At the Centre for Welsh Studies (CWS) we commend the UK Government’s extension of Coronavirus-related support for the Welsh economy and bold proposals around levelling up Wales, while also being cautiously optimistic about its long-term impacts. Now more than ever, we reiterate the importance of the Union, and the need for political collaboration in the search for pro-growth and pro-business solutions for Wales.
Yesterday, the Chancellor of the Exchequer presented the 2021 Budget statement to the House of Commons. It contained some of the most ambitious and boldest fiscal and political measures this country has ever witnessed, largely due, of course, to the on-going Coronavirus pandemic. There is no doubt that the exceptional circumstances that we are currently living through have confronted the UK Government with enormous challenges. In this sense, Mr Sunak aimed to strike a balance between continuing Covid-19 support schemes for individuals and businesses, whilst also emphasising the need to restore public finances for the sake of a healthier and resilient future economy.
The budget provides an extra £740m in cash for the Welsh Government through Barnett consequentials—money that the Welsh Government can choose to spend how it wishes. In addition to this, the budget will also benefit the people of Wales in a number of ways:
- The extension of the furlough scheme means that the Government will keep paying for 80% of furloughed employees’ wages and that, according to the latest HMRC figures, around 178,000 Welsh jobs will be protected through the Coronavirus Job Protection Scheme
- A one-off payment of £500 will be available to eligible Working Tax Credit claimants
- Equally, the six-month extension of the £20 weekly increase to Universal Credit will come as a great relief to around 280,000 families in Wales who currently rely upon it
- Personal tax allowance, national insurance, fuel duty and alcohol duty have all been frozen, thus, reducing the living costs for many across Wales. The freeze on fuel duty, in particular, is very good news for Wales’ rural communities.
- The new and revised points-based visa arrangements to attract highly skilled migrants to the UK represents an opportunity for Wales to attract talented and bright people to generate new research, innovation and ideas
- A new UK-wide 5% deposit mortgage scheme will make a huge difference in Wales as it will make home ownership more accessible to those with a smaller deposit. It will be available to current homeowners, as well as first-time buyers aiming to buy properties for up to £600,000
There was good news for businesses too:
- A new UK business recovery loan scheme, offering loans between £25,000 and £10m, will aid Welsh businesses greatly
- The VAT reduction for tourism and hospitality has also been extended, which will especially benefit local Welsh businesses bouncing back post-pandemic. The latest statistics from STEAM reveal that the tourism sector in Wales suffered a devastating £6bn hit during 2020.
- Self-employed workers in Wales will also benefit from the UK-wide Self-Employed Income Support Scheme, available from next month and able to pay 80% of 3-months average trading profits. Under the new rules, the scheme can be accessed by newly self-employed individuals too
In terms of investment in local communities here in Wales:
- Welsh local authorities will be able to apply for funding from the £4.8bn levelling-up fund for local projects. It is worth noting that the Welsh Government has accused Westminster of “aggressively” undermining devolution under this new scheme, despite the obvious benefit to Wales and Welsh residents of being included in it. Of course, Labour ministers at Cardiff Bay could also show competence in this regard and support businesses across Wales by effectively freezing council tax.
- The budget also included an additional £58.7m of funding towards the “City and Growth Deals” in Swansea Bay, North-Wales and Mid-Wales City. This includes the creation of up to 12,800 new jobs, and regeneration and growth-focused projects in areas like infrastructure, transport, technology and agriculture
- £4.8m have been allocated for the Holyhead Hydrogen Hub in Anglesey, which would produce and distribute renewable energy, creating new skilled jobs and bring much needed investment to the area
- £130m of additional investment to turbocharge green recovery is promised, creating up to 130,000 new jobs
- £30m for a Global Centre for Rail Excellence in Neath Port, thus creating new skilled jobs and bringing innovation through the creation of this rail and infrastructure testing site
- A £150m UK-wide Community Ownership Fund has been created to allow community groups to take over their struggling local amenities—pubs, arts venues, sports clubs, etc., allowing local communities here in Wales to protect vital amenities from closure due to the pandemic
In response to the UK Budget, Welsh Finance Minister Rebecca Evans has confirmed the extension of the rates holiday scheme for businesses and charities in the retail, leisure and hospitality sectors for another 12 months and of the Land Transaction Tax temporary reduction period until 30 June 2021. The Small Business Rates Relief scheme will also continue to operate for the period 2021-22. In her written response to the budget, Evans added that the Welsh Government is “willing to work with the UK Government to explore the introduction of Freeport in Wales” on the condition they are consistent with the devolved administration’s values, and address their priorities and funding concerns.
