Welsh Government budget must signal a change in direction to reset our economy

An opportunity to reset

Our pre-Covid-19 economy, which prioritised economic growth, has forced many people into poverty, and in turn created an unhealthy population that is particularly susceptible to global crises such as pandemics. As set out in WWF report ‘Risky Business’ our approach to economic development has also caused mass scale environmental degradation which has had significant impact on people’s well-being, and evidence suggests that this overuse of resources and movement into natural spaces such as forests, could have been the cause of coronavirus. 

Wales has the opportunity to lead the way to a future based on well-being, using our unique Well-being of Future Generations Act as a framework. I do not underestimate the complexity of the current context for Welsh Government: there is no doubt that tough decisions are going to have to be made about how to reprioritise resources that were already pressured before the pandemic. 

Wales has it harder than many other places, both due to the higher rates of vulnerability within the Welsh population, and due to the financial constraints the Government faces, notably restrictions on borrowing and issues with the Barnett formula. I am pleased that Welsh Government is seeking greater flexibility from the UK Government in relation to the use of funding. 

In this very challenging context I urge Ministers to act boldly to create a better future using an approach to economic stimulus that supports green jobs and addresses poverty and inequality. Measures focussed on quality of life rather than the economy and GDP should be the focus. This view is shared by the public, as a recent poll found a substantial majority of the public want ministers to focus on improving health and well-being over economic growth both during the crisis and as we look towards recovery.

I am pleased that the Welsh Government recently announced its official membership of the Well-being Economy Governments (WEGo) partnership and hope that working with other forward-thinking nations, including New Zealand, Finland, Iceland and Scotland, will help Government use our legislation to make bold investment decisions for future generations. 

Ensuring short-term crisis response measures deliver well-being

The Welsh Government has had to act rapidly to dampen the impact of the immediate crisis on communities, jobs and the economy. I recognise the important work the Welsh Government has done rapidly reallocating funds to ensure the NHS has the funding it needs, ensuring the most disadvantaged communities have their basic needs met, and supporting front line social care. In some areas, such as on the UK’s primary job retention scheme and in the administration of Universal Credit, Welsh autonomy is limited. However, as has been widely documented, many individuals are falling through the cracks in these schemes. New Economics Foundation analysis highlights that women, young people, non-white workers, and renters are particularly at risk. In light of this I hope Welsh Government will continue to conduct careful analysis to identify vulnerable groups and to design targeted short-term support measures to protect their well-being. 

Businesses in Wales also face many immediate challenges, and are exposed to the flaws in the UK Government’s business interruption loan schemes – an area over which Welsh autonomy is again limited. I am pleased that the Welsh Government has looked to plug some of these gaps with additional support to businesses in the form of its own Economic Resilience Fund, and a fund with the Development Bank of Wales. A key challenge of the current crisis is to respond with speed, but also to build criteria into emergency support which ensure it contributes to broader well-being.  Basic examples of this include the Bank of England’s recent decision to attach restrictions on shareholder dividends and executive pay to its support to big businesses and the French Government’s decision to attach climate conditions to its loans to airlines. 

Unlike any other country in the world we in Wales are fortunate to have a framework, in the form of the Well-being of Future Generations Act, which can help to guide such decisions. 

I have recently published my first Future Generations Report which sets out a range of ideas and recommendations for Government and other public bodies and should inform a response to the crisis which will better protect society in the long-term.  A key recommendation was for Welsh Government to:

• Demonstrate how they are applying well-being economics in all of their policy, funding arrangements and interactions with the public, private and voluntary sector. Welsh Government should ensure they are meeting the Act’s aspirations of equitable distribution of wealth, health and well-being, while protecting the planet’s resources for future generations and other species.

I would urge Welsh Government to ensure that the support it extends aligns with the Act, and my office is ready to support in this regard.

