Over the last few months, the Office for National Statistics (ONS) has published data at local authority level for the first time for two measures of economic output and prosperity, Gross Value Added (GVA) and Gross Disposable Household Income (GDHI). These datasets are scrutinised as key indicators of economic performance when data for Wales is released, so what can they tell us at a local level? And what limits might there be on the insight we can draw from the figures?
The world is potentially on the brink of a Fourth Industrial Revolution (4IR) of technological advances that may bring science fiction to reality over the coming decades. On 5 April the Assembly will be debating the challenges and opportunities that Wales might face as a result of the 4IR, and how Wales should respond to these.
17 February 2017
Article by Gareth Thomas, National Assembly for Wales Research Service
On 15 February 2017, trade union members from Community, UNITE and GMB all voted to accept the deal offered by Tata Steel relating to pensions, future investment and job security. The three trade unions had recommended that workers accept the deal, while recognising the difficult decision workers would have to make on their pensions. Tata have said that work continues with the unions and others to build a secure future for the industry.
What is in the deal?
The UNITE trade union has set out details of the proposal that union members were balloted on, which included:
- Closing the British Steel Pension Scheme to future accrual on 31 March 2017 and introducing a Defined Contributions Pension Scheme. Additional one-off payments to pension scheme employee members aged 50+ who retire between 60 and 64 will also be available in some circumstances.
- Commitment to run 2 blast furnaces at Port Talbot until at least 2021, and proposed investment in Blast Furnace 5 to extend its lifespan beyond 2021.
- Commitment to an investment plan which proposes £1 billion of investment over 10 years, conditional on Tata Steel UK making at least £200 million in earnings before tax, interest, debt and amortisation (EBITDA) per year.
- Protection against compulsory redundancies until 2021, equivalent to the commitment given to the workforce at Tata’s IJmuiden plant in the Netherlands.
Tata will also seek to restructure its UK Profit Bonus, and introduce new rates and conditions for new employees. It also aims to make £13 million of employment cost savings across the UK.
How have the Welsh and UK Governments invested in the steel industry and steelmaking communities?
The previous Welsh Government offered Tata a package of over £60 million, with conditions attached, prior to the announcement on the sale of its UK assets in March 2016, including investment in environmental improvements and developing the galvanising line at Port Talbot. Following the vote, the Cabinet Secretary for Economy and Infrastructure said that he hopes to be able to bring forward announcements shortly on these projects.
The Welsh Government also established the Port Talbot Waterfront Enterprise Zone in response to the job losses announced in January 2016. The UK Government also agreed to fund Enhanced Capital Allowances for three sites within the Enterprise Zone, which enable businesses to claim a 100% first year allowance for the capital cost of new investment in plant and equipment.
In December 2016, the Welsh Government agreed to contribute £8 million towards a total investment of £18 million in improvements to the Port Talbot power plant and setting up a R&D base in Swansea. In February 2017, it contributed funding of £1.6 million towards environmental improvements at Celsa Steel in Cardiff, and £1.2 million for investment in three other companies in the industry.
In December 2016 the Welsh Government agreed to provide £4 million to Tata to match its investment in training staff and managers across Wales. The Welsh Government’s ReAct redundancy support scheme has assisted workers from Tata and supply-chain companies.
The UK Government has provided assistance to mitigate high electricity prices and the impact of climate change policy. Over the two compensation schemes that have been introduced, the UK Government has provided over £100 million in compensation to the steel industry.
Has this support addressed the key challenges the industry faces, and what further action is needed?
In October 2015, the steel industry identified five areas where action could be taken to address the challenges it faces in the longer term. UK Steel says that of these, one has been actioned fully, three partially and one not at all. In contrast, the UK Government considers it has addressed four of these actions.
On energy prices, while the steel industry welcomed the UK Government’s package of support, electricity prices for UK producers remain considerably higher than those for European competitors. UK Steel highlight a differential of £17 per Mega Watt Hour between UK and German producers, impacting on investment decisions between steelworks in different countries.
Action around the ‘dumping’ of steel will be a key area where the UK Government will need to make decisions after the UK leaves the EU, as it will need to establish trade defence measures. There has been concern that previous EU anti-dumping tariffs have not been high enough, and that the UK Government has not supported the lifting of the ‘lesser duty’ rule by the EU. The sector is concerned about the potential for tariffs being imposed after the UK leaves the EU. While WTO tariffs on steel products are 2%, tariffs such as the 10% on the automotive industry are of greater concern.
On business rates, the steel industry has called for plant and machinery to be exempt from business rates bills. UK Steel found that UK companies pay five to ten times more business rates than producers in France and Germany. The Welsh Government has not taken this forward, as they consider it complicated to operate and have preferred to support the industry in other ways. However, the recent business rates revaluation has seen a fall in the average rateable values of steelworks in Wales. UK Steel have noted that under the Welsh Government’s transitional relief scheme steelworks will not have business rates bills reductions capped as will happen in England.
