Exiting the EU: Businesses in Wales

Wayne David Excerpts

Wednesday 14th December 2016 Westminster Hall

[Chris Elmore (Ogmore) (Lab/Co-op)]

I beg to move,

That this House has considered the effect of exiting the EU on businesses in Wales.

It is a pleasure to serve under your chairmanship, Mr McCabe. The effect that exiting the European Union will have on businesses in Wales is incredibly important, so I thank hon. Members for attending. This debate offers an opportunity to recognise the challenges ahead and gives the Government the chance to clarify their Brexit plan for Wales, on which I sincerely hope for some detail from the Minister.

Businesses in Wales have serious concerns that the Government do not have a plan for how Brexit will work for them. The success of our local small and medium-sized enterprises should be a concern for us all. When local businesses do well, they not only generate jobs and meet the needs of our communities, but fill up our high streets, liven up our towns and inspire the businesses of the future. Businesses throughout Wales are facing dangerous uncertainty and need the Government to publish their plan for Welsh Brexit.

One of the starkest consequences of exiting the EU for businesses in Wales could be a widening funding gap. Each year the EU contributes about £650 million in investment to Welsh social businesses and SMEs. Each pot of funding that has helped our businesses to thrive seems only to have been made possible by EU contributions. The social business growth fund, for example, contributes £4 million, but £2.3 million of that is from the EU. Similarly, the Wales business fund provides £136 million, but £76 million is from the EU. In addition, we have low-interest loans from the European Investment Bank, which have enabled companies and public bodies throughout Wales to thrive; the European regional development fund, which, among other projects, will provide £106 million for phase 2 of the south Wales metro; and Horizon 2020, which has been pivotal for Welsh universities. Without Government planning for Brexit, our Welsh businesses could see a serious dent in their funding.

To the Government’s credit, the Chancellor has announced that the Treasury will guarantee all multi-year EU business funding agreed before Brexit, but we need confirmation of the Government’s plan for EU funding that does not fit that criterion. The Government must also provide clarity about the status of the cumulative £2.7 billion post-2020 EU funding that has not yet been underwritten by the Treasury.

Our departure from the EU might also have an impact on the availability of training in Wales. Jobs Growth Wales, the Welsh Government scheme to get young people into work, will support the creation of 8,955 new job opportunities for 16 to 24-year-olds over the next three years, and has only been made possible by the European social fund. Similarly, the Workways Plus scheme was made possible by £7.5 million from the European social fund. The scheme offers one-to- one mentoring to help long-term unemployed people become ready for work, gives an opportunity for people to gain new qualifications and finds paid positions for some.

Thousands of apprenticeships throughout Wales also rely on the EU and could be affected by our exit. The European Alliance for Apprenticeships, launched in July 2013, works closely with the Welsh Government to strengthen the quality, supply and image of apprenticeships. The alliance has been pivotal in securing and promoting opportunities throughout Wales.

Other consequences could include Britain leaving the single market or ending freedom of movement, which could affect businesses in Wales. Welsh universities, and the businesses reliant on them, would be particularly impacted by the end of freedom of movement. Each year more than 7,000 EU students enrol at universities throughout Wales. Were the Government to clarify their desired future migration arrangements, universities and associated businesses could plan accordingly. As things stand, the Government have given no clear indication of whether restrictions will be applied and the enrolment of EU students will decrease once we have left the European Union.

When this House debates the effect of exiting the EU, we sometimes allow the discussion to slip away from the reality on the ground, but I want to focus on the real impact that exiting the EU will have on one business in my constituency. It is one of the UK’s leading manufacturers in its industry. It has asked to remain anonymous, but kindly told me its concerns about the future, which I will share with the House. Its business is already being impacted by a downturn in construction activity and sizeable currency fluctuations. It tells me that the scale of potential change is vast, and that if widespread change materialises, the implications for resources and productivity are significant. For that industry-leading business, the level of uncertainty is of serious concern and must be addressed urgently.

This business employs people throughout the UK, not only in my constituency. It needs clarity on the form of Brexit, and it needs a plan. Specifically, it needs to know whether the Government plan to stay in the single market and the customs union. It tells me that it needs a commitment to ensuring that Britain can secure the right skills in the workforce. It also needs assurances that other policy voids, such as the one on energy efficiency, will be filled.

The bottom line is that business in Wales is crying out for a Brexit plan for Wales. When the UK leaves the EU in March 2019, in all likelihood the engine of Welsh business will not break down, but if the Government do not plan, it will slowly lose fuel and industries will come to a halt. Wales needs not a red, white and blue Brexit, as the Prime Minister suggested, but a comprehensive strategy to deliver the most secure outcome. Vague platitudes from the Government mean nothing and serve only to distract from the fact that, as things stand, we are being led into the night without a torch.