Investing to build back better in the medium to long-term

Looking beyond the immediate crisis containment measures, Wales faces both a challenge and an opportunity in delivering an effective economic recovery. The decision taken by governments following the 2007/08 global financial crash to favour austerity policies and tax cuts over investing in a more sustainable, more equal society left a bitter legacy. Inequality has prevailed while action on the climate crisis has stalled. The United Nations (UN) special rapporteur for extreme poverty described this approach in a report to the UN as having “tragic social consequences”. We must learn the lessons of this period and implement a different response to this new crisis.

A recent report from the New Economics Foundation (NEF) assessing different potential responses to an economic recession calls for a green stimulus package to accelerate a low carbon transformation. NEF highlight the need for a well-planned transition, for those who have lost their jobs, which can be enabled through programmes of government investment in projects with high potential for green job creation. Many areas which are key to the zero-carbon transition are shown to also have significant potential to kick-start the economy following lockdown – these include insulating homes, investment in clean energy, low carbon heating and transport, tree planting, habitat and peatland restoration along with continued focus on skills and lifelong learning. 

Such programmes will also generate wider co-benefits for society and nature and build the foundations for long-term sustainable growth. These calls are underpinned by a growing consensus among leading economists inside and outside government and central banks both on the efficacy of green fiscal recovery packages, and on the focal investment areas which will generate the best societal returns.

A global coalition of more than 300 climate change campaign groups have urged governments to use any coronavirus economic rescue packages to help accelerate a transition to a low-carbon future. There are signs that governments will respond, Ten EU countries want to see increased investment to support renewable energy, sustainable transport, energy efficiency and other steps to back the EU Green Deal’s goal of net zero greenhouse gas emissions by 2050. 

A key recommendation from my recent Future Generations Report is for the Welsh Government to set out a long-term investment plan for how they will fund the climate emergency and support more ambitious commitments and targets for sectors within their control.

Many European countries are already looking for opportunities to reshape policy, as well as how people will live and work in a world changed by coronavirus. But in many cases, it is cities and regions which are leading the way with innovative and ambitious responses. 

• Milan is transforming an incredible 35km of streets – which in the past have been dominated by cars and pollution – into a future zone where people can walk and ride bicycles safely. Similar plans are rolling out in Berlin, Dublin and elsewhere. 
• The City of Amsterdam is adopting the concept of “Doughnut Economics” to rethink how the city can be kept in balance with the planet post-lockdown, with a focus on good food, clean air and water, appropriate housing and sanitation, sustainable energy, education and healthcare, gender equality, and income and political representation. 
• Spain, another country suffering badly from coronavirus impacts, is introducing universal basic income this month, as I have called for in my recent Future Generations Report, and New Zealand are looking at the potential of a shorter working week to boost productivity and improve work/life balance. 

Five investment priorities to reset our economy

This week’s Supplementary Budget from Welsh Government will signal the path to recovery in the medium to longer term, and it is important that investment jointly addresses the current health crisis, the economic crisis the pandemic has triggered and the ongoing climate and nature crises. 

I am keen to work with partners and organisations to support Welsh Government in developing a response to the crisis which puts in place stepping-stones to a better future. The first step is investment in key levers for change and in this paper I outline some initial ideas that I intend to develop further in the coming weeks and months, in collaboration with others. 

There are a range of initiatives that the Government need to take into account over the next few months as it develops its COVID-19 recovery plan. However immediate priorities for investment should focus on:

 

1) Develop an economic stimulus package that leads to job creation and supports the decarbonisation of homes, through building new low carbon affordable housing and investing in a national programme to improve the energy efficiency of existing homes. 

Housing currently accounts for 9% of total emissions in Wales, although the 1.4 million Welsh homes are responsible for 27% of all energy consumed and around a quarter all emissions in the UK. Decarbonising our homes provides both a challenge and an opportunity.  

An independent report on decarbonising homes in Wales has called for a long-term commitment to a residential decarbonisation programme, focussing initially on homes in social ownership and the 12% of homes in fuel poverty. The estimated cost could be between £0.5 billion and £1 billion per year for the next 10 years, however the benefits to people’s health, the environment is substantial as well as creating hundreds of new jobs and ensuring our homes are fit for the future. 

