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- Minutes of Evidence
HOUSE OF COMMONS
TAKEN BEFORE THE
WELSH AFFAIRS COMMITTEE
INWARD INVESTMENT IN WALES
THURSDAY 15 SEPTEMBER 2011
NICK RAMSAY AM, PROFESSOR MARK DRAKEFORD AM and ELUNED PARROTT AM
Evidence heard in Public
Questions 393 - 445
USE OF THE TRANSCRIPT
1. This is a corrected transcript of evidence taken in private and reported to the House. The transcript has been placed on the internet on the authority of the Committee, and copies have been made available by the Vote Office for the use of Members and others.
2. The transcript is an approved formal record of these proceedings. It will be printed in due course.
Taken before the Welsh Affairs Committee
on Thursday 15 September 2011
David T. C. Davies (Chair)
Mrs Siân C. James
Mr Robin Walker
Examination of Witnesses
Witnesses: Nick Ramsay AM, Shadow Minister for Business, Enterprise and Technology, Professor Mark Drakeford AM, Welsh Labour Party, and Eluned Parrott AM, Welsh Liberal Democrat spokesperson on business, enterprise and technology, gave evidence.
Chair: We are all on camera now, so perhaps we should bear that in mind. Diolch yn fawr iawn am ddod yma heddiw. It is a pleasure to see Nick Ramsay, Eluned Parrott and Professor Mark Drakeford. I congratulate Eluned and Mark on their recent election and Nick on being re-elected in Monmouth. This is meant to be a fairly friendly occasion. We are just looking into inward investment in Wales, which is something in which we all have a shared interest. We have some specific questions, but please feel free to throw in whatever you want or any observations you think are relevant to the inquiry.
I will start with Siân.
Q393 Mrs James: Bore da. During this inquiry, we have heard a number of theories about why Wales is no longer seen as a place to invest. My question to all three of you is whether you have any opinions on, or ideas about, why Wales is losing that competitive advantage and becoming less successful at attracting inward investment.
Eluned Parrott: If I may begin, one reason why Wales was so successful in the 1990s, which is obviously seen as a critical time, was that we had a particular market position that was attractive. We were able to market ourselves on the basis that we were a relatively low-cost but also relatively high-quality location-which meant good value for money-and an entry point to the European market, which was a critical factor for inward investors, particularly from the far east. The problem is that we live in a completely different world now. We cannot recreate the conditions that made that a competitive advantage. We are no longer the lowest cost location in the European Union, since the entry of several eastern bloc countries to the EU. In no way are we able to compete on that, and nor do I think we should try to compete on cost with the far east. I do not think that a developed economy such as that of Wales ought to be trying to compete on the basis of how cheap the labour is. That would be a real mistake.
Places such as India and China have removed many of the practical barriers to investment that previously prevented big investors seriously considering basing themselves there. There is improved infrastructure as well as improved political stability-particularly in the case of China-and that makes those much more viable locations for long-term investment. The trouble that Wales has had is that we have not responded to that. We have not developed an alternative market position that is as viable, distinctive and attractive to potential investors as the position we had previously. We have not responded to that changing world.
Professor Drakeford: I agree with a great deal of what Eluned has just said. I think that you have heard that from a series of witnesses in your earlier meetings. Glenn Massey particularly drew out the fact that you can only understand Wales’s position if you understand the changing wider picture of foreign direct investment-
Q394 Mrs James: The global economy.
Professor Drakeford: Absolutely, the global economic conditions; the changing nature of the Department for Business, Innovation and Skills’s view of inward investment, particularly its lack of interest in manufacturing; the fact that the centre of gravity of FDI across the United Kingdom has altered so that most FDI goes to London and the south-east in contrast to the pattern of 20 years or so ago. As he said to you, 90% or so of FDI would come regardless of anything that was done, because it was investment that was looking for market share and so on. The question for us in Wales is how we make ourselves attractive in relation to the 10% of investment that is genuinely mobile.
It seems to me that it is as Eluned said: we cannot return to marketing Wales as a place that is cheap to come to and where you will get a grant. We must find a way of persuading the companies that could go anywhere on the globe why they should come to Wales in particular. That means mobilising our competitive advantages in economic terms but also in social, cultural and other terms in a way that says to companies, ‘If you come to Wales, you are not simply coming to some anonymous posting that could be anywhere in the world. You are coming to somewhere that has a sense of identity, that offers you a combination of possibilities in social as well as economic terms, so coming to Wales will allow you, your company, your career and your family to thrive’. We must concentrate more on mobilising, bringing together and making coherent that overall sense of marketing offer that we can make.
Q395 Mrs James: To follow that up, Professor Drakeford, you did not mention training, skills and education. We hear constantly that we must be a clever small country and target our workforce towards being mobile and up to the level of skills required.
Professor Drakeford: That is quite a complicated question and a bit more complicated than the headline kind of way in which it is discussed would sometimes suggest. If you look at the evidence of organisations such as the Resolution Foundation, you will find that-I think that Sir Roger Jones said something about this to you as well-the nature of the skills that are required has altered over the last 10 to 15 years. If you look at the shape of skills within developed economies, you will see that many jobs requiring the bottom end of skills continue to be created: a lot of face-to-face work in restaurants, catering and care, and stuff that you cannot do without someone else doing it with you. Other jobs are being pulled up the skills ladder so that they are at the top, graduate end, but there has been a hollowing out of the middle. Many of the skills that were previously associated with white-collar jobs and the higher end of blue-collar jobs, to use those terms, have disappeared and been pulled in those bipolar directions.
Firms often say that, in a workforce, they look for the potential to acquire the skills that they will need. That is very much what Airbus said to you. It did not say that it came here because people had the skills already; it came here because it has a workforce that is dedicated, loyal, hard-working and keen to associate itself with the success of the company, and the company, alongside the Government, further education, higher education and so on, is able to mobilise the skills package that it needs. It has a workforce that is capable of learning and relearning new skills as the skills package that it needs develops. That is definitely something that we are able to offer in Wales and it is a message that inward investing companies continually repeat. It is not just about having the skills already, important though that is-and there is more that we can do to ensure that that is the case-but the willingness and the potential to go on acquiring skills in a rapidly changing economy are what really matter.
Nick Ramsay: First, I would like to thank the committee for inviting us here today. I think that I speak for us all when I say that we welcome the opportunity to look at ways in which we can progress matters with regard to inward investment in Wales. Some very good comments have been made, particularly those relating to the types of skills and jobs that we would like to see developing in Wales in the future.
There is no doubt that, if you look at the economy at any particular point in time-such as the 1990s or, to go back further, the 1950s, or even further back, the nineteenth century-the economic conditions at each point are different and the global economic situation at each point is different. Any Government, whether in Westminster or Cardiff, has to deal with the economic reality in which it finds itself. At the moment, things are clearly difficult. That said, we have to ask whether we will simply accept that we are constantly battling against the forces that be and against the problems that arise when other countries, such as those in eastern Europe, or China, enter the game. I do not think that we should.
A key statistic, which I think was included in our submissions, is that the figure for inward investment in Wales stands at around 4% or 5% of the overall UK inward investment figure. It stood at 15% in the mid-1990s and was more than that further back into the past. Therefore, there has been a decline. I hear a lot from my colleagues in the Assembly and from the Welsh Government about the need to address this, but I do not always hear solutions. Mark Drakeford made a point about anonymity; I agree that we need to market Wales in a different way and that we need to ensure that Wales punches its weight on the global stage. However, to be frank, there have been key mistakes in terms of the loss of the Welsh Development Agency. I do not think that International Business Wales ever completely filled that gap. We are still waiting for a successor to that and we do not know whether it will be as successful as the WDA.
