Vaughan Gething has served as Welsh Government Minister for the Economy since 2021. He previously served as the Minister for Health and Social Services from 2016 to 2021. He has been a Member of the Senedd for Cardiff South and Penarth since 2011.
This interview was conducted on 10 August 2023.
Q: Could you tell us about your role in growth policy over the past few decades?
Before being elected to the Welsh parliament, I was a lawyer. I was a Partner at Thompson’s, primarily an employment lawyer. I was elected to the Senedd in 2011. As a backbencher, I was interested in the future of work and employment, as I think every Labour representative should be. We’re supposed to be the party of work: more work and better work.
I came into the Welsh Government initially to tackle poverty. That was about what you could do to try to address some of the issues around the direct help families might need; but also their economic future as well – investing in skills, challenges around inactivity, that wide range of policy challenges.
It was all in the face of a very different approach from the UK Government at the time. We were expanding what we call “Flying Start” when the UK Government was closing Sure Starts, as one of those interventions that I think makes a difference for children’s experience; for their parents’ experience; and their likely outcomes later on.
I became the Deputy Minister of Health, then Cabinet Minister for Health, and I’m now the Minister for the Economy. I was the Cabinet Minister for Health during most of the pandemic, but in my time as a health minister, I was always interested in the economy. Health inequalities map appallingly neatly onto socioeconomic inequality. The quality of work and economic outcomes makes a huge difference for health, literacy and health outcomes. But also, the way our health service works is hugely important to the economy: getting people fit and ready for work, to be able to return to work or stay in work; and the NHS is the biggest employer in the country. The wages it delivers makes a difference too. And in the field of healthcare research and life sciences, it’s still a hugely important area for us. We punch a bit above our weight in Wales in life sciences.
In my current role, I’m obviously interested in what the future of the economy looks like here in Wales, because that makes a key difference for the quality of life that people can lead across the country.
Q: What stands out to you as the main success of policy over the period? What is the abiding frustration that you have felt?
After two decades of devolution, we’re in a much better position now than we were at the start. We’re still not where we’d want to be. And there’s still a marked difference between Wales and the UK as a whole. That isn’t because England is a very wealthy country; and the rest of the UK isn’t either. It’s largely that the South East of England, including London, significantly outperforms the rest of the UK, including other English regions.
We’ve made progress on economic activity rates and employment rates. Employment was significantly lower than UK employment at the start of devolution; they’re still lower than the UK level, but at a smaller rate. I think it’s 3 per cent or so.
That gets to one of my frustrations: we’ve seen major change from the Seventies and even the early Eighties away from the old economy; we have had a big rise in inequalities, with even more activity going into London and the South East. It’s spent unequally there too; there are lots of very poor people in London.
But the big frustration is that without having seen a deliberate policy shift to create a proper counterbalance (to improve life chances for communities). It’s something that requires policy shifts over time; the lifespan of a Government – the political cycle of four or five years – just isn’t enough.
All the progress that I think had been made from 1997 to 2010 has been undone. The challenge, then, is you’ve got to deal with culturally-ingrained attitudes about who you are and what you can do. Those attitudes don’t affect the talent people have, but it’s a really big challenge. We need to get people over the hump – ‘You deserve more, and you’re part of making that happen’ – when, around you, you see lots of difference and disadvantage. I think it is a really big challenge for us.
Boris Johnson’s broad analysis – that the UK was overheated in the South East and more needed to be done – was broadly right. That’s the analysis of Labour politicians as well. It doesn’t mean to say that you don’t care about London because, as I say. There are lots of very poor Londoners. But that’s not a great way for the UK to function. I think, without a longer-term approach – and a recognition that overheating is a problem to be solved rather than simply tolerated – that the prospects of the people we represent are not going to be great.
That’s even more important as the world of work changes again. There’s no guarantee at all that that disruptive change ends up being an advantage for our least advantaged communities. It’s much more likely that – without deliberate intervention from the government – we will end up being an even more divided and less equal country. The wealth of the nation doesn’t have to expand for that to happen; it can just get shifted away.
Q: What has helped drive Wales’ convergence to the rest of the UK, outside of the South East? Has devolution helped with long-termism?
