If I began a story by telling you about the accountant, the retailer and the manufacturer who walked into a room, you might think that I was launching into a joke.
Alas, there was no punchline when these three joined a roundtable discussion I hosted on the current state of play in the Welsh economy. The meeting followed on from our successful St David’s Day Breakfast in Cardiff – many thanks to Noel Mooney, CEO of the FA Wales for his inspiring talk.
It wasn’t all doom and gloom at the roundtable. Far from it. My experience of the Welsh business community is that they generally seek out the silver lining in any grey cloud – even when on occasions the merest sliver of sunshine can be difficult to find.
But it is true that on this occasion, our discussion did flag up some causes for concern.
ACCA members representing all sectors from across Wales looked at issues facing the Welsh economy and the economy in general, including cost pressures on businesses, access to talent and issues with support and engagement with government.
Members reported pressures on businesses of all sizes, including supply of raw materials, wages, energy costs, the impact of the UK leaving the EU and the effect of business rates. It was agreed that many of the issues were global in nature, but also that some areas needed action at a Welsh or UK level.
I heard business leaders describe the mitigating action they’d taken in the face of financial pressures, including hedging on debt and energy costs - but that inflation in the cost of doing business is having a real impact on cash flow, consumer spending and on growth and investment.
Access to finance has become more difficult, especially as high street banks are employing fewer staff to support clients.
The picture in the public sector was one of low morale, with workers in many parts of the sector striking to defend living standards and quality of service, in addition to more general worries over their cost of living.
Public sector bodies are experiencing difficulty in attracting and retaining staff, with some workers leaving for better-paid jobs in other sectors. Businesses in all sectors reported the challenges in attracting and retaining talent – as noted in our recent Global Talent Trends report, employers face high levels of employee mobility which is driving a possible talent crunch – 44% expect to move to their next role in 12 months, rising to 69% over the next two years.
There was agreement that the impact of the UK leaving the EU has been detrimental for businesses. Smaller firms had found selling into the EU more difficult, and some have given up trying. Employers are experiencing more difficulty in recruiting staff from the EU. New VAT and tax requirements and regulations mean extra complexity and costs.
We agreed that Wales should be doing more to attract inward investment, improve infrastructure and support businesses, particularly small firms, including the use of post-Brexit funding from the UK Government. It was suggested that we could learn from the work carried out by the Irish Government to attract big firms to invest in Ireland.
Members also reported issues with SME clients facing late payments for goods and services, and concerns were raised regarding the level of service provided by HMRC including waiting times and a lack of decision-making.
So much for the doom and gloom. There were also three reasons to be cheerful.
First, supply chain issues have eased in the past year, with shipping costs falling significantly.
Second, accountants and finance professionals have an opportunity to support Wales’ net zero ambitions. Finance professionals bring expertise in supporting businesses and organisations in the move to a net zero economy. They can also support access to the supply of green finance to invest in new, more sustainable technologies.
Finally, members pointed out that hybrid and remote working are offering opportunities for companies to attract talent from outside Wales, and for people to work for organisations outside Wales.
The ability to develop and retain teams of well-qualified professionals was seen as a good basis for success – and our roundtable ended with a murmur of optimism that Welsh business remains robust, resilient and ready to respond creatively to difficult circumstances.
In terms of government action to support the Welsh economy, last week saw the Welsh Budget for 2023/24 approved and the UK Government Spring Budget.
The Welsh budget was a reminder of the challenging outlook for public spending at a time of high inflation. I recognise the tough decisions that the government has had to make in extremely challenging times and the need to focus on protecting vital services, but the reduction in the final allocation for supporting the economy is a concern in this time of continued pressure on business costs. A decrease in spending on education against the draft allocation is also a concern, given the importance of investing in future skills to develop the Welsh economy in the short, medium and long term.
The increase in spending on climate change is welcome. Businesses, especially smaller businesses, need support and guidance to help them on their journey to net zero.
In the UK Spring budget, Welsh businesses can benefit from the Chancellor’s announcement of additional investment incentives and an additional £180m will be provided to the Welsh Government as a result of Barnett consequentials. Alongside these announcements, the proposed Investment Zone in Wales, funding for carbon capture, usage and storage pilot projects in North Wales aims to support innovation and boost productivity.
Alongside more positive forecasts for inflation and the forecast that a technical recession will be avoided, there is hope that optimism and confidence will increase through 2023.
Lloyd Powell is Head of ACCA Cymru