[Wayne David (Caerphilly) (Lab)]

Does my hon. Friend agree that Norgine, a Dutch pharmaceutical company with a manufacturing facility in Hengoed, speaks for many businesses in Wales when it states that it wants a very soft Brexit?

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[Ian C. Lucas]

Indeed. It seems increasingly likely that there will be some kind of transitional phase. I have talked about one set of standards—the environmental standards in the automotive sector—but different regulatory regimes will apply to all sorts of businesses right across the piece. Constructing the mechanisms that will apply to businesses and our relationship with the European Union after we leave will involve a huge amount of work. Regimes will have to be defined for areas such as financial services, broadcasting and pharmaceuticals, and those will have to apply very soon. If those systems are going to be in place within the next two years, we need to provide clarity to businesses that are making investment decisions now. Businesses in Wrexham that I represent, such as Wockhardt and Ipsen Biopharm, which are both exporting pharmaceutical companies, need to know what our relationships will be. If they do not, they may begin to reflect on whether the business environment in this country will be as effective, successful and supportive for them in the future.

My objective for post-Brexit Britain and Wales is for the UK to be as close as possible to membership of the single market, while retaining the right to devise and implement immigration policy. If I were negotiating, that is what I would want. I would love the Government to provide that sort of clarity about its negotiating position. It is really important that we have access to the single market. Membership of the EU and the single market has benefited the Wrexham economy hugely—it has become very much an exporting economy—but the lesson of the referendum is that we have failed to manage migration to the UK. I am clear that we must apply a managed migration policy for EU citizens.

[Wayne David]

Does my hon. Friend accept that there is a need to differentiate between skilled and unskilled labour?

[Ian C. Lucas]

Absolutely. One of my questions for the Minister is: what migration system will apply to EU citizens? We already have a system in place for citizens from outside the EU, and I imagine that if we jump off the cliff that my hon. Friend the Member for Aberavon (Stephen Kinnock) referred to, EU citizens will, by default, be put in the same position as people who come to the UK from outside the EU. However, I have seen reports in the press that the Prime Minister thinks that the points-based immigration system for people from outside the EU that the Labour party introduced when it was in power is not restrictive enough. I would really like clarity on that question from the Government, because we need to have a system in place. In my constituency, we have really important multinational manufacturing businesses such as Kellogg’s and Solvay, whose members of staff travel regularly from mainland Europe to the UK. Those businesses need to know what system will be put in place for them to manage that.

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[Stephen Doughty]

I have a great many concerns about the negotiating process, but I want to turn to three areas of particular concern that businesses have raised with me: regional funding, the single market and the situation for universities.

It is worth reflecting, as some colleagues have, on the importance of the scale on which businesses engage in the single market. There are 191,000 jobs dependent on EU trade, and that affects everything from steel to the high-tech products in my constituency; 500 firms in Wales export more than £5 billion annually to other EU member states and 450 firms from other EU member states, located in Wales, employ more than 50,000 people.

Several hon. Members have spoken about funding and I will come on to that, but, without referencing specific names, the sorts of things I have been told about include workers’ rights to travel to engage in cross-European projects; contracts, which I mentioned in an intervention; and concerns about research collaboration and major long-term projects being put at risk. The message is very clear that businesses do not want a hard Brexit, if there is to be a Brexit. They want it to be as soft as possible and are particularly concerned about tariffs and access to the single market. Those concerns are constantly raised with me.

Businesses were positive with me about the work that the Welsh Labour Government are doing to try to provide some certainty and optimism in the economy in uncertain times. There is particular praise for the work of the First Minister and Economy Secretary, who went to the United States and Japan to stand up for Welsh businesses and the links that we have with those two markets. Whether it is a case of fighting for funding for the south Wales metro or for other projects, the Welsh Assembly Government are trying to ensure that some positive things happen during the uncertainty.

There is also continued investment in infrastructure projects and building, including a lot going on in Cardiff at the moment. There is the city centre redevelopment; we have plans for new stations; we have an enterprise zone, where there is a lot of investment; and—to give credit—there is some degree of cross-party agreement on a city deal. It is vital that such investment in infrastructure and business should continue, particularly now while there is a lot of uncertainty.

[Wayne David]

We understand that the Government have given some assurances about the continuation of what would have been European funding. Does my hon. Friend share my concern about the fact that the Government are also talking about changing expenditure priorities?

