Since my last blog about the economy in early 2016 the political landscape has changed in a way few believed would happen. The much publicised Article 50 was triggered two weeks ago and so the countdown to the UK’s divorce has started. And with it, a renewed flurry of speculation about what might lie ahead for Britain. We have two years to sort out the arrangements that will set the UK economy on its new, independent path.
In this blog I try to make sense of the key decisions that will have to be made and will try to surmise from the many experts what this might mean for the Welsh economy. As an SME based in Wales – an SME which has been thankful for the past decade or two, for our small share of the £500m per annum that Wales was awarded from the EU – Brexit will no doubt have a big influence on the future source of our revenue.
European Funding has been good to us. A good source of income. And like many others, we wonder what, if anything, will take its place. Thanks largely to the EU’s aim to reduce disparities between the development of its various regions, Wales has been a net beneficiary of the reallocation of funds across the EU. Prior to the referendum it was widely publicised that during 2014 Wales benefited to the (net) tune of £79 per head from EU payments received (despite which, Wales still voted in favour of Brexit 53% to 47%), compared with a net per person contribution of £151 across the UK. A clear reallocation of resources across the UK. A positive for Wales.
So, what now? The current EU programme runs to 2020, so Wales should continue to receive support, however, the UK leaves in 2019. Thus, there was a question about whether that money would be received – which was answered towards the end of last year by the UK Government guaranteeing EU funding which continues after we have left the EU.
So at least for now there is a degree of certainty for the Welsh economy in the short term. Beyond this period however, the level of support that Wales gets will be determined entirely by UK Central Government – and is not expected to be as generous as that received from the EU. A very uncertain future funding landscape.
There is however, still a chance that the UK will be able to access EU funding – through a small number of funds which are currently accessed by non-EU member states. For example, INTERREG – a programme designed to promote cooperation to address common problems.
Nonetheless, access to such programmes could be ruled out for the UK in exit negotiations, which again are at the hands of central government. But the Welsh Government can, and is, proactively planning for the future. Plans to establish a National Infrastructure Commission for Wales were voiced in October last year. An initiative which aims to develop a long-term, strategic plan for future investment in infrastructure, to support Wales’ strengths. An ‘ace-card’ to take to central government when it’s time to negotiate for central funding for Wales – and exercise our increased borrowing power that (should) result from the newly approved Wales Act 2017.
Perhaps the biggest impact on the Welsh economy will come from post Brexit trade negotiations. The Welsh economy is highly reliant on exports. More so than the rest of the UK. Wales is also a major supplier to larger companies in the rest of the UK – who themselves will be subject to the impact of future, unknown trade deals. Trade tariffs are the obvious barrier – which according to a leading Welsh economist are the less important aspect of trade agreements for Wales. Rather, non-tariff barriers such as product approval, intellectual property, labelling, packaging, licencing etc. will affect Welsh companies more. Worryingly, it is often highlighted that the Welsh Government (and UK Government) is lacking in the capacity and skills to help in this, and the related area of procurement. The complexity of EU Directives and their bureaucratic processes frequently take flak for being prohibitive yet many believe that there is a systemic culture within the public sector at large that will ensure slow, lengthy procurement processes will prevail – and without the EU to blame, if changes aren’t forthcoming.
So, to overcome non-tariff barriers, public procurement must adapt, and quickly if Wales is to capitalise on new opportunities. Moreover, given the lack of large, Welsh, tier one companies – who hold the purchasing power, there is even greater emphasis on the importance for Welsh Government to create the right business conditions in Wales, to overcome these trade barriers.