Most of our ability to intervene is around people: around skills and relationships. We have a relationship with both sides of the employment relationship: businesses and the trade unions. That’s more formalised now, in a Social Partnership, common in some successful parts of Europe. Having those relationships and being able to ‘hold the pulpit’ for more than two decades allows you to give a sense of direction and leadership.
Most business groups – whilst every now and again they’re against a given policy intervention – have appreciated the certainty of each iteration of the government. Wild handbrake turns in one direction or another – which we’ve seen in the recent last few years at a UK level – just haven’t happened in Wales. The environment’s been more stable, and we have undertaken interventions around people and work.
Skills has been a significant part of the difference in Wales, but I don’t think it is the only part. Productivity is a puzzle for almost everyone, isn’t it? You understand there’s a bit that must be about skills. It must also be investing in physical capital, as well as human capital. It must be about having more efficient systems. No one, as far as I’ve seen, has ever said, ‘here is a neat mathematical equation that any government can undertake, and hey, presto, you can improve productivity by a certain amount’. Those things have made a difference have done so because there’s been consistent investment in them.
What we’ve seen in the pandemic is another correction: some areas of work have changed nature; some becoming more productive, others less so. We’ve also seen the big challenge of public health and socioeconomic inequality as well.
We’ve yet to converge with all non-South East regions, but we have made progress and continue to make progress. I think we need to continue to make more investment: if you take the party politics out of it, almost everyone says you need to invest in skills and in people; and you need to invest in the capital within a business. If you’re still running an old IT system, or you’re still running old plant machinery that no longer does its job, you’re affecting what you can do within your sector. The same is true in the public sector as well; we need to understand what innovation and improvement looks like.
At the same time, we need to invest in infrastructure. Not just road and rail, but more modern infrastructure. What’s your broadband ability? What can you do reliably? That’s why the fact that we had our capital budget reduced is a really big problem for what we’re able to do. You’ve got to rein in those countervailing forces that fly in the face of most economic wisdom about how to improve where you are.
We’ve never really had big levers – in a transformational sense – in capital expenditure. Lots of our capital expenditure in Welsh government goes into public service. If we had lots more capital expenditure available to the government as a whole, we’d have a really big question about where we do that. We know we need to build or rebuild a major hospital in West Wales, and it’s very hard not to do that and to say, ‘actually, you’re going to have to cope for another 10 years with something that we don’t think is adequate, because we’re going to spend that money somewhere else where we think there’ll be return on investment’. Those are the constant challenges you have to deal with.
Improved capital expenditure together with clarity on skills is key. Recently the current UK government has chosen to get more involved in devolved areas, including skills. It’s made the landscape more complicated. I think it is also worth pointing out that it would be in our interest in Wales if England regions had similar powers too. If English regions were investing in skills – not the UK government looking to do things to us – I think we’d be in a better position in both private and public services.
I’d like that clarity for the future, and I’d like not having someone looking over our shoulders and intervening in areas that are devolved. I’d like the ability to have a longer-term approach and the certainty to invest in physical capital and in human capital.
Q: Why do you think the rise of London and the South East hasn’t brought more advantages to other regions of the UK?
There’s a giant motor, based around London. If you look at property prices in Reading now, compared to 20 years ago, that hasn’t been exclusively because Reading is a great place to do business (and I’m sure it is). It’s largely been about travel in and out of London. It’s about the giant progress made in the service economy. It’s about how London has become more and more of a financial powerhouse, a powerhouse that doesn’t have to deliver equality, but it can deliver more wealth and more return. That’s seen the South East overheating and expanding.
Capitals tend to get more interest. If you went to Denmark, a small country, you’d say, ‘Copenhagen does have disproportionately more than the rest of the country’. People who live outside Copenhagen will say they do. It’s the same with Ireland and Dublin. Equally, there’ll be people here in Wales that say Cardiff gets everything. That’s not true, but some of that always plays in.
But London is an even bigger challenge, I think, in the way that it has sucked in resources as well. If you’re an advocate for London, you might say, ‘all that tax return goes into redistribution around the rest of the country’. But it’s UK-wide spend that delivered Crossrail, even though it’s a London project. You just don’t see that same capital expenditure elsewhere. It is not just in Wales: if you were talking to Steve Rotheram, he would tell you that that doesn’t happen in his region of England either.