Therefore, there are all sorts of ways in which we can market Wales better, both now and in the future. I am not convinced that we are there yet, but we would all value the opportunity to contribute to that debate.
Chair: That was a very good opening. I appreciate the opening comments and it was right that you were able to set out the direction in which you feel we should go. However, I will say gently that we have quite a lot of questions, so from now on, we will have to be a little more brief.
Q396 Mrs James: Building on what Mr Ramsay has just said, do you think that stimulating the Welsh economy, all of the work that we have talked about, and all of the important things that we have to do in the future, should be solely the preserve of the Assembly, or do you see a role for the Government in Westminster?
Eluned Parrott: Parts of the economic strategy for Wales lie in the hands of the devolved Welsh Government, while some powers and things that have a strong and direct influence on the Welsh economy are in the hands of the Westminster Government. It is therefore critical that we are able to collaborate, co-operate and work together. That is why I am so disappointed that Edwina Hart has not joined us here today to put forward the perspective of the Welsh Government and to share in the mutual respect agenda. That is genuinely a source of disappointment to me.
In terms of the way in which we collaborate and co-operate, this meeting in Cardiff is a symbol of what is possible when we have a shared agenda and a shared commitment to tackling some of the problems that we have. I am sure that I speak for colleagues here and elsewhere when I say how grateful we are-
Q397 Mrs James: We have done it several times in the past.
Eluned Parrott: I recognise that.
Chair: It perhaps also demonstrates what is not possible on occasion.
Professor Drakeford: The response to the question has to be that the effort to bring investment into Wales is not something that the Welsh Government can do by itself; it relies on the conditions that are created at a European level as much as the UK level. If we are interested in a manufacturing-led growth strategy and an export strategy, what happens in the eurozone and in European countries-which are all retrenching, are not spending money, and are not buying goods-matters as much to the Welsh economy and investment here as anything that the Welsh Government can do. Eluned is right to say that it takes a combined effort.
Nick Ramsay: I will give the Chair a short answer as I know that he will appreciate that.
It has to be about partnership. We talk to local authorities about collaboration and partnership, and there is no doubt that some of the answers lie here with regard to small-scale matters, fiscal stimulus and what the spokespeople on economic matters here can do. However, Westminster has the macro-economic levers; the Assembly Government has no fiscal power in that sense. So, we should work together. The three parties’ representatives in front of you today are singing from a similar hymn sheet in many ways, despite the differences. That is the way ahead: to work in partnership.
Q398 Geraint Davies: I want to ask about how convergence funding-and, indeed, any other funding streams-can be used to make infrastructure in Wales better for inward investors. Do you think that you should have a dialogue with prospective inward investors on how that should be done, rather than simply deciding without consultation? Do you think that convergence funding could be considered for the electrification of the railway line from Cardiff to Swansea? I represent Swansea, and we are very disappointed in that respect. The idea would be for us to use our allowance and to have it match funded by Westminster. We would not use any Welsh Government money, but use that convergence funding allowance to bridge the gap and to enable the electrification, thereby sending a signal to inward investors that we are in the network.
Chair: I beg the contributors to try to be brief, because we have quite a few questions.
Professor Drakeford: I chair the programme management committee for current convergence funding, and I will chair the programme board that will draw together the thinking on whether there will be a third round of convergence funding for Wales. That will include heavy representation from investors who are already in Wales, and others from the business world. My view-others can respond to it and be part of the debate-is that, if there is to be a third round of convergence funding, infrastructure investment must be higher up the list of things that we use that funding for than was the case in the first two rounds.
Eluned Parrott: It is important for us to look at all the potential options and that we are creative in how we approach funding in times as difficult as these. Convergence funding is one possible route for some kinds of infrastructure projects. The introduction of things such as tax increment financing schemes in Wales might also be an interesting option to explore. We need to keep our options open and keep an open mind on what could be achieved from different sources.
Nick Ramsay: Convergence funding should be invested in a way that will stimulate the economy; it should not be just a sticking plaster or given almost as a sop, if someone says ‘You are not doing very well’. The fact that we are talking about convergence funding suggests that something has gone awry. There was a time when we were hoping that Wales would not even need convergence funding at this point. So, that is sad. However, if we are going to qualify, it should be used for investment.
My final point is on institutions such as the European Investment Bank. Wales has not always benefited from them; it has not always sought support from institutions such as the investment bank in the way in which other countries such as Spain have done. So, there is not just convergence funding; there are other avenues that we can look at.
Q399 Mr Walker: Siân touched on the area of skills earlier, and it is a key determinant in attracting international investment to Wales. We have received written submissions, particularly from the energy industry, expressing concerns about science skills. Do you feel that there are areas in which firms are being put off from coming to Wales at the moment by a skills shortage or gap?
Eluned Parrott: The perception of Wales as having a low-skill economy is unfortunate, because our capacity to build skills here, the amount of university places and the opportunities that there are for people of all ages to develop their skills are a real source of potential competitive advantage. This is one area that I would like to see identified as a key selling point when we are working overseas. We are in a vicious circle at the moment whereby we have low skills and fail to attract skills-led jobs, so we lose skilled people, who go back over the border to England when they have graduated with their science-based qualifications. We need to create the conditions to develop a virtuous circle. There are some practical things that we could do. For example, we could help our universities to compete for more research funding and invest in their innovation programmes. We could look at creating a graduate science programme for Wales in order to provide those postgraduate opportunities for talented young people to stay here and to become part of the innovation structure. We can also learn from some existing successes in Wales. Some of our leading universities are leading the way on things such as innovation networks and so forth. So, there are lots of practical things that we can do.
I am also looking forward to lobbying the Welsh Government to include things such as training grants for small and medium-sized enterprises in its jobs fund, so that it can work to build the skills capacity that we have to develop the very job-specific skills that we need.
Nick Ramsay: I agree with most of the points that Eluned made. There is also a broader question about the perception and the reality: is the science base there or is there more of a perception that it is not? The things that have been mentioned would be excellent. When we eventually see it, the economic renewal programme will try to refocus-you might be asking questions about this later-on the six new areas, and science clearly plays a part in that. However, our job and your job will be to look closely at whether that actually happens. There are concerns at the moment within the university sector, as Eluned mentioned, that it will not deliver in the way that we would hope.
Professor Drakeford: The energy sector has been the largest new investor in Wales in the last 12 months, so it is vitally important to the future of the Welsh economy. If you look at Wales’s geography, here we are perched on the western edge of the European Union, furthest away in terms of supply chains and so on. In some ways, that geography has been a problem for our economic development, but you could argue that, in looking ahead, particularly in relation to renewables, our geography is our biggest asset, in terms of wind, wave and other forms of renewable energies.
I tend to agree with Nick about the difference between reality and perception, and that perception can sometimes take a while to catch up with reality. If you look at what is going on in higher education, you heard evidence from Richard Davies about the new bay campus at Swansea University, which is hugely exciting for science and science education in Wales. It puts us right at the edge of what the interface will be between universities, commercialisation and business needs in the future. So, in some ways, maybe we just need to bang the drum a bit louder about what we are doing and about the real determination that there is out there in parts of the higher education sector in Wales to put ourselves where we need to be.