[Stephen Doughty]

I do. I have yet to be convinced about the certainty on levels of funding, let alone the sectors. That will be greatly worrying to many in my constituency. It is worth reflecting on what the Office for Budget Responsibility said in the economic and fiscal outlook published in November: that as a result of the referendum decision, the potential output growth will be 2.4 percentage points lower than it would have otherwise been in 2021 without the referendum. As to the impact on Wales, the House of Commons Library briefing mentions that there could be

“lower business investment…the impact of a less open economy on productivity…a reduction in investment in research and development”

and

“costs associated with adjustments to new regulations or new markets”.

There will obviously be costs and changes: how are they to be minimised?

On regional funding, €5 billion for Wales is planned for 2014 to 2020, and potentially £2.7 billion post-2020. I still do not feel that we have had the guarantees from the Treasury. Why does that matter? It matters for specific projects such as the south Wales metro, which is vital for people’s ability to get around, do business, get to work and take advantage of opportunities in my constituency and the whole south Wales area.

We might be able to achieve those things in part outside the south Wales metro project. I have supported, for example, the proposals for a St Mellons parkway station, which could be funded by other means. There is a good degree of cross-party agreement about the importance of Network Rail and Department for Transport funding for it. However, fundamentally, the south Wales metro has the potential to be a transformative scheme for the south Wales economy. I am pleased that the First Minister was in Brussels arguing for the £110 million-worth of funding. The European Commission was very clear in saying that it could not comment about what would happen after the UK leaves. Such uncertainty is causing concern, so perhaps the Minister will provide some assurances—particularly about that project, which is so crucial to the economy of south Wales.

I have mentioned concerns about access to the single market, which will affect all businesses. I should be particularly worried if we were to consider putting tariffs on goods produced in Wales. The First Minister has made it clear that that is a red line for him. It would affect industries such as the steel industry in my constituency.

I have spoken many times in this Chamber about companies such as Celsa, based on my patch. It does significant amounts of exporting. It is a European company from Catalonia in Spain and works across the European Union. Forty per cent. of direct sales of British and Welsh steel go to the EU. That is similar to the overall total—41% of total goods exports from Wales go to the EU. What assurances can the Minister give to companies such as Celsa that export so much to the EU, let alone other places? What tariffs might they face in the future? What additional trade restrictions might they face?

We have heard a lot of talk about Airbus, which also has a major facility, Airbus Defence and Space, in a neighbouring constituency to mine, Newport West, where a number of my constituents work. Concerns are being expressed about European collaboration on space projects. High tech is an important growth industry in which the UK has been investing more. I should hate such jobs to be lost from our communities—let alone the wider aerospace industry in south Wales.

I want finally to discuss universities. The total value of future research income to Cardiff University, from the seventh framework programme and Horizon 2020 up to July 2016, was £23.5 million, with further applications in the pipeline of up to £15.7 million; work from the European structural fund was worth £23.6 million, plus a potential £35.2 million of projects in development. Those are significant sums.

To give an idea of the sorts of projects involved, I should say that they include the Cardiff University brain research imaging centre, which is doing pioneering work on dementia, multiple sclerosis and other neurological conditions. We should be proud that that work is going on in our capital city. Many researchers from my constituency work in and around the university. What if such things are to be put at risk? I am hearing a lot of concern from the university sector in my area, from individual workers and universities. What assurances can the Minister give?

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[The Parliamentary Under-Secretary of State for Wales (Guto Bebb)]

It is a pleasure to serve under your chairmanship, Mr McCabe. I, too, extend congratulations to the hon. Member for Ogmore (Chris Elmore) on securing the debate, and on winning a by-election in Ogmore —a task that was beyond my capacity back in 2002.

This has been a good, detailed debate, but it has been lacking in constructiveness. Its title on the Order Paper is “Effect of exiting the EU on businesses in Wales”, but throughout the debate, an acknowledgement of Wales’s strong position has been sorely lacking. There has been no mention of the fact that, in the past year, Wales has performed extremely well on jobs. On every single measurement of employment, the Welsh performance has been positive, and it has been in the top three of the 12 UK regions and nations. As we debate our exit from the European Union, we are in a strong position, both as regards employment levels and how businesses are performing in Wales. It is a shame that those comments have not been made in this debate.

There has been acknowledgment of the strength of various parts of Welsh industry and of success stories in parts of Wales, but we need to look at the overall performance of the Welsh economy since 2010. Wales’s employment growth has been well above that of the UK as a whole. We have seen unemployment in Wales fall, and I am happy to say that that is because of a constructive relationship between the UK and Welsh Governments. That is something we should hear a bit more about, rather than the scaremongering we hear when people continually ask whether there will be job losses as a result of leaving the European Union.

[Wayne David]

Does the Minister agree that the most disappointing aspect of this debate has been the absence of a single speech from a Conservative party Member of Parliament for Wales?

[Guto Bebb]

I thank the hon. Gentleman for his intervention.