A UK lens does see lots of investment choices made in and around London. My view is that you don’t need to beat London up and take stuff out of it. But you’ve got to make sure that you’ve got the opportunity to invest in regional economies around England and around the nations – with devolved governments having the opportunity to make those choices on a firmer and fairer footing, which means not trying to intervene in and control those centrally.
It’s not unusual to have centres of power and decision-making that are not in the centre – as with Germany’s Laender or US States. We’re still on a journey where that acceptance isn’t uniformly made by civil servants as well as politicians in the UK, I think it’s fair to say.
Q: Thinking about your role as Economy Minister, when you look at Wales and its different regional economies, how would you characterise their variation?
I think in the North East of Wales you’ve got quite a lot of employment in the manufacturing sector, with good jobs being created. There are higher levels of employment. Then you go around the North West: there’s still some manufacturing there, but the centre of the economy is slightly different. In South West Wales, got different opportunities, and in the South East, there’s the stuff around Cardiff – a fintech and a cybersecurity cluster recognised as growing areas within the UK. Some of that goes into Swansea as well, and the compound semi-conductor cluster in the Newport area.
We’ve got a range of different strengths. Manufacturing, overall, across Wales is a bigger portion of our economy than the UK as a whole. We still have differences. We have obvious opportunities in agritech as well, and food. We’ve then got developing opportunities around renewable power. Having a long, windy coastline has not always been an advantage, but it is in today’s world and the future of power. We have power-hungry industries, and there are opportunities around battery storage and semiconductors – a power-hungry sector.
You can see some of those examples that we have either a big magnet or anchor institution. In North East Wales, Airbus is at the centre of what is recognised as an international-, if not world-class, manufacturing cluster. It’s been a success story that they’ve chosen to keep on investing in that site since Brexit. I think one of the key reasons why that has happened is that the company knew they had an asset there that worked well. It’s an efficient factory, efficient within the group as well. It’s one where there was loyalty from the workforce, and there was a partnership with us; they understood that there was support from the government. We co-invested with them in skills for the workforce. Investment in the physical capital has meant that they have carried on investing themselves in the site. They’re expanding the site as well, which is not what you might have expected from an international manufacturing business in a post-Brexit world. I think that’s a marker of what success looks like with an employer. That’s made a big difference in manufacturing in North East Wales.
Same with Tata. It’s a different challenge with Tata. They’ve got a base in North East Wales but also in the South West around Port Talbot, which now is really significant in UK steel. For the future’s sake, I think it’s really important. I don’t think you should be the only G7 country without a significant steel making asset. If Tata closed in Port Talbot, that would pretty much be the case in UK terms. It’s not just important for that part of Wales. It is important in UK terms as well.
It’s not the old tradition, of Wales as full of heavy industry and rugby. There are still strengths in some parts of manufacturing. There are still strengths in modern methods of manufacturing. There are also developing strengths in parts of the newer economy. We will have to make choices around how to make sure that renewable energy isn’t something where we generate lots of cleaner, greener power, but the further up the value chain for the manufacturing and the research side takes place elsewhere.
Q: You’ve already mentioned concerns about capital expenditure flexibilities. Are there other levers you would want in order to support the assets you mention?
One of our innovations has been to create a development bank, and we have created a Business Wales Service. Business Wales Service is an advisory service around business support that we have. You can tell it’s a success because the Federation of Small Business say you should have one of these in every region in England; that is the sincerest form of flattery.
The development bank was created, I think, five years ago. It has become something that is now recognised as driving an extra lever where there might be a gap in the market. It’s providing capital that businesses in Wales can rely on.
I’d like to expand what they’re able to offer. I’d like to be able to expand more. If I had more money, what would I do? I’d put more money into skills. I’d put more money into investment. I’d put more money into more patient capital. I’d put more money into taking on risk through equity investment, not just loans or grant support.
I still think we’ve got a problem in the size and scale of our capital budgets. We have a problem in terms of the borrowing limits for the Welsh government as well. Since they were agree five or six years ago, they’ve never gone up.