Q400 Mr Walker: One of the big opportunities that Eluned mentioned is European funding. When we were over in Brussels, we heard a lot of evidence about the importance of European funding and the opportunities that exist. However, there was a feeling, particularly among the Welsh Members of the European Parliament of all parties, that Wales might be punching below its weight in that area at the moment. Do you feel that the focus on Objective 1 capital funding is detracting from the focus on chasing research funds?
Nick Ramsay: From my discussions with colleagues, it seems as though we are punching below our weight. It is not always clear why that is the case. I have mentioned the European Investment Bank. I remember asking Andrew Davies, the previous Minister with responsibility for economic development, who is no longer an Assembly Member, about the EIB. At that point the funding coming to Wales was very limited, particularly from the Government avenues that we could be making the most of. At that time, a high-speed railway line in Spain benefited massively from such funding. Looking at the types of infrastructure capital investments that you want to make here, there is no doubt that that sort of money would be very useful in a Welsh context. As for why it is not happening, and why we are not making the inroads that we should, as Eluned said, it is a shame that the Minister is not here for you to ask her that question. However, we continue to raise those questions in the Chamber, and we will hopefully get some answers.
Professor Drakeford: It is not right to say that because we do one thing, we do not do the other. Convergence funding consists of a substantial slice of money that is specifically for research and development purposes. We need to capitalise on Wales’s very strong reputation in Brussels as far as the running of convergence funding is concerned; we are very well thought of for the way in which those programmes have been set up and delivered, their financial integrity and so on. We need to use the platform that that has given us to make sure that we take advantage of whatever other European funding opportunities there are-it is not one or the other; it is both.
Chair: I will bring Guto in, and then Eluned can answer.
Q401 Guto Bebb: I specifically want to push on the issue of convergence being a distraction for the higher education sector, because one of the MEPs whom we met went as far as to say that, if Wales qualifies again for convergence funding-which would be an indication of failure in my view, because it would mean that we had not progressed in any way, shape or form-there would be a question as to whether the Welsh higher education sector should be allowed to go for convergence funding. In the view of this MEP, it was a distraction from opportunities to develop cross-border initiatives with other institutions in the UK and in Europe. There was almost an insular approach to funding.
Eluned Parrott: In terms of European funding for higher education, there are a number of other issues that put off Welsh universities from applying. Mark and I have both come from the higher education sector into the National Assembly for Wales, so this is something that we have experienced in our work-the kind of problems that Welsh universities will encounter if they go for that funding. First, it requires high-profile partnerships across EU borders, and frankly, it takes time, money and a strong reputation to deliver those kinds of partnerships. Secondly, you really need a huge investment of time to put together a bid. The European funding procedures, particularly in terms of research, are extremely time-intensive-more so than with the UK research councils. The scale of the projects that are funded is often off-putting to smaller institutions, and many of our universities are smaller than the national average. To take the European Organization for Nuclear Research in Switzerland as an example, no Welsh university is planning anything on that scale. Of course, there is perhaps a perception that support is not available to the universities. We could be looking at some kind of seedcorn funding programme for the universities so that they can really tackle this and start attracting that kind of investment, because it is an opportunity that we are not making the most of at the moment.
Chair: I will take a further, brief supplementary question from Geraint.
Q402 Geraint Davies: We were told in Brussels that, because £13 billion a year was being spent on skills and innovation grants, it was as easy to apply for a £200 million grant as a £2 million grant. Given that we have clusters such as the Institute of Life Science in Swansea, would there be an opportunity to attract extra, Beckham-type players in the academic world? It would pay to get these people in to secure these massive investments from Europe. Would that strategy be considered?
Eluned Parrott: We already have some of those players. Cardiff University has two Nobel prize winners.
Q403 Geraint Davies: So why are we not applying for the big bucks? That is the issue. Are we just going for a few million?
Eluned Parrott: There is a perception that it is a big, difficult undertaking, and we need to break down that perception, as well as the practicalities.
Professor Drakeford: There are huge opportunities for universities that put a lot of eggs in a single basket, but if that does not come off, they might have lost all sorts of other, smaller opportunities that could have been gathered with some of that effort. So, this is not simple for the universities.
Nick Ramsay: I am just wondering which mountain we will hollow out for a CERN project if we attempt to create black holes in Wales-probably not. [Laughter.] I agree with the comments made. This is a complex area. At the moment, a lot of the small institutions that I speak to are concerned about whether they will even exist in a few years’ time. So, when we are talking about the long-term planning necessary for making these bids, we should be giving some of the educational institutions in Wales the sort of stability that they need for that.
Chair: We could easily be here all day discussing this, but unfortunately, we cannot, because we have someone else coming in at 11.15 a.m.. I therefore appeal for brevity.
Q404 Jessica Morden: I will be brief, then, Chair, and just ask for views on the impact of the UK Government’s planned enterprise zones, particularly as some will end up on the borders of Wales-for example, the Bristol enterprise zone will potentially impact upon an area like Newport.
Professor Drakeford: The Welsh Government has said that, given that enterprise zones are tools that will be available, it will deploy them. There are anxieties about the border, and about what enterprise zones will do, given their history of simply sucking activity from one place to another rather than leading to new activity. That is part of the reason why the Welsh Government has taken its time in ensuring that enterprise zones in Wales will do the job that we want, rather than simply grasping an opportunity quickly and finding that we are replicating difficulties rather than creating opportunities.
Jessica Morden: What is the consequential again? Could you elaborate a bit more on your plans?
Professor Drakeford: The consequential is not huge. I do not have a figure in my head, but I would say that it is just under £5 million. It will not transform the Welsh economy by itself, and while it is a matter for the Welsh Government-and I am not a member of the Welsh Government, so I am just reflecting the thinking that we hear from it-it will want to deploy that money in a way that leads to genuine additionality, which is what these zones are meant to provide, rather than running the risk of them just taking goods and services and activity from elsewhere.
Q405 Mrs James: I will make just a quick comment on that. Not many people seem to be aware of the fact that the first and biggest enterprise zone in the country is based in my constituency-it was known as the Swansea enterprise zone and has different parts bolted on to it now. What traders in the city centre are telling me is that it is sucking in all the shopping business and that the big mistake was, in the first place, planning. I will make a plea here: the planning issues must be really tight, or you could damage other fledgling industries.
Chair: Perhaps Eluned could respond to that.
Eluned Parrott: Although you are not representing the Welsh Government, I am absolutely delighted to hear someone who is close to it asking for a clear lead that the enterprise zones will be here in Wales, because I am sure, Jessica, that you must be extremely concerned about your own constituency and the kind of impact that a big enterprise zone in Bristol and another enterprise zone in Hereford will have in leeching potential investment out of your local area. That is very important.
We also need to look at other things because, if we are matching the enterprise zones position for position, there are a couple of other barriers and stumbling blocks that prevent people coming to this side of the Severn estuary-this is where we come on to Severn bridge tolls. We have seen investors move out. For example, Tesco is moving its distribution centre out of Chepstow literally across the water to avoid the £0.25 million worth of tolls it was paying each year.
Nick Ramsay: Someone once said that a week is a long time in politics. It is good to hear this movement from the Welsh Government’s perspective.
I have listened to some of the comments that Edwina Hart has made about enterprise zones over the last few months and there is no doubt that they are not a panacea-they will not solve everything. However, there is no doubt at all that if you are going to have an enterprise zone just across the border in Bristol, Liverpool or the north, to compete on an even playing field, Wales needs to be investing in, if not exactly an English model enterprise zone, something similar to that. I am very pleased to hear today that the Welsh Government is looking at what options are available to do that.