I call on Welsh Government to develop an economic stimulus package that focuses on decarbonising our homes, ensuring that green infrastructure and nature-based solutions are also considered as part of this.  My 10 point plan for funding the climate emergency in 2019, and my recent Future Generations Report have suggested:  

• All new homes and public buildings built in Wales should be zero carbon from 2020 – building on learning from the recent £90 million 3-year Innovative Housing Programme, and requires on-going funding of £30 million per annum. As part of this, Welsh Government should stop providing funding to any new housing programmes or developments which are not at least carbon neutral. 

• Support for a national housing retrofit programme – focusing initially on people living in fuel poverty and those in social ownership could cost up to £1 billion per year, with a suggested £300 million from Welsh Government. IWA’s Re-energising Wales project estimated an investment of £5 billion is needed over 15 years but would generate an increase in GVA to the Welsh economy of £2.2 billion, and savings of around £350 per household and approximately £67 million in savings to the health service. 

• Canada has promised interest-free loans of up to $40,000 for homeowners to install cleaner energy solutions and efficiencies like solar panels and better windows and the Green Budget Coalition has written to the government asking for it to ensure that the global climate emergency and biodiversity loss remain front and centre in the recovery process planning.

• All publicly funded buildings should be required to be carbon neutral: through urgently amending the building regulations (Part L and Part F) and enforcing stricter building and infrastructure standards to ensure that we are not building “old” new schools, hospitals and other infrastructure that will contribute to climate change and not be fit for future generations. 

• All publicly funded housing developments should be required to be carbon neutral and demonstrate how they are meeting the broader requirements of the Well-being of Future Generations Act. 

• Design Quality requirements should be updated to reflect the future in terms of smart-homes and assisted living technology. 

 

2) Invest in better ways to connect and move people through improving digital connectivity, active travel and public transport. 

The pandemic has changed the way that people live, work and learn overnight and, although challenging for many, has shown how quickly we can adapt to these different conditions. Restrictions in our ability to travel has meant that digital technology and connectivity has come to the fore. We have also seen significant reductions in carbon emissions and air quality in cities across the world.   

Many cities are already looking at how they can improve places for citizens, including Milan, Berlin, Dublin and Newcastle, making it safer for people to walk and cycle to access employment, shops and basic services. I welcome the Welsh Government’s commitment to fund similar measures put forward by local authorities in Wales and welcome the further financial commitment of £25 million to improve active travel. As well as considering how people are travelling to their workplaces there is a significant opportunity to influence how our children travel to schools, providing access to safer routes to walk and cycle.   

Reducing rates of obesity has also been highlighted as a priority to improve the health of the population, particularly as evidence suggests obese people are at considerably greater risk of suffering with and dying from coronavirus. Home-based lifestyles bring a risk of reduced physical activity, so opportunities for active travel will be fundamentally important to bring down Wales’ rates of obesity.  

We shouldn’t be looking at transport issues in isolation, and as we recover from the current crisis we must take all opportunities to consider how we develop spaces that better reconnect people and communities. Social distancing will become a normal part of our lives, at least for the foreseeable future, and we need to find ways to do this in a way that enables the development of greener spaces where local businesses can thrive supported by cohesive communities. 

Investment and access to digital connectivity will undoubtedly be a key priority during recovery and also for the long-term as these platforms will allow people to continue to work and interact with each other without the need to travel. Digital services are growing in importance, from virtual meetings to automated factories to drone deliveries, and digitally agile organisations are adapting to the crisis more quickly and successfully.  

Planning Policy Wales 10 (2018) adopted a sustainable transport hierarchy which seeks to reduce the need to travel as a starting point, and when people need to travel prioritises walking, cycling and public transport ahead of private motor vehicles, and I welcome a focus on investing according to this hierarchy in the forthcoming national transport strategy. 

This crisis also provides an opportunity to rethink how public transport services are provided across Wales – Government needs to look at a range of innovative approaches that work for different communities, with more flexible solutions such as mobility as a service and community transport or dial-a-ride buses which could offer more cost-effective solutions for some areas. 