Both governments have also taken action on procurement. The Welsh and UK Governments have published infrastructure pipelines of which projects will require steel. Additionally, the Welsh Government has changed its transport contracts to require that ‘dumped’ steel is not used. The UK Government has also introduced procurement measures, including requiring central government departments to consider economic and social impacts of the steel they source. Key areas of future action for the steel industry include monitoring compliance with guidance, and developing transparent reporting mechanisms.
In May 2016, Swansea University called for backing for a new proposal for a national innovation and technology centre for steel. The IPPR have argued that foundation industries such as steel should be better integrated into the Catapult networks, which are designed to boost innovation in key sectors across the UK.
Looking forward, while the UK Government’s proposals for an industrial strategy have been seen by some as not sufficiently considering steel, the UK Government and the steel industry are discussing the potential for a ‘sector deal’ for the industry, which is supported by the Welsh Government. Sectors will develop plans to boost productivity. The UK Government could then assist in a number of ways, including skills and training policy, changes to regulation, helping address barriers to trade and supporting the creation of new sectoral institutions.
31 January 2017
Article by Gareth Thomas, National Assembly for Wales Research Service
Over the coming weeks, the Assembly’s Economy, Infrastructure and Skills Committee will be holding a series of seminar sessions to gain different perspectives on what the Welsh Government’s new economic strategy should look like. The first session, on 2 February, will look at how an economic strategy could meet the needs of women and men in Wales. Ahead of this, here are five of the key differences between the roles that women and men play in the Welsh economy that are likely to inform the session.
Women are more likely to work now than 25 years ago, although they are still less likely to work than men
When figures were first published by the Office for National Statistics (ONS) in March to May 1992, 58.9% of women aged 16-64 in Wales were in employment, compared to the most recent figure of 69.9% in September to November 2016. Over the same period, the equivalent figure for men increased from 71.7% to 75.1%.
The UK Government’s Women’s Business Council has estimated that equalising the economic participation rates of women and men could grow the UK economy by more than 10% by 2030.
Almost three quarters of part-time workers are women
ONS figures show there are 286,000 women working part-time in Wales, and they make up 73% of all part-time workers. In the year to September 2016, 85% of working men have full-time jobs, and 15% work part-time. In contrast, 57% of working women have full-time jobs, while 43% work part-time.
The Women Adding Value to the Economy project found that part-time work is strongly correlated with occupations that predominantly employ women, such as personal services, sales and care occupations. They found that in Wales, at least 40% of these jobs are likely to be offered on a part-time basis, restricting opportunities to access full-time work.
On average women are paid less than men per hour, and are more likely to be paid less than the living wage
There are two common ways of comparing differences in the pay of female and male workers – both of these show that on average women are paid less per hour than men in both Wales and the UK.
- The headline measure used by the Office for National Statistics compares median hourly earnings of women and men working full-time, excluding overtime. Using this measure, in 2016 the gender pay gap in Wales was 7.5% for full-time workers, below the UK figure of 9.4%.
- Another way used to measure the gender pay gap is to look at median hourly earnings excluding overtime for all working women and men, as this takes into account that women are considerably more likely to work part-time than men. Using this measure, in 2016 the gender pay gap in Wales was 15.7% for all workers, below the UK figure of 18.1%.
The implications of this difference in pay are illustrated by women being more likely than men to earn below the living wage. Data from the ONS shows that in 2016, based on the hourly living wage of £8.25 as at April 2016, 29% of women (172,000) working in Wales earned below the living wage, compared to 20.5% (113,000) of men. Part-time workers are much more likely to earn below the living wage than full-time workers. In 2016, 43.2% of female part-time workers (109,000) earned below the living wage, compared to 53.2% of men working part-time (39,000).
Women and men tend to work in different sectors of the Welsh economy, and are affected differently by Welsh Government sector prioritisation
Male and female employment are concentrated in different sectors of the Welsh economy. In the year to September 2016, half of all working women were employed in public administration, education and health, comprising 72% of workers in this group. In contrast, men are employed across different industries, and represent more than 70% of workers in the agriculture and fishing, energy and water, manufacturing, construction and transport and communications industrial groupings.
Women are less likely than men to work in a Welsh Government priority sector, and represent a third of workers employed in these sectors. The Welsh Government’s current economic strategy, Economic Renewal: a new direction, developed a sector-based approach to target business support to 6 key sectors, subsequently increased to 9. The percentage of female workers in these sectors is set out in the graph below.
Women are less likely to start or run a business than men
The UK Government’s Small Business Survey 2015 found that 23% of small and medium enterprises (SMEs) in Wales are women-led businesses. Self-employed women represent 31% of all self-employed people in Wales, and men are twice as likely to be self-employed as women. In the year ending September 2016, 63,600 women (9.4% of working women) aged 16+ in Wales were self-employed, compared to 138,400 men (18.6% of working men).
- Access to business support and finance: Small women-led businesses are seen by the FSB as less likely to access finance than male-led equivalents and on average begin their business with a third less capital.
- Self-perception and skills: The FSB and Women’s Business Council found that women are less likely than men to think they possess the skills needed to start a business, and that a number of barriers potentially exist to addressing this.
- Perceptions and discrimination: 33% of FSB survey respondents reported experiencing discrimination based on their gender.
You can watch the Committee meeting live on Senedd TV at 2pm on 2 February.