I would just like a period of clarity about who’s doing which bit, and having a template where you can understand where the UK government is going. At the moment, we don’t have an industrial strategy across the UK, which I think is a real mistake. We’re not really advertising within the UK and to the rest of the world. “Here’s where we see our strengths across the UK. Here’s how and why we’ll therefore support and build on those, and this is the approach we’re going to take for these reasons, and this is the outcome we expect.” We haven’t done that. We’ve tried to do in Wales with our economic mission, setting out areas, we think, of relative strength. But it’s hard when you don’t have a UK plan, even if it’s one you disagree with.
Q: How effective is your relationship with local government and other local partners in Wales?
It’s one of the things that has improved, certainly in the last decade. It doesn’t mean to say the relationship was terrible 10 years ago. But in that intervening period, we recognised we need to do more to work with local authorities as partners. They’ve always had an economic development function, and it’s not one to be seen in direct competition with the Welsh government. If you see yourself as competitors, that’s really unhelpful. Wales is too small for us to be saying, “come and do what we want to do, not what local authorities want to do”.
That requires some time and investment to make sure you’ve got complementary offers; and that what you’re saying is great about a place is not entirely different from the local authority.
This may sound odd, but the relationship’s been significantly advanced and deepened by the pandemic; having to invest all that trust with each other has helped us with relationship building, and the trust that comes with that. After a bumpy start, we’ve now got four economic regions in Wales, led by local authorities. We’ve got regional teams within the Welsh Government, in my department, that work with those regions as well. We managed to say to the UK government that when they’re looking to have Growth Deals, they shouldn’t try to design a different map as well.
Q: You’ve already mentioned that you hold a relationship with regional bodies outside of Wales?
They’re still developing. We don’t have much of a relationship with Andy Street. We do have relationships with Steve Rotheram and Andy Burnham, and with Dan Norris in the West of England.
Some of it is because there are genuine interests that go across the border. If you’re thinking about relationships with Ireland – thinking about renewable power off the North Wales coast – we can’t simply cut ourselves off. We can’t say that once it reaches the Mersey and Birkenhead, it’s an entirely different area of the planet where the same considerations don’t broadly apply.
We are looking at where there may be a competitive rub about some opportunities for investment. There are more opportunities for us to do things in a way that complements each other. That’s been helpful the three leaders I mentioned – Andy Burnham, Steve Rotherham and Dan Norris; we have had conversations about what we can do together, and it’s always about the bandwidth to do them. They’ve got stuff over skills and levers that complement us well. The economic region doesn’t neatly stop at Monmouthshire. There are people who cross the border in both directions; there certainly are in the North East of Wales with North West England.
Q: What’s your experience of engaging with Whitehall? Do you find that they recognise this variegated picture you’re sketching?
It varies. It really does depend on which department you’re working with, and also the leadership of the Secretary of State in that department. The people really do matter.
The Home Office is a regular pain in the backside on anything. Its position is: none of this is devolved, so you need to do what we tell you to. I want to see a willingness to engage around the areas where a reserve decision has a direct impact in a devolved area; instead we see a high-handed approach.
In other areas where they’re more used to devolution – in education, Defra and health – they’re more used to the fact that their areas are largely, if not wholly, devolved. The politics of the last years have changed as well. The Internal Market Act is a really big problem, allowing the UK government to spend money in devolved areas and then to carry on making a decision in devolved areas is a big problem. It’s a democratic point: if you want to make decisions in a devolved area, you should win an election in that devolved setting. But it also leads to uncertainty for decision-makers outside the government. If you know that there’s going to be an intervention coming, and even if it cuts across established relationships, I think it’s wasteful and unhelpful.
Before devolution, there were central choices made. The Wales Office, Scottish Office, Northern Irish office broadly made the same choices as were made elsewhere by the UK Cabinet. When you’ve got devolution, and you have different parties running the governments, you’re going to have more policy divergence. You see that in the Laender in Germany, but accepting that tension and seeing it as constructive and helpful takes a lot longer. We’ve had centuries of being a centralised, unitary state. There is a cultural challenge of accepting and valuing differences. If you don’t like what’s happening in one part of the UK, win your argument. Don’t just say, ‘we’re going to make you do what we want you to do anyway’.