 My 10 point plan for funding the climate emergency in 2019, and my recent Future Generations Report have suggested that Welsh Government should:  

• Set a national target for modal shift to enable people to adopt low carbon modes of travel over the next decade. This target should be linked to the milestones developed to support the national indicators. 

• Newcastle is the latest city to unveil pandemic measures to change road layouts to curb motor vehicles through culling parking spaces, introducing pop-up cycleways, widening pavements and more 20 mph streets.  The City Council is looking at how city-wide transport networks can be changed to meet increasing demand for space to walk and cycle. Longer-term, Newcastle is also considering a workplace parking levy and road charging, including for ultra-low emission vehicles and their plans could help deliver longer term ambitions for a cleaner and greener transport network that encourages more active travel and a reduction in car journeys. 

• Increase investment for active travel – a minimum of 10% of the transport budget (20% of the capital budget) should be allocated for funding walking and cycling infrastructure (£60 million allocation in the 2020/21 budget which was agreed in March). Support for roll out of e-bikes and scooters should be considered. 

• Work with local authorities and business to incentivise home working and staggered start and finish times in order to reduce the need to travel, demand on public transport and congestion on roads 

• Increase funding for public transport allocating at least 50% of capital transport spend on improving bus and train services and utilise on–demand technology to reform the public transport offer and enable better planning around social distancing. 

• Encourage uptake of low emission vehicles – approximately £295 million required to 2030 (approximately £30 million per annum) which could be met by a mixture of public and private investment. 

• Ensure everyone in Wales has access to reliable digital and internet connectivity; and work with business and voluntary organisations to help achieve this. 

 

3) Invest in skills and training to support the transition to a better future, creating new greener jobs.  

More than 6.5 million jobs could be lost due to the economic fallout from the UK’s coronavirus lockdown, according to new research by the Institute for Social and Economic Research at the University of Essex. It warns this would equate to about a quarter of the UK’s total jobs, with more than half of the positions in certain sectors being lost. Changes to the way we live and work, and the need to decarbonise, means that many of these jobs may never return. At the same time there is an opportunity to seed the industries of the future and create new high quality, climate-friendly jobs. 

The Act requires us to think radically different about the skills that will be needed for our future generations, and the current crisis requires us to respond to the changing nature of our workforce now and in the longer-term. The transition to a low carbon economy and society will require a range of people to be retrained so they have the skills needed to create and support our low carbon future. 

UK Government analysis suggests the low carbon economy already supports over 430,000 jobs and is predicted to grow by around 11% per year to 2030 – four times faster than the average growth rate for the UK economy as a whole. We need to continue to invest in green industries to support our economic recovery and ensure rapid reskilling for those who have lost their jobs.  In my recent Future Generations Report I have suggested that Welsh Government should:  

• Create a vision and plan to ensure Wales becomes the most eco-literate country in the world, and invest in skills and job creation accordingly focusing particularly on renewable energy, modern methods of housing construction. In the short-term there is also an opportunity for those who have lost their jobs to be deployed into other sectors.  
• As part of Pakistan’s 10 Billion Tree Tsunami Programme, an ambitious forest restoration project, workers who have been laid off as a result of Covid-19 are being given jobs to plant trees which provides an example of the type of “green recovery” that other countries could embark upon following the Covid-19 pandemic. 

In my Report I’ve also suggested that Welsh Government should start encouraging public bodies and Public Services Boards to get us closer to carbon reduction targets, by accelerating government support for growing new sectors, alternative energy businesses, emerging engineering processes, product design and waste management to lead the way in a ‘green economy’. 

In the longer-term responding to this crisis provides us with an opportunity to rethink the jobs and skills that will be needed in the future, such as within the renewable energy sector and to retrofit Wales’ 1.4 billion homes. The IPPR has estimated that up to 46,000 low-carbon power sector jobs could be created by 2030 in the north of England alone and as many as 100,000 by 2050 in the North across the low carbon economy.  