Q406 Guto Bebb: Moving on from the issue of enterprise zones, I accept the argument about the displacement that could happen, but obviously, I would be very concerned as a Member with a constituency on the A55 in north Wales that an enterprise zone in the north-west would be problematic. However, hand in hand with the issue of displacement is the issue of powers to vary corporation tax rates, so I wonder what the view of the panel is in relation to Wales having the ability to vary corporation tax rates as a means of attracting inward investment.
Chair: Eluned is first and then Nick-we will do it in a fair and impartial fashion.
Eluned Parrott: Thank you. As I stated in my submission, this is something I am concerned about, because Northern Ireland has a specific challenge on its border, in that the Republic has a much lower rate of corporation tax. However, if we are not very careful in how we plan the devolution of these kinds of powers, we will enter into some kind of price war over corporation tax, and that would be very damaging. We need to work together to ensure that that is not the case. If responsibility for corporation tax is devolved to Northern Ireland, I am sure that the devolved administrations will all ask for it.
Nick Ramsay: You could spend many hours on this, but I can see the Chair beckoning me to move on-I know that look only too well. [Laughter.] At the risk of pre-empting the commission that will look at all these areas-and I sat on the Assembly’s Finance Committee when Gerry Holtham did his review into funding in Wales-you can see some of the benefits of Wales having a lower corporation tax rate, but I am certainly not convinced. As Eluned Parrott said, you would risk a kind of competition with England that I am not sure would be entirely beneficial. It might be, but I am not convinced at the moment. I am looking to see what the commission says. When I was on the Finance Committee, I found that many of the people who defended a reduction in corporation taxes in Wales or our having the ability to vary it separately looked at corporation tax because it was an easier thing to do than deal with other taxes. We need to look at the taxation issue as a whole. I do not think that we should look at corporation tax as a panacea that will suddenly solve all Wales’s woes.
Q407 Chair: Does the power to vary corporation tax mean the power to reduce it or the power to reduce or increase it? Everyone is talking about variation, which could mean going in either direction.
Professor Drakeford: In theory, variation could mean putting corporation tax up as well as down. However, the whole economic debate is about lowering it, because it is said to give you a competitive advantage. The risk, as Eluned has said, is that it leads to a race to the bottom. From a Welsh Labour perspective, we are sceptical about corporation tax, but if it were to be given to other devolved administrations, we would have to-or would want to-have the same opportunity in Wales. To be completely clear about it, the Azores judgment means that a quantum of resource available to Wales will not go up as a result of corporation tax. It can go down, because, if you do not make more money as a result of it, you will lose that extra, but if you gain money, you simply lose it out of your grant funding from the Treasury. You cannot gain, in a quantum sense, from corporation tax variation.
Nick Ramsay: That is an important point. If we have power over corporation tax, then we lose the amount of money coming from the UK to start with. That money can be evenly spread across the whole Welsh economy and Wales as an area, and although you may well benefit in pockets such as Cardiff where you are attracting business, other areas may lose out. So, as I said before, corporation tax is not quite the great bonus, but it is something that should be considered.
Q408 Chair: Presumably, you could fiddle with the local government funding formula to even that out. Anyway, as you said, we could spend hours on that one.
I will start by asking Nick a question about the six sectors that have been identified as priorities for the Welsh Government. Where does tourism stand in that? It was not in the original six.
Nick Ramsay: It does not.
Q409 Chair: Feel free to tell me what you think of that. [Laughter.]
Nick Ramsay: Are you giving me complete freedom?
Chair: Within the space of about 60 seconds, yes.
Nick Ramsay: I think that it is unwise. We all appreciate that, to a point, with economies of scale, less money will be coming to Wales because of the necessary cuts over the next few years. So, we have to be specific in where we target the funding. The Government’s idea to focus it on ICT and on areas that it thinks will have durability and will put Wales on more of a high-skill threshold is a good one.
I do not have the figures to hand, but I think that 4% of Wales’s GVA, which is falling overall as a proportion of the UK, comes from tourism. I think that the amount was £1.5 billion or so in 2010-I am quoting from memory here. The sums are nonetheless huge. So, for tourist industries not to be able to go to the Welsh Government to be considered as part of the strategy seems to me to be barking. I am sure there will be other opinions from the panellists.
Q410 Chair: I want to throw in another thought. Moving from tourism to the environment and energy, which is going to be a priority, if we encourage the generation of electricity from renewables, which, by their nature, are more expensive and therefore require subsidies in one form or another, is there a danger that we will encourage manufacturing industries, which require large amounts of electricity, to move elsewhere and therefore negate the green jobs that we create? Feel free to respond to the point about tourism as well.
Eluned Parrott: I share Nick’s concern about tourism being missing. I also think that agriculture and food production are obvious omissions from the six sectors that are being targeted. At the moment, the Minister for business is planning to review those, so we will see what kind of direction she is going to take. I have queries over a couple of the sectors, to do with how unique they are to Wales, ICT being one of them. Yes, we have a core of knowledge, but is it unique? Is it better than other places? Are we going to convince Silicon Valley that we have the silicon Valleys? I am not convinced.
In terms of the sector approach as a whole, energy generation is going to be important. We have some very good research expertise in this area, as Mark will be aware. For example, the Seren project is looking at ways of creating sustainable energy, though not necessarily windfarm-based. We look forward to those kinds of technological developments, because they create opportunities for us. Generally speaking, the UK has relative energy stability at present, but we need to ensure that we are looking to the future. It would be a mistake to say that all renewables are obsessively subsidised when it is even more so for something like nuclear power.
Professor Drakeford: The Minister has said that she is willing to look at the sectors, and that is an invitation to people who believe that tourism, for example, should be included. I read the evidence that Nick has provided, and it makes a powerful case on that front. The message is that if people have cases to make, now is the time to make them. There will always be an argument about the margin of the list and whether the sixth-placed sector is the right one.
On energy, I suppose that it depends on where you think oil prices are going to be. If we are in an era of peak oil, or an era in which, once the global economy starts to recover, the oil price will go up again, you will come to a point-we were at this point during a previous peak-where renewables become competitive on price. Eluned said it: companies are looking for stability and continuity of supply, as well as looking at price. If we are entering a hugely volatile period as far as oil pricing is concerned, being able to offer a steady, guaranteed alternative is a competitive advantage for Wales.
Q411 Mrs James: I accept the point about the price of oil. However, oil is a fossil fuel, and we are going to run out of it eventually. You speak to any nine-year-old child-my granddaughter, for example-and they can tell you about saving the planet and so on. Here we are in Wales, sitting on our greatest natural resource, namely our coast. We have the second highest tidal range in the world-second to the Bay of Fundy-and we are not seriously looking at wave and tidal power. How do we move forward on this to achieve a mix of energy sources? That mix has to be there to take us into the next stage and beyond.
Chair: It will no doubt be difficult to get a quick answer to that, but we will try.
Professor Drakeford: It is disappointing that the UK Government did not agree to go forward to the next stage of the Severn tidal opportunities, however they would be configured. We have to find other ways to put some packages together to allow that to happen.
Eluned Parrott: It is exciting that Wales has some real expertise in alternative energy generation, and I look forward to the kinds of solutions that those projects will bring for us.
Nick Ramsay: The stone age did not end because we ran out of stones, and the end of the oil age will probably be similar. You hit the nail on the head when you said that we need to have an energy mix-I think that everybody accepts that. It is good that the current UK Government is pressing ahead with nuclear energy. Certainly in the medium term, that will give us a stability of supply.