Q: You wouldn’t subscribe to the caricature that departments have “devolved and forgotten”, taking too much of a hands-off approach to the devolved nations?
There’s a bit of that, but I think some of that really is a caricature. When it is devolved, it isn’t the job of UK civil servants to worry and say, ‘I wonder what they’re doing?’, meaning ‘how do I stop them?’. It’s more about being interested in what we’re doing, and how it’s working; looking for constructive differences to ask, ‘how are they using their decision-making opportunities? And are there things we can learn from each other?’.
In the Welsh Government, we make the point to ourselves that we should not just be interested in Scotland and Northern Ireland, but being in policy development and innovation in England as well. There’s a danger of looking internationally for examples, but if there’s policy innovation taking place within the UK – where the cultural norms are much more likely to be the same, and the systems, despite devolution, are much more likely to be similar – you’ve got a better chance of it working in Wales.
Understanding the policy differences and the delivery differences should be seen as strength. It doesn’t mean you don’t look internationally, but it asks what is next to you? Are the things we can learn from and make a difference with?
Q: Are there any formal mechanisms to help with that process of learning across the UK?
There are a range of organisations involved. The Resolution Foundation, for example, does a lot of comparative work.
The challenge for us is to get into some of those lobbying groups and thinktanks that matter in the way that politics is done and choices that are made, and say, ‘look at what we are doing. You should be bothered and take an interest in what we are doing’.
The Institute for Fiscal Studies is different because it must look at the money. They talk a bit about the wider economy, but I don’t think they’re in quite the same space. There is something about the world of policy and influencers around London…we need to say, you can’t just be a London think tank that is only interested in the UK government’.
We need more deliberate learning. Some of that is about the partnerships that we already have; on research, development and innovation. We want partnerships with other parts of the UK as well as Europe and the wider world, on healthcare innovation, for example. There are lots of parts of England and Wales that are interested in each other. There’s a big, porous border. Parts of our systems are delivered in each other as well. It’s a system that is common enough to understand.
Politics is a competitive game. It’s hard for politicians to say, ‘I’m really interested in what you’re doing’ – but it is starting to happen. When we changed our system for ambulances, and changed the clinical model around it as well, we demonstrated that it was delivering better outcomes for patients, and England started doing the same. They never said, ‘we’ve looked at what’s happened in Wales’, but it was similar to what we’d done, and you’d have to be pretty obtuse to say they just came up with a very similar idea a couple of years after we’d started and had implanted and published what we were doing as well. I don’t have a problem with that. I wasn’t expecting a Tory minister to say, ‘we’re really impressed with Wales. We’re going to do the same’. But it does happen.
It’s not deliberately built into our system. Things like the Joint Ministerial Committees have not been taken seriously post-Brexit. There’s been a Review of those Committees, to meet more regularly now, so there is an opportunity.
A good model is something like the British-Irish Council, or the Council of the Ulster. They do share things there; officials do talk to each other. Then politicians go to the meeting and say, ‘we’re interested in what you’re doing’. It’s in a non-adversarial environment. You’re not asking someone to go on the news and say I just want to say I’ve got three ideas in Wales that I’m delighted to implement in England. That doesn’t happen. I don’t think there should be an expectation that politicians of different parties openly give credit to their competitors.
Q: Do you feel like the balance of accountability is right between your responsibilities to the UK Government, based on grants, and to the Welsh public through the Senedd?
We’ve set out a Welsh Government position on the changes we liked to see around powers: what’s devolved and what isn’t. I think it would be helpful to get to a point where you’ve got clarity over those responsibilities. I don’t think people get out of bed wanting to have an argument about the Constitution, but clarity matters.
I think the pandemic – practical accountability for responsibility in public health, and public understanding of that – has been a big step forward. People did understand how significant a role the Welsh Government and the Welsh Parliament had, and that I think has carried on afterwards. If you’d done an opinion poll six years ago, lots of people would not have been clear about who was responsible for parts of public services in the economy.