Building skills across the population has been widely recognised as fundamentally important for our recovery, and in my Report I have called for Welsh Government to adopt a national vision for lifelong learning, to create a lifelong learning system that everyone can access at any time. We need a plan for building the skills needed in the workforce of the future and to help businesses be ready for a return to growth. This could start with short courses that help workers develop new skills and offering training opportunities for school and university leavers whilst organisations do not have the capacity to take on new workers.  

The Government could also focus on utilising skills which may be dormant in the private sector to support public service policy and delivery through a national secondment programme, bringing in expertise and new ideas from different sectors to plan and deliver the recovery.   

I have also called on Welsh Government to explore opportunities to pilot a four-day working week, aligned with universal basic income, building on evidence gathered from pilots in other countries. 

• New Zealand’s Prime Minister has recently suggested that flexible working options such as a four-day working week, which could boost productivity and domestic tourism and improve work/life balance, should be considered as a way to rebuild New Zealand after Covid-19. 
• Germany has a system called ‘kurzarbeit’, meaning “short work”, which allows people to reduce their working hours and use the extra day to upskill or retrain. 

 

4)  Invest in nature and prioritise funding and support for large-scale habitat and wildlife restoration, creation and connectivity throughout Wales –including for natural flood defences, to implement the new national forest, and to ensure land use management and agriculture supports secure local food chains and distribution. 

Funding should be allocated to increasing the pace of developing the national forest of Wales and in nature restoration including in towns and cities where it could be designed to assist with social distancing.  

Our natural environment is one of Wales’ greatest assets and our approach to land management has a critical role to play in reducing our emissions as well as adapting to the impacts of climate change. The natural world and biodiversity are under unprecedented threat – we need solutions to the economic crisis that will also address the climate and nature crises.   

In my Future Generations Report I call for Welsh Government to commit to large-scale habitat restoration, creation and connectivity throughout Wales, which includes setting statutory targets for nature recovery and specific species recovery measures to help prevent extinction.  

My 10 point plan for funding the climate emergency suggested an investment of £221 million should be allocated in next budget (2020-21) to support land use & nature-based solutions, to:  

• Radically increase tree cover over the next two decades – requiring investment of approximately £16 million per annum over the next 10 years.  

• Promoting nature-based solutions and green infrastructure in all developments; the cost of meeting current environmental land management priorities in Wales is estimated to be £205 million per annum. 

I welcome Welsh Government’s commitment to develop a National Forest for Wales to create areas of new woodland and help to restore and maintain some of Wales’ unique and irreplaceable ancient woodlands, with £5 million allocated in this year’s Budget. This supports a recommendation in my Report on tree canopy cover, for  

• Welsh Government to work with public bodies to deliver 20% tree canopy cover in every town and city in Wales by 2030. 

The potential for this, and similar habitat restoration projects, to create jobs for people previously employed in sectors that are currently unable to work should be considered. 

Welsh Government and local authorities should also consider ways to use green infrastructure to support the continued social distancing measures that we will need to see within our urban areas.   

Investment in these areas now could provide multiple benefits – in the short term job creation and solutions to social distancing.  And in the medium to long term creating vibrant communities and restoring nature. 

Agriculture is a critically important industry for Wales, and this crisis gives us the opportunity to build resilient, locally based food systems that guarantee healthy diets. There are many examples of how farmers have been innovative to get food from field to plate, during the pandemic.  

The Food, Farming and Countryside Commission have outlined how the pandemic has exposed fragility in the UK food supply system at the same time as food banks facing higher demand than ever before. They have called for a more diverse, sustainable and fairer supply chain and this needs to be a key part of our recovery in Wales, with a focus on maintaining the highest environmental standards.  

In my 10 point plan for funding the climate emergency and my recent Future Generations Report I have suggested Welsh Government:  

• Support adoption of low carbon agricultural practices and re-thinking land-use practice – £300 million per annum is currently provided to support agriculture and rural development.  The funding framework post Brexit must support the industry target of being carbon neutral by 2040. 

• Develop a food system strategy for Wales linking together all parts of the food system from farm to fork. 