No decision was taken on the Severn barrage by the previous Government. There were huge issues, mainly to do with where the funding would come from. If you look at the enormous investment required by a Severn barrage, I do not think that it would be easy at present to persuade the private sector to get involved without a huge commitment from the UK Government. I think that what the UK Government is doing on energy supply at the moment is a lot better than what has been done for a long time, not only in the last ten years, but further back, too.
Mrs James: There are miles of coastline besides the Severn area.
Q412 Guto Bebb: I am glad to hear the comments about the tourism sector being allowed back into the fold, as it were. The announcement that the six sectors did not include tourism knocked the industry, because it was perceived as a low-skills sector. That is certainly not the case in my constituency, where there have been huge investments in improving tourism infrastructure. In terms of the review that we have undertaken in Brussels, Berlin and even Dusseldorf, if I remember rightly, the loss of the Welsh Development Agency as a public face for Wales abroad was noted by almost everybody we spoke to. The strategy of the Welsh Government in marketing Wales abroad appears to be in disarray. How should Wales be marketed abroad? How should the Welsh Government be responding to the challenges? Clearly, at this point in time, we seem to be missing from the top table when there are opportunities abroad.
Professor Drakeford: I am not going to re-fight the WDA battles for you. I have read the transcripts of those being thrashed out in front of you by many other previous witnesses. I think that we have to use the economic renewal approach and the sector skills approach to doing it. When attempting to raise Wales’s profile abroad-which I entirely agree is fundamental to how we attract inward investment-we need to do it in that more focused way, going out to attract companies into Wales based on the extra investment and organisation that we are going to put around the sectors we think are the future of the economy.
Chair: Siân has a very brief supplementary question to put to Eluned.
Q413 Mrs James: Is there a case for re-establishing the WDA? Is it too late?
Eluned Parrott: I would not wish to see the WDA re-established as a quango. Democratic accountability is very important for this sort of work. However, the WDA brand is still highly recognised. International Business Wales did not step into its shoes with any great degree of success, and a team of people who have been lost in the ether of Welsh Government bureaucracy in sector teams is not the best or most marketable approach. The WDA is a brand. Companies spend billions of pounds on brand awareness. We already have it. It is a massive asset. Whatever the successor should be, being cheeky, I would say that we should use the initials ‘WDA’ even if we are using different words.
Q414 Guto Bebb: I have a final point on this. I am not trying to pick issues with the Assembly Government over the past 12 years, but we have heard evidence that there has been constant reorganisation of the way in which Wales sells itself abroad. Today, for example, we have heard evidence that the reorganisation of the higher and further education sector in Wales is resulting in it looking inward rather than looking for opportunities. Is it possible for the Assembly Government to provide some stability in this important area to allow us to develop for the benefit of Wales rather than reorganising all the time?
Nick Ramsay: This process of putting things into silos is an ongoing problem for Wales and the Assembly Government, and we all fall into it occasionally in contributing to debates here. It is important that Wales continues to look outward. I think that it was a mistake to abolish the WDA. It did a great deal of good work. Wherever you went in the world, when you got off the plane, somewhere nearby there was WDA branding. As has been said before, IBW certainly did not step into its place. There is no doubt that civil servants are too risk-averse to be able to deliver the sort of brand success that the WDA delivered. You cannot go backwards. You probably cannot recreate it-I think that the name may be being used elsewhere now, so it may be impossible for the Government to go back-but, moving ahead, I think that we would all agree that the people involved in marketing Wales abroad need to be at arm’s length from the Welsh Government. If that is not the case, you are never going to get the sort of agility needed for Wales as a brand-although I do not like to use the word ‘brand’-particularly in new markets.
Q415 Mr Walker: The written evidence that we received from Professor Garel Rhys was that there was a feeling in some places that Wales is just not really interested in this area any more. I think that what we have heard from the panel is that there is certainly an interest in sorting it out. What are the most straightforward steps that can be taken to deal with that, show interest and move away from what I think he described as a perception of chaos and indecisiveness in this area?
Professor Drakeford: I certainly would not accept that as a description of the way things are. It is problematic to achieve stability, which I think is a very sensible goal, in such a rapidly changing context. This committee heard, one after the other, from Sir Roger Jones and Glenn Massey, both of whom are leading figures in this field. Roger Jones told you that you do not need people permanently based in other countries representing Wales and Glenn Massey immediately disagreed and told you that you do. Both of them were relying on a series of different ways in which you can do business, including Skype and so on. It is easy to say that we should have a single model and stick to it, but, when the operating context is changing so quickly, some ability to be adaptable and to change to meet that is important. We now have a plan and the Minister has indicated a willingness to fine-tune it at the edges, but pursuing it is the way that we-
Q416 Jessica Morden: What are your views on the role and location of the Welsh Government’s overseas offices? For instance, we visited the Brussels office, but its remit is policy gathering. Is there an argument for widening its remit to engage in inward investment?
Eluned Parrott: It is very much worth considering that, because we have a base and people there. So, as well as gathering information, why not use them as a proactive tool to get the word out about Wales? We are not getting that word out effectively at the moment. So, that is a real opportunity and we could get an efficient result from it.
Nick Ramsay: The idea behind the overseas offices was probably a good one at the start, but I am not sure that they have achieved their aim. I have also been to the Brussels office. Whichever future model we adopt-I agree that there is a need for stability, namely whatever the Welsh Government does, we need to have something in place and stick to it-rather than having an office there that says ‘We are here’, we somehow need to get Wales’s name out there to other organisations. I do not think that the offices have worked. I do not even know why the one in Brussels is in that location. It is a high-rate location and I do not think that it returns the dividends that an office in another location could do. However, rather than just having an office as a physical base, it is about getting the brand of Wales out there. We can all talk about how we do that, but, however that happens, we must then stick to it.
Q417 Jessica Morden: Nick, you referred to a London hub. Can you expand a bit on that idea?
Chair: But not too much. [Laughter.]
Nick Ramsay: We should not operate in silos. The south-east of England is the one part of the UK that is currently producing more money than it spends in the area-
Q418 Jessica Morden: What is the London hub practically?
Nick Ramsay: The London hub is the centre of the UK economy as a whole. You have the City of London. There would clearly be benefits for Wales from tapping into that, rather than just turning inward. That was the point, which I probably did not make in a successful way. However, that does not mean that we should not have hubs elsewhere, but, as I said at the start-I will finish on this, Chair-it is about partnership and all of us working together for the good of Wales.
Q419 Geraint Davies: As you will all know, UK Trade and Investment markets Britain for inward investment trade, but, because the current Government has got rid of regional development agencies, there is now a queue of inward investors and there is an opportunity for Wales to take advantage of that. When we went to UKTI in Brussels, Dusseldorf and Berlin, there was no obvious relationship with Wales. The focus of the Wales Office in Brussels tended to be on grants, legislation and profile and not inward investment. I wonder whether anyone thinks that the priorities of the overseas offices and the focus on working with UKTI should be improved to attract more inward investment to Wales.
Eluned Parrott: As I have said, these overseas bases are an opportunity that we need to assess critically on a regular basis and refocus their activities to ensure that we are getting the greatest return possible on the investment that we are making. On collaboration and co-operation with UK Trade and Investment, it is crucial that we have not only operational-level interaction, so that the people who are on the ground doing this kind of work are liaising effectively, but also strategic interaction between Government Ministers in Wales and the Westminster Government to ensure that everyone, at every level, is singing from the same hymn sheet.