Engaged business groups and public service groups in the third sector understood at a leadership level who was doing what, but the wider public didn’t. The longer devolution is here, I think the greater the understanding people will have. Every time we do an opinion poll, people say either they want things to say as they are or want an increase in powers. The group of people to say ‘let’s go back to the pre-devolution way’ is a relatively small minority.
We’ve got to work through, as ever, the practical relationships between politicians and different institutions. If you’re in the Welsh Parliament, you probably want the Welsh Parliament to have more responsibility. If you’re in the UK parliament, you might not be so keen on that. But if you’re not prepared to share power and responsibilities in the way that we think makes sense – and we see it make sense in other jurisdictions as well – then we get locked into rowing about the constitution, not what we do with the powers that we’ve got.
Q: How important is fiscal devolution in your view, relative to other financial reforms?
Barnett is no longer fit for purpose, in the way that works. That raises a difficult question, about what a needs-based formula ought to look like. How do you build something, with regular-enough reviews, so that you don’t end up living with someone for 40 years and then saying it no longer makes sense? Is it a ten-year review, so there is clarity over two parliamentary terms? We’d need rules to make clear that the UK Treasury can’t just decide what it wants to do. Clarity in the rules and honesty about how they’re policed, I think, would be really helpful.
What do you really do if you look at tax-bearing powers? They’ve rarely been used in Scotland; they get a good settlement from Barnett as well. It’s not as simple as most people would like it to be. But we need to have the conversation: if you implement some of your powers, what impact is that having on your budget, what impact does that then have in terms of how the UK Government looks at the resource base you should be getting from the central financial ministry as well?
So I would prioritise getting the needs-based formula right, with perhaps having more borrowing flexibilities built on that. You could agree a formula over a fair level for borrowing. The existing borrowing allowance has been denuded and isn’t used in a way that makes sense. The Welsh government is treated in a way that’s different to UK Government departments; capital or revenue swaps regularly take place in the NHS in England, but we need permission from the UK Government to do that.
Q: What needs to happen to change HM Treasury’s willingness to give those flexibilities?
I think that we need an early settlement in the next parliament. Don’t take five years rowing about this. That means having a plan on what that looks like going in, with buy-in from different institutions. Gordon Brown’s Commission report is an opportunity to do that.
The other thing we find is that once you have something, it’s very difficult to unpick and undo. The settlement has got to be something that lasts. How do you entrench what is devolved? When you’ve got the concept of parliamentary sovereignty, so a government of one could come in and say ‘we’re changing everything. We’re going to reinstitute the Internal Market Act, and we’re going to take money out of your budgets when we feel like it’. All those things are, I think, poor politics – but at the moment, they happen. I think there’s got to be more respect for the way that the country is supposed to be run, and practically entrenching that. That means you can’t keep moving things around, depending on who’s in the UK Government and who has a majority in the Commons at that time. I don’t think that’s helpful. I personally think that the days of untrammelled parliamentary sovereignty are really unhelpful.
Personal relationships matter, but you’ve also got to make sure that there are institutional relationships as well. The Review of intergovernmental machinery is important. But then the people operating have got to behave in accordance with the rules. At the moment, the UK Ministers broadly can opt in or opt out when they feel like it. You’ve got to get past that. You’ve got to have expectations, and rules that bind whoever is in the UK ministerial role – whatever party.
That is a cultural change. If you were talking to Andy Street, the Conservative mayor in the West Midlands, and if you were talking to Steve Rotherham, you’d get similar views. We need certainty. We’re not simply going to be treated in a way that values us when a U.K. minister feels like it and then walks all over us when they don’t. That’s not a healthy way to run the regions of England; never mind the relationship between the UK Government and Wales.
Q: What do you think has been the most important innovation in driving successful regional growth in your time in politics?
I think our cumulative commitment to investment in skills and people is the thing that – from a Welsh point of view – has made the biggest difference. We’ve done it in a way that’s been consistent and has been worked through with sectors of the economy. It’s given people the confidence to make their own choices. I think that makes a difference with the sort of environment you have businesses feel confident that they’ve got a genuine partner that they can work within an environment of stability.
I think there are always areas of tax innovation that you can think about, to use your powers in a different way, but it is skills that has marked us out as really making a difference for people.
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