• Ensure a transition to sustainable land management, as proposed in ‘Sustainable Farming and our land’, while ensuring Wales’ farmers have the resilience they need to thrive, and are front and centre in efforts to help restore the natural environment. 

 

5) Invest in the industries and technologies of the future, and support for businesses that will help Wales to lead the low carbon revolution and lock wealth and jobs into local areas with investment in the foundational economy. 

The unprecedented extension of the state into the private sector resulting from the various business interruption loan schemes created by both the UK and Welsh Governments offers a unique opportunity to influence for good. Similarly, active investment through a fiscal stimulus, targeted in the right areas and with the right conditions attached, can accelerate progress towards Wales’ well-being goals. Government funding through bailouts, crisis support or otherwise should be applying the principles of ‘something for something’.   

Ensuring finance distributed by the government is retained locally must be a key aim and can be supported by conditions on bailouts which block access to businesses based in tax havens, and require disclosure of ownership structures. Welsh Government has the opportunity to promote local and co-operative ownership and to prioritise businesses which provide high quality employment. Sustainable business practice can be encouraged by placing restrictions on executive pay and shareholder dividends and redirecting profits to investment. I welcome Welsh Government’s position on not providing finance to businesses in tax havens.  

Action on climate change can also be facilitated through crisis support. Businesses receiving government loans should be required to plan and deliver energy efficiency savings and carbon reductions in return. There is growing international precedent for such measures, but no country is yet to bring them together into a comprehensive and structured package, giving Wales a unique opportunity to lead the way.   

Welsh Government has already developed an Economic Contract – investment with a social purpose providing a framework for a new relationship with businesses looking to access finance, requiring businesses to demonstrate their commitment to growth, fair work, employee health and skills and reducing their carbon footprint – and over 200 businesses have signed up. This “something for something” approach has to be central to Wales’ economic recovery placing a much-needed focus on decarbonisation and also other issues such as workplace conditions, supporting communities and our national mission for improving skills and retraining. 

• In response to the COVID-19 outbreak the Welsh Government has announced almost £2 billion of support for businesses in Wales, in addition to the support provided by the UK Government. The £500 million Economic Resilience Fund received almost 9,000 requests for support in the first week of its second phase. 

I welcome Welsh Government’s focus on the Foundational Economy – the part of the economy that provides essential goods and services such as tourism, food, retail and care, and plays an important role in the lives of people and communities. These are the sectors that will have been under significant pressure during the crisis and will need support as part of the recovery. The £4.5m Foundational Economy Challenge Fund is already providing financial support to 52 experimental approaches and this will need to be scaled up rapidly to ensure continued support for the sector across Wales.  

An approach to recovery and rebuilding our economy in a way that redirects wealth back into the local economy, and places control and benefits into the hands of local people (also known as community wealth building) also has considerable potential. Investment into these approaches, supported by principles such as decent pay and conditions, procurement and commissioning to be focussed on equalities and building local supply chains, incentives for re-localising public sector contracts, underpinned by an ongoing commitment to equality to ensure Wales’ approach doesn’t exacerbate or worsen existing inequalities.  

In my Future Generations Report I have recommended that: 

• In line with the Well-being of Future Generations (Wales) Act (2015) [definition of a Prosperous Wales], Welsh Government should demonstrate how they are applying well-being economics in all of their policy, funding arrangements and interactions with the public, private and voluntary sector. Welsh Government should ensure they are meeting the Act’s aspirations of equitable distribution of wealth, health and well-being, while protecting the planet’s resources for future generations and other species.  

 

• Welsh Government should consider how it can respond to future trends (such as increasing automation, our ageing population and climate change) in ways that reduce inequalities rather than perpetuating them. 

• In setting their steps, all public bodies and boards should:
• Implement fair work practices through employment and services. 
• Enable a low carbon society through reducing emissions and supporting community energy. 
• Procure goods and services in ways that support long-term economic, social, environmental and cultural well-being.
• Support the foundational economy through generating wealth and providing employment.
• Use resources efficiently, recognising the limits of the global environment.