Chair: Guto, would you like to ask your supplementary to Nick?
Q420 Geraint Davies: I do not know whether Mark knows if there is a move to take advantage of UK Trade and Investment in terms of inward investment.
Professor Drakeford: Our key message is that Wales is open for business and welcomes companies that wish to do business here. Any sensible Government would want to do anything that it can to broadcast that message loud and clear.
Q421 Chair: Would anyone like to add to that? If not, perhaps I may be a bit cheeky and ask the last question in a brief way, because we have another guest waiting. We were going to ask each of you what three recommendations you would make to improve inward investment in Wales, but I will ask each of you to just give one; we will end up with three, that way. Does anyone wish to come in first on that, and make a brief suggestion?
Professor Drakeford: My key suggestion would be to not lose sight of the fact that we have many competitive advantages in Wales, but we have to assemble them better into a package that gets that message across.
Eluned Parrott: My suggestion is in the shopping list in my written submission. The critical point regarding infrastructural development is the one on devolving borrowing powers to the Welsh Government. Please can we consider doing that in order to give it the tools that it needs to do its job.
Nick Ramsay: A number of good things have happened. For example, the decision on the electrification of the Great Western main line-
Q422 Mrs James: To Swansea, please.
Nick Ramsay: That is for another hour of discussion, probably. I will be cheeky and give two points, if I may, because there are two scales here. In the immediate term, we need to do something practical such as providing enterprise zones in some form, which will be key in making sure that we get people across the border. Secondly, we have been talking about the WDA, and we need to market Wales on the international stage in a way that is somehow at arm’s length from the risk averseness of the civil service. That is key.
Chair: Diolch yn fawr am ddod heddiw-thank you for coming today.
Witness: David Stevens, Chief Operating Officer, Admiral Group plc, gave evidence.
Q423 Chair: Good morning, Mr Stevens, and thank you for coming here today. I would like to begin by asking you once again-although it is very clear from your submission-why you came to Wales. It was an excellent story, and I wonder whether you could summarise it for us. There is a lesson for us all in there.
David Stevens: Yes. Five of us wrote a business plan in London in the early 1990s for a new car insurance operation, and recognised that car insurance, which is a people-intensive, low-margin business, needs to be in a cost-efficient location. So, we were never going to set up the business in London. Once we secured financial backing, we went through a process of approaching cities to ask them why we should come to their city. We had two stipulations: they had to be clearly competitive in terms of the availability of space and people, and the costs of those, and they had to be within two hours of London, because our backers stipulated that they wanted easy access to us. That has a lot to do with personal lifestyle issues-many of these things are always about personal lifestyle issues. We drew a map of places that were two hours away from London, looked at those that would be attractive in the context of labour and offices, and wrote to people in Folkestone, Dover, Corby, Leeds, Cardiff and so on. Cardiff did a phenomenal job from the word go-it was South Glamorgan council at the time. It was the only council to send people to see us; a number did not respond, and some only wrote. They came to see us in a fairly dingy little office up some stairs on Borough High Street, yet they persevered with the idea that this could be an interesting company in the long term, and invited us to Cardiff. We spent a weekend in Cardiff; we came here about five or six times, and ultimately chose Cardiff.
Q424 Chair: There was even a piece in your presentation about Royal Ascot.
David Stevens: A problem for an inward investor such as us with regard to Cardiff was that there was no established labour pool that had the specialist skills relevant to our industry. So, we had to take some specialist people with us. One individual, who was key in the perception of the investors, was unwilling to move from Brighton, where he was living. We contacted Paul Gorin from South Glamorgan council and said, ‘We are really sorry. We would love to come to Cardiff; the rest of the team is on board, but there is one individual whom we cannot move. We therefore feel that we cannot take up your invitation to Royal Ascot.’ He said, ‘That is very sad, but do please come. It is all booked; it would go to waste anyway. There are no hard feelings.’ He told us to bring the individual along, and he spent the afternoon persuading that individual of the benefits to him, and of the delights, of Cardiff, and did so successfully. As a result, we came to Cardiff.
There are two reasons why we are here. There are the hygiene factors such as the proximity to London and cost efficiency, and then the factors that clinched it were a £1 million grant and the salesmanship of Paul Gorin.
Q425 Chair: What has happened to Paul Gorin? He sounds like an excellent individual.
David Stevens: He runs an employment agency, Smart Solutions. One thing that I said in my submission was that it is very important in the context of inward investment that you have people interacting with potential inward investors who are entrepreneurial, motivated, clever, not bureaucratic, not risk-averse, and not slow. So, it is not just a question of how many people, how many offices, and where the offices are located; it is the mentality, motivation and quality of the individuals.
Chair: He sounds like just the sort of person who could be running whatever is set up to replace International Business Wales, but there we are. He obviously has another job, which is sad for us. Siân is next.
Q426 Mrs James: Thank you for being so patient. First, I would like to say that I have a wonderful welcome from the team in Swansea whenever I have to go to SA1. The team is an important part of my constituency and is doing you proud. Thank you very much for that. Is the Welsh Government’s six-sector strategy the right approach to stimulating inward investment?
David Stevens: The identification of priority sectors is logical in a time of constrained budgets, but, in of itself, it does not really make a huge difference to whether you attract inward investment. They have to be run very well by the right people, and they have to be targeting the right companies. I listened to the three predecessor witnesses, and the discussion was fascinating, but the thrust of it was about how to market Wales on the global stage and I wonder whether that is the right target market. Have we not learned from the 1990s that big multinationals with mobile investments bring you mobile investments and are not necessarily the long-term future for the Welsh economy? Certainly, nowadays, if you are going head to head for a big multinational investment against Slovakia, Portugal, Singapore or Vietnam, you could win some, possibly, but-and this is not just a Welsh thing, but a UK thing-you would probably have to pay hand over fist and lay gold at their feet. Is that really the right thing?
Admiral came to Wales at the beginning of the 1990s with a £1 million grant at almost the same time that LG got £250 million. Which was the right strategy? To my view, the strategy should be to find 25 Admirals. Find 25 start-ups-which would probably be UK-based, incidentally-and compete to put those UK-oriented operations in Wales. The reason why that is a valid strategy is because small companies, start-ups, tend to be geographically mobile; they have not laid down such huge roots that they cannot move. They also tend to be cheap to move. A small amount of grant makes a big difference to a start-up, and it could even be a loan as well as a grant in some contexts. Also, when they come, they bring the whole kit and caboodle-not just the satellite jobs, but the heart and the brains of the company.
Q427 Mrs James: There is a lot of criticism of the call service sector. I have quite a lot of call service centres in my constituency, and I think that they are doing a great job. However, they are seen as providing jobs that are not good jobs, somehow. We have had evidence previously that these are face-to-face jobs, providing services. What is your opinion of the detractors of call centres?
David Stevens: I would make two points on that. First, I would differentiate between a satellite call centre-which only has the face-to-face, front-line people, with the complicated stuff happening elsewhere-and a place such as Admiral. Admiral has 4,500 people in south Wales, including 250 IT people, 70 or 80 specialist marketing people, some amazing specialities on car insurance pricing, and 40 or 50 people who handle massively complicated bodily injury cases-essentially, they are complex legal cases. So, to look at a company such as Admiral and think of it as just a call centre is to misunderstand the added value that it brings. The added value of that quality of people is massive for the local community, because the Admiral office is also the decision-making place and so we use local suppliers. A satellite operation would probably use a printer somewhere else, but our printer is on the northern edge of Cardiff. It-A. McLay and Company Limited-has grown with us and has some of the most sophisticated printing technology in the UK and has been able to use that investment and equipment partly for our contract to attract other contracts, so it feeds into the economy.