At the CWS we celebrate the UK Government’s on-going support for businesses and the self-employed throughout the pandemic. Equally, forward-looking policies introduced in this budget, such as the ‘Help to Grow’ business-support scheme and ‘super-deduction’ schemes are bold and necessary stimuli toward modernising the economy. SME training, particularly in regards to digitalising their businesses and enhancing their management, is key for the attractiveness, reputation and survival of Welsh firms within the UK and also abroad.
The launch of the free trade zones, or ‘freeports’ (initially in England only) is also a welcoming policy—it promotes openness, forges global partnerships and provides potential economic opportunities at a local level. Because of this, we urge the Welsh Government to join the ‘freeports’ initiative. It is disappointing, however, that discussion of a freeport in Wales hasn’t happened sooner, when we have a transportation and storage industry supporting 50,000 jobs (StatsWales 2018 figures). Instead of thinking about ambitious projects which could stimulate growth, much-needed investment and prosperity for businesses and local communities, the Welsh Government prefers to spend its time assessing the feasibility for new taxes and also picking up power fights against Westminster, instead of collaborating constructively for the benefit of Wales and the UK as a whole.
We believe that if rolled out properly, these policies could bring about great prospects for Wales, effectively encouraging the generation of well-paid local jobs, innovation and wealth-creation. Great ideas occur when people and institutions dare to be inventive, and are open to new insights, technologies and business models. These are all steps in the right direction.
Nevertheless, we are aware that these policies are focused on the short-term, so it will be interesting to see how different sectors respond to these announcements. Moreover, the excitement toward initiatives around freeports or the super deduction scheme seems to have been overshadowed by the Chancellor introducing a hike of corporation tax to 25pc by 2023, applicable only to businesses with profits of £250,000 or greater. While he stressed that small businesses with profits of £50,000 or less would be protected through the creation of a Small Profits Rate (maintained at the current rate of 19pc), this tax hike for big and profitable businesses does ask us to consider the issues of international competitiveness and economic growth in the long term.
The Chancellor indicated that the corporation tax increase would still keep the UK with the lowest rate in the G7, but it remains to be seen how the UK, and indeed, the Welsh economy, in particular, will look like once the Coronavirus-related grant and relief schemes expire. The Office for Budget Responsibility (OBR) estimates that economic growth in the UK between 2023 and 2025 will slow down considerably (1.7% in 2023, 1.6 in 2024, 1.7% in 2025—down from 7.3% in 2022). Around this time, post-pandemic subsidies are set to end and the planned tax rises will also start to emerge. At the CWS we believe that, in order to avoid these discouraging economic prospects, the Welsh Government will need to work with the UK Government, not against it, and lay the foundations for firmer pro-growth and free market strategies. After all, the road out of the pandemic and into a bright future lies in collaboration, and therefore, in continuously championing the Union and Wales in equal measure.
In conclusion, this budget has a lot of short-term headline-grabbing support for the Welsh economy, which is very welcome and needed right now, but we remain cautiously optimistic about the long-term impacts. The upcoming Senedd elections are the perfect opportunity for choosing candidates and parties that understand the importance of collaboration, business growth and investment in Wales. This is the only way of guaranteeing that the economy of the whole nation will come roaring back.
Written by Dr Juan Anzola.