Drakeford go. In a land where it seems there are two degrees of separation not six, it doesn’t do to be overtly critical of a party that has been in power since the dawn of devolution, and which has dominated Welsh politics for a century. In fact, Labour has enjoyed the longest winning streak of any political party in the world. It has won more Welsh seats and votes than any of its rivals since 1922.  The die is cast, and no one expects the mould to be broken any time soon. If current polling is correct, the Conservatives best results in recent times at the 2019 election could be completely undone, with predictions that few if any Conservative MPs in Wales will be re-elected next time around.  

So, the election of a new Labour leader and First Minister in Wales is being watched closely by Business leaders who want to reset their relationship with the Welsh Government. In their view, stimulating the economy has not been the current First Minister’s priority. His was a social agenda, buffeted as it has been by an NHS that continues to be overwhelmed, and a schools record that is bottom of the class in the UK.  

Business will be looking to the two candidates who are expected to be frontrunners in the Labour leadership election, the Economy Minister, Vaughan Gething and the Minister for Education and the Welsh Language, Jeremy Miles. Will they follow the Starmer model and seek out a new relationship with the private sector? Business leaders hope so, and they are keen to engage. There is much to discuss.  

The Welsh Government’s announcement today of the draft budget for the next financial year, shows the scale of the challenge that lies ahead. It has its back the wall. An extra £450m will go into the NHS, on top of an extra £425m injected in October for the remainder of this financial year but even that is unlikely to be enough. The NHS soaks up more than half of all Welsh Government spending, and the hole is getting deeper.   

Tough decisions lie ahead and cuts to ‘non-essential’ services across Welsh Government departments seem inevitable. The core settlement for local councils will increase by 3.1% which means they will also have to make difficult choices. And post Covid tax relief for hospitality businesses will reduce from 75% to 40% - out of step with England where they retain 75% relief. Welsh Conservatives accuse the Labour administration of waste and the promotion of ‘vanity’ projects, including spending millions on the recruitment of 36 new Members of the Senedd, increasing the total to 96.  

However we got here, the future, in fiscal terms, seems bleak. So, what’s to be done? 

Thirty years ago, when the pits and heavy industry closed, Wales was spectacularly successful in attracting inward investment. Incentives were made available that planted seeds that have grown into mature relationships with companies such as Sony, Panasonic, Toyota and Sharp. US companies came too. Kimberly Clark, Nicepak, SPTS (now KLA), among many others. In recent years the volume has dialled down, the rush to invest in Wales has waned and the challenge to attract more has increased.   

One business leader told me; “We need to create ambition. Get a vision for Wales – and promote it. Prosperity will only come if we talk the right game, inspire young people, and end the culture of dependence. The new First Minister must be a statesman, engaging with Business here and around the World to promote Wales as a land of opportunity.” 

For years the Welsh economy has performed at 75% of the UK level. And recent announcements of potential job losses at TATA’s Port Talbot Steelworks, the largest in Britain, have added to the gloom. The fall out has set three major unions, the GMB, Community and Unite on a collision course as they work out how to respond.  

But there are green shoots.  

TATA’s vision is to continue making steel with Electric Arc furnaces that will secure the long term of steel making in Wales, albeit with a reduced workforce, but still a major contributor to the Welsh and UK economy.  And Nexperia the semi-conductor business in Newport that was ordered by the UK Government to divest its Chinese ownership appears to be heading towards a new deal and a US takeover. Airbus at Broughton in N Wales and Newport in South Wales is roaring ahead and there is hope that the development of a green economy fuelled by offshore wind turbines in the Celtic Sea will stimulate growth and new job opportunities. Another Business leader says of this, that the Welsh model of government needs to be reformed to ensure planning laws are streamlined and the issuing of permits is made without lengthy delays.  

But the ability of the Welsh Government to offer financial incentives is severely limited. It has lost significant funding from Europe.  

The consequence of the financial squeeze and the decision to reduce the budget for training and apprenticeships that has brought heavy criticism from a coalition of Business organisations.  

The CBI in Wales, Make (UK) and the FSB have made public a letter they have written jointly to the Welsh Government condemning the decision, and asking for a re-think. In the letter they say; “Continuing to deliver a fully funded skills programme is essential to ensuring that Wales keeps pace with the needs of a modern economy and demonstrates that Wales is open for business….The proposed 24.5% cut to the contract value next year will not only undermine this success, but it will also set back investment in skills and our professional skilled workforce by several years and severely impact business activity and opportunities for growth…” 

Jeremy Miles, the former corporate lawyer who worked for international media companies before he went into full time politics, is thought to be warm to business engagement. His rival, Vaughan Gething, also a former lawyer who worked for Trade Unions before he was elected to the Senedd, has been holding the Economy brief and is respected for his intellect and incisiveness. They are expected to face a challenge from colleague Hannah Bleddyn who sits on the Left of the party, but Gething and Miles are seen as the main contenders.  

What can they offer Business? Facing their current financial crisis it is difficult to see where the funds will come from to make any significant difference. Certainly not at the levels of Government funding in the late 80’s and early 90’s.  

Business understands this.  

The challenges are clear, but the hand of friendship is being extended. How willing a new First Minister is to embrace it will define future relationships with the Business community and show if Welsh Labour is prepared to align with the Starmer push to convince Business that it has nothing to fear from the wind of change.