We set up Confused.com and a couple of companies have spun off from that, such as Go Compare and another one which is about to launch in Llantrisant, so that south Wales is now the centre of the UK price comparison market. Had we just been a satellite call centre operation, that sort of value to the local economy would not have been delivered. Then I will flip around and say that call centres are actually fine and that a lot of the employment growth is around face-to-face services that can only be delivered in the language of the consumer and take up time. A lot of the jobs therefore will be in the call centre area; what is important in the call centre area is that you make those jobs as engaging as possible and make them a stepping stone to better jobs. If you look at our claims department of 1,500 people, almost everyone in that department started taking the first notification of claim-the simplest job-and then they moved up to handling thefts, complex accidents and liabilities and legal cases. So, there can, in certain companies, be a way through. It also has a real value in society and what we try to do at Admiral is to make the experience of dealing with Admiral as pleasant as possible, both for the employee and for the customer. We have been in the top 20 companies to work for in the Sunday Times survey ever since it came out, and yet these are jobs that are sometimes disparagingly called ‘call centre’ jobs and are not as highly paid as some of the competitors in that survey. You can run a call centre in a way that delivers value to the employees and a real positive experience to the customer.
Q428 Mrs James: Do you feel that motivation when you enter the building and that commitment-
David Stevens: Yes. It is very strong in Swansea.
Q429 Mrs James: You have talked about the call centre sector, but do you think that there are other types of companies that we can successfully attract to Wales? Do you have any ideas, or is there anything that you have seen?
David Stevens: It is very difficult for the public sector to spot which companies to attract. At the end of the day, when we crossed the desk of whoever it was in south Wales 20 years ago and they said, ‘Hmm, car insurance-£1 million, okay, fine, but, hey, I have this semi-conductor thing which is really exciting’, well that is rubbish. Everyone goes after the sexy sectors. If you had had a bunch of bright people who had wanted to do internet gambling, and if you had known what internet gambling was going to be like 10 years ago-okay, some people recognise that as a service sector-that might have been something that could have come here. Then you might have someone who wants to do something very prosaic and day-to-day, but who has a plausible business plan and people who are willing to invest in it, who says, ‘I will come to Wales if you give me a reason to come to Wales, because I have a personal stake in the success of this’.
The reason why we valued £1 million at that point was because we did not know it was going to be successful. We thought that we might make a mess of it first off and £1 million might be enough to give us a second bite, and, therefore, it really mattered to us. If you were to offer £1 million to Xerox, which might want to build an assembly plant, or to Amazon, which might want to do a distribution centre, although that is not a good example, it is neither here or there; if you offer it to a start-up, it could mean that they are willing to move. One of the things about Cardiff, and I say this a lot, is that it is about the personal. One reason why we are here that I did not mention is because the management team is very happy to live here. That is a really important variable that sometimes gets left out. One of the five used to come here on camping holidays. We have heard about tourism, and it is the shop window of Wales. He used to do camping holidays in Wales and had very happy memories of Wales. We came and visited five times and we loved it, so that is a factor as well.
Q430 Chair: I will just make a quick intervention. In an era when we are less able to pay out a large amount in grant funding for businesses to come to Wales, are there things that we could be doing to sell Wales? For example, you have just mentioned the area, the schools and the fact that it is a nice place to live. Is that what we need to be doing, or are there other things that we can do apart from offering money to get companies to come here?
David Stevens: The principal responsibility of a Government, in the economic context, is to make the country as easy and pleasant a place in which to do business as possible. Ultimately, the success of Wales is more about its existing businesses than it is about inward investors. So, what you do with regard to the infrastructure, education and the pleasantness of the place is really important. In terms of the economic renewal document, the fact that it led by talking about infrastructure and the environment in the wider sense is valid-that is: make it better.
You then get the issue of how you sell the country to people outside, because there is a bit of a deficit, in the sense that people’s perception of south Wales is not necessarily as positive as south Wales deserves. That probably goes back to the quality of the people selling the place. It does not necessarily go back to spending money on inserts in in-flight magazines on transatlantic jumbo jets. It is not about buying spots on television. You do not have the money to move people’s perception of a country. You need to do it face to face with individuals.
Chair: I see that everyone wants to make an intervention. Siân can go first.
Q431 Mrs James: You mentioned infrastructure, and you know that we are keen to get electrification of the railway line to Swansea. Can I honestly say that Admiral supports that?
David Stevens: We are very supportive of investment in railways in south Wales. Beyond electrification of the line to Swansea, we would love to see the Valleys lines turned into an asset rather than, arguably, a problem.
Q432 Jessica Morden: When we were in Brussels in particular, collecting evidence about how other UK regions attract inward investment, we found that one thing that they do that is quite effective is to have successful businesses in their regions talk to those other 25 Admiral-type companies. How are you engaged with the Welsh Government, and does it ask you to do similar things on its behalf?
David Stevens: We have featured in documentation, and we have talked to people on occasion. It would be dishonest of me not to say that, actually, we have quite busy day jobs, and so there is a limit to how much we would be available for that. Sorry.
Q433 Guto Bebb: What can I say? We appreciate the fact that you are here, despite your being very busy.
I was delighted to hear you comment on career progression and skills development within the company. Could you elaborate on any problems that your organisation has experienced in sourcing higher-level skills in south Wales?
David Stevens: There are some challenges. Given the lack of a very developed private sector and, particularly in our context, a very developed insurance sector in Wales, we have either to grow our own or to bring people in who have to move house. As soon as you are in the universe of bringing people in who have to relocate, it is much trickier. That is partly because they are taking a bigger personal risk. If you ask an insurance professional to move from Guildford to St Albans, the chances are, if their new job in St Albans does not work out, they would not necessarily have to move the family again, as there is quite a strong possibility that they would be able to commute from St Albans. If you come to Wales and your job with Admiral does not work out, you know that you will have to move again, and that is a drawback.
You also have the perception issue. When we run advertisements and talk to head hunters, we hear from them that Wales is a barrier. Sometimes, you will not even get them to come here, which is a key to persuading them that it is not a barrier.
Q434 Guto Bebb: Can you elaborate? Why is it a barrier? Are any reasons given?
David Stevens: It is not a universal view. Some of our best recruits are people who know Wales well and are anxious to return or come here. There is a perception, funnily enough, that it is further away than it really is, which is bizarre. There is also a perception that it is grimmer than it really is. There is a still a legacy-I loved the FA Cup, which was brilliant for Wales, and some of the things that have happened to change Cardiff’s image and to give people a look at the place, but some people are stuck with an image of it from another time, one of greyness and soot.
Q435 Jessica Morden: With hindsight, do you have any regrets about having your headquarters in Cardiff?
David Stevens: Wales has been brilliant for us. Earlier, someone-I think that it was the Professor-mentioned the flexibility, loyalty and quality of the labour force. Siân referred to the Swansea office; there is a real buzz there, which is partly cultural, I think. We have also benefitted from being a big fish in a small pond. Admiral is important in the Welsh context. Were we in Guildford or the west there, we would be much less important. So, that has been nice. It creates a real fellow feeling around the company that our staff are essentially Welsh-based and we sponsor the Welsh team and all that sort of stuff. That creates a real togetherness, which has helped us. That all sounds fuzzy and not necessarily very valuable, but it is incredibly valuable. The car insurance market has gone through rapid change, and our business has therefore had to change; it has gone from a phone business to an internet business. Our staff’s attitude is, ‘Fine, we have to change’; there is no resistance to change. It is a collective endeavour, essentially. You are in the lift and someone says, ‘I can’t understand why we do x’ to one of the senior managers. That freedom of communication is really important. So it has been very good for us. Having to have everything home-grown and not having other insurance people around has proven very valuable to us now, because there is no-one to pinch our good people-and we have a lot of them.