24 May 2016
Article by Gareth Thomas, National Assembly for Wales Research Service
This article is taken from ‘Key issues for the Fifth Assembly’, published on 12 May 2016.
A development bank to improve access to finance for Welsh businesses has been discussed for a number of years. Now that one will be established in the Fifth Assembly, what will it do and could it make Welsh businesses more competitive?
Access to finance for Welsh businesses has been a key issue during recent years. Debate has focussed on finance for small and medium-sized enterprises (SMEs), and the degree to which they are able to access funding from both public and private sector sources. The compact agreed by Welsh Labour and Plaid Cymru included a commitment to establish a development bank.
Why might Wales need a development bank?
While the markets for SME finance are improving, some argue that increased availability of finance is required across the UK to rebalance economic growth. This is shown by the fact that 71% of total SME equity investment is accounted for by companies based in London and south-east England.
According to Professor Dylan Jones-Evans, businesses in Wales face particular disadvantages when trying to access finance compared to those in England and Scotland. He argues that the funding gap between the finance that Welsh SMEs need, and what they can access from the private sector, may be as large as £500 million per financial year.
While government interventions such as Finance Wales and the British Business Bank help to fill some of this gap, those calling for establishing a development bank state that SMEs could be more competitive and contribute more strongly to growing the Welsh economy if this gap were reduced further.
However, work done by the Centre for Research on Socio-Cultural Change (CRESC) for FSB Wales cautions that better access to finance is not a ‘silver bullet’ for SMEs, highlighting that demand for finance may not rise until businesses have greater supply chain security. A further unintended consequence of increased access to finance may be earlier sales of SMEs, hindering the development of long-established medium-sized firms in Wales.
Who would require support from a development bank?
The development bank feasibility study undertaken for the previous Welsh Government highlighted the difficulties that many smaller firms face in accessing finance. Microbusinesses employing less than 10 people have much greater demand for relatively small amounts of money than the private sector is able to offer them.
What are the current arrangements for business support in Wales?
Financial support for micro to medium-sized enterprises via the Welsh public sector is mainly provided by Finance Wales. Business Wales helps businesses to access finance and provides general guidance and information
CBI Wales considers the needs of medium-sized businesses currently fall between existing support aimed at either small businesses or large corporations. Access to finance is a key issue for these businesses, particularly equity financing through business angels and venture capital.
Chwarae Teg has called for female-specific business support, including access to finance. This is in response to what it sees as gender specific needs in this area. Female entrepreneurs are said to have negative perceptions about their ability to access finance, which can be a barrier to them setting up their own business. This is seen as a key reason why SMEs led by women are less likely to use external finance than those led by men.
How might a development bank work?
Many of the final decisions on the structure of the bank and what exactly it could do remain to be taken. However the previous Welsh Government and Finance Wales have looked at potential solutions and started to develop a costed business plan. There are a number of potential models that could be adopted for a development bank. These include the previous Welsh Government’s preferred ‘hybrid model’, where the development bank would work in partnership with other stakeholders to address finance market failures in key sectors.
The new functions of a development bank could include:
- delivering a wider range of debt and equity financing products and services to Welsh SMEs to address the funding gap;
- targeting particular sectors and types of business that have particular difficulties accessing finance, such as microbusinesses and new businesses;
- being self-financing, by not requiring Welsh Government grant-in-aid funding or support to finance the funds it operates;
- working with academia to improve business data and understanding of the sector; and
- ensuring that businesses receive the right mix of financial and non-financial support, taking into account the recommendations of the Lending Ready review.
What is a development bank and what does it do?
A public development bank is a state-owned institution that works in areas of market failure to add to the amount of finance small businesses can obtain from the private sector. It addresses issues that small businesses face in accessing finance, as it can be riskier for private sector funders to provide this and they may not be willing to do so.
What would be a development bank’s goals?
There is hope that the development bank could double Finance Wales’s current annual investment levels in SMEs; significantly increase additional investment from the private sector; and increase the number of jobs created and safeguarded as a result of investments. This would be a major step forward in the financial support available to Welsh businesses.
With businesses facing a funding gap, how the new Welsh Government responds will play a major role in determining what impact SMEs can have on the Welsh economy. It will also be a key factor in how competitive these businesses can be. Will the development bank achieve these aims and help to drive economic growth?
- BDRC Continental, SME Finance Monitor (2011-15)
- British Bankers Association, SME Statistics: Banking support for UK small and medium-sized enterprises
- British Business Bank, Small Business Finance Markets Report 2015-16
- Centre for Research on Socio-Cultural Change for Federation of Small Businesses Wales, What Wales Could Be (2015)
- Development Bank for Wales Task and Finish Group, A feasibility study into the creation of a Development Bank for Wales (2015)
- Finance Committee, Finance Wales (2014)
- Finance Wales, Annual Report and Accounts 2014-15 (2015)
- Finance Wales, A guide to investment terms (webpage)
- Jones-Evans, Professor Dylan for Welsh Government, Access to Finance Reviews (2013)
- Lloyd-Griffiths, Robert for Welsh Government, Lending Ready: Aligning Business Support and Finance Review (2015)