Q436 Geraint Davies: You seemed to be suggesting that a barrier to the relocation or start-up of key companies in Wales is the perception of how nice a place south Wales is. Obviously, we have lovely countryside and, certainly around Swansea and the Gower, a lovely coastline, and good schools and so on. Do you think therefore that there should be a refocusing on those sorts of assets, that Wales is a great place to live and be outside the smog of London? When I spoke to the general manager at Amazon, he said that he was happy to be an ambassador, as it were, for Swansea. It is great to see you today saying all these good things about being based in Wales. Would you be prepared to help in the marketing strategy in terms of getting people to invest in Wales?
David Stevens: Up to a point. I would say that to communicate the attractiveness of Wales, the key is to get the key individuals here. It is not necessarily about having glossy pages in a magazine or television advertisements, and it is not necessarily about a big budget. It is about finding the people who make the decisions and are potentially interested in being mobile and getting them here.
Q437 Geraint Davies: So events such as the Ryder Cup, for instance, would be important networking opportunities.
David Stevens: Yes. It is also important to time it right-we came here six times and it did not rain once before we decided to move here. So that was clever. We said, ‘We love these Victorian arcades’ but had not worked out why they were there.
Q438 Geraint Davies: I know that Siân has already mentioned this, but you mentioned in your evidence the importance of being able to get to your destination within two hours on the train. Obviously, Swansea is a bit further. To reiterate the point, I presume you would very much support electrification of the railway to Swansea from Cardiff, if only to give the perception that we are on the network.
David Stevens: I support it. I have to say it is not about Cardiff to Swansea, but Swansea to London. It is also, incidentally, about Swansea and Cardiff to Heathrow, because there is a possibility of a Heathrow hub out of Reading, which I think would be really valuable. One thing that we find challenging now that we are an international company operating in four countries is interacting with our international operations while being based in Cardiff. That is a challenge. Some of the infrastructure improvements that would mean you have a better chance of getting the people and the money from London are also relevant to companies that go to an extra stage that then have to work on a wider stage and to addressing the question of whether Cardiff is the right place to be based if you are trying to run a multinational company.
Q439 Geraint Davies: The airport is there.
David Stevens: I am talking about ease of travel to Heathrow, because there is a real challenge around making Cardiff airport successful where it is. To my mind, it is such a tragedy for south Wales and Bristol that we did not put something near the Severn bridge-I know that it will never happen-that could almost be a third London airport, sucking in people from Birmingham and Bristol. Bristol airport is in a stupid place, as is Cardiff airport. It is the classic big investment that the UK Government collectively will not make.
Q440 Mr Walker: Thank you very much for this evidence. It is clear from what you have been saying that Admiral is a great Welsh success story, and that the way in which it was attracted as a small entrepreneurial business was key. You made it very clear that that was all about individuals. You mentioned not having a bureaucratic approach-not printing leaflets, and so on. We do not want to look back at history, but do you think that it would be better in future for Wales to have an arm’s-length body promoting Welsh business, rather than doing it from within Government bureaucracy?
David Stevens: I think that I am out of my area of competence. Paul Gorin was in the economic development department of South Glamorgan council; he was not in the WDA, which became involved later. I do not know what it is that lets some parts of Government operate with a freedom and effectiveness that other parts struggle to operate with because of bureaucratic constraints. You are probably in a better position to judge that than I am.
Q441 Mr Walker: It was absolutely key that local government was the key element, rather than central Government. As an organisation, do you have regular dealings with the Welsh Government?
David Stevens: Yes, we do, and it is a nice thing about Wales that it operates on a scale where it is quite plausible to have that access. Ultimately, it could be a selling point for Wales, if it was able to translate that into speed of action and into a perception that the Welsh Government is creative, fast-moving and very business-friendly.
Q442 Mr Walker: How important is it for the Welsh Government to focus on these smaller businesses? You made a very persuasive case that bringing in smaller businesses and growing them can sometimes be much more successful than bringing in big overseas investment. What would you like to see change in order to deliver that?
David Stevens: I should first of all qualify what I am saying by saying that I am a car insurance executive who does car insurance well and who has one experience of inward investment into Wales, and that that is the prism which I see through. The option of going for start-ups would imply that you are looking to interact with venture capitalists, business angels and a different network of individuals that will probably be based in the rest of UK, and probably primarily in the south-east. That is how you will be marketing Wales-you are saying, ‘You’re an investor and you are backing something that is interesting and still mobile; we’ll come in and provide you with some money as long as it locates in Wales’. So, it is a different target market and it is a different sales approach.
Q443 Guto Bebb: You commented that five of the six executives were persuaded of the merits and the competitive advantage of south Wales when you decided to come here, and that the sixth was persuaded at Ascot. Do you think that Cardiff and south Wales still have those competitive advantages that you noticed when you decided to invest in the area?
David Stevens: Very much so; they have the advantages. In the briefing note, one of the potential questions for me was about what the barriers were to inward investment. I will switch it round and say that lots of places qualify as attractive places for inward investment. I cannot see really big barriers to inward investment in Wales, but you have to go one step forward and ask, ‘How do I differentiate myself from all those others; how do I say that I am better and different?’ All the hygiene factors are in place, but you need to ask whether the salesmanship and the grant/loan option are there, which were the two things that pushed it over the edge for us.
Q444 Chair: You made a very powerful point about how one excellent individual can make the difference, but what can the Government do to give that individual something to sell? Are there any particular policies that we could recommend to the Assembly or to national Government that would help?
David Stevens: I am sure that Paul would say that he had a team working for him, and it also makes sense to point out that he introduced us to a lot of individuals when we were on our trips to Cardiff who were universally positive and helpful. So, although Paul was key, it was a piece of teamwork.
In terms of policies, it is probably about who you target, where you spend your money and the type of people you employ in the process.
Q445 Geraint Davies: The west midlands had what was basically a soft-landing package for inward investors. Investors were told, ‘Come to the west midlands and we will give you free accountancy and legal advice to set up a company, and we will give you free office space for six months, so that you de-risk your trial’. In your case, you had a £1 million buffer in case things went wrong, which would allow you to have another go. Do you think that the Welsh Government might look at such an option? That is, putting together a package of a certain value that would allow people to come, try it out, suck it and see and see what it is like without having too much of a downside in the first instance. If it works, they could then go forward.
David Stevens: Providing services in kind, which is what you are talking about, is a valid approach. The chances are that, if you spend £1 million on services in kind, you do not deliver £1 million to those you are spending them on. If you give them the cash, they can spend it more cleverly than you can. However, it may be helpful and it may be a valid way forward. I do not understand the constraints preventing regions from offering money. If it addresses some of the constraints regarding what they are allowed to do, then that is certainly a valid approach.
Chair: You have gently pointed out that you have a very busy time doing what you do. It is drawing near to 12 p.m.. Do any Members have any quick-fire questions that they would like to ask before we finish? No-one is catching my eye, in which case we will finish a few minutes early. I thank you very much indeed for coming down and for sparing the time to talk to us today.