Good afternoon, everyone; welcome to this oral evidence session of the Welsh Affairs Select Committee. My name is Ruth Jones, Chair of this Committee. This is the third session of our inquiry into promoting inward investment in Wales. We had a roundtable in May with Welsh businesses and investors. We look forward to building on the discussions that we had then with our witnesses today, some of whom were at the roundtable. Before I begin, will Members declare any interests that are relevant to today’s session?

I am a PPS in the Department for Business and Trade, but I am participating in this inquiry in my normal role as a Back-Bench MP and nothing to do with DBT.

Brilliant. I thank all the witnesses for coming, especially those in the room joining us face-to-face, and I thank Russell for joining us online. Thank you very much; it is very helpful to our inquiry. Will you briefly introduce yourselves and say what you do? I will start with Andrew.

Thanks for the invite. I am Andrew Carter, chief executive of the Centre for Cities. We are a think-tank that focuses on improving the economic performance of the UK’s large cities and towns.

Hello, everyone. I am Rhian Haywood, chief executive officer of the Aberystwyth Innovation and Enterprise Campus. We are one of the five UKRI campuses in the UK focusing on the biosciences.

My name is Howard Rupprecht. I am managing director of CSconnected. We have a rather singular mission to support the growth of the Welsh compound semiconductor cluster.

Thank you for this opportunity. I am Russell Greenslade, CBI director here in Wales.

As you know, today we are looking at clusters and SMEs and their role in inward investment, which is so important to Wales. An initial question: how can Wales make the most of its existing clusters and support new ones to develop? That is a general question. I will start with Andrew. You do not have to mention points that have already been made. If you have new points, that is great.

The first thing to say, unhelpfully, is that you have to define what you mean by clusters. I am not going to do that because we would be here all day, but it is contested. I say that because, depending on the definition you take, you then come to quite different data positions on a variety of things, and then your policy recommendations are obviously influenced by the data that you see, so it is quite important to think about that kind of activity. What we see in general when we look at the work that we have done, which is essentially looking at relatively small concentrations of innovation-rich firms, is that they tend to be located overwhelmingly in our urban areas—not exclusively, but overwhelmingly. A question we should ask more generally—this does not apply just to Wales; it applies to the UK more generally—is: what is the offer that our urban areas are able to make to these types of firms when they look to relocate or locate into the country, or indeed from other parts of the country? We are not always as clear as we can be and should be on what those sorts of firms are looking for and how we should respond.

You are saying that clarity is key. Dr Rhian Hayward, please.

For AberInnovation the definition of inward investment is really important. We have a portfolio of things that we would consider to be inwardly flowing from our activities. They include not just money for research and development in our facilities, but the companies that choose to engage with us and the other impacts they make in Wales by recruiting staff into their companies from Wales, etc. On the inward investment definition, we should try and make it as broad as we can to capture all the value that our interactions elicit. Importantly, it is thinking about Wales. For us in the biosciences it is agriculture, food and agritech. I absolutely envisage that sector as a blanket over the whole of Wales. We are very rurally located. It is not just about that rural location, although it is important to make a civic impact where we are in mid-Wales. Actually, operating across Wales, drawing together all the organisations that are involved in agritech and food across Wales rather than chunking up the country by regions would be very helpful.

I don’t think it is about how many clusters you have, and I don’t think there should be a goal to create more clusters. We can argue about the definition of a cluster, but I think you have to have a certain amount of critical mass that includes key elements of a cluster such as world class academia, industry, and other partnerships with institutes. My focus would be on how to grow the existing clusters and make them into bigger entities. Actually, that is very strongly aligned with business. All companies seek growth. They will grow only where there is the opportunity to grow, and the other thing that they need to grow is skilled people, so put all those together. You can’t do everything as a country; you have to pick your winners and try to make the most of them. I think that Taiwan and the semiconductor industry is a really good idea. TSMC and their industry are now bigger than the Welsh economy, with a very singular focus. So focusing on the things that you are good at is very, very powerful.

Russell Greenslade, please.

From a cluster working perspective, what we are picking up is that they certainly help to drive investment, stimulate innovation and enhance productivity where they are. Those are insights that we have from members pan-Wales—it is important that it is pan-Wales. They really do help to expand the visibility of higher education and further education collaboration. They keep and create jobs here in Wales, which is part of that growth and opportunity.

Andrew Carter, you have had experience of working with clusters in Wales and the rest of the UK. How do they compare? Is Wales similar, or are they different?

There are fewer in Wales, relative to other places. That is the first thing to say. On the distribution of the innovation hotspots that we looked at, we can look at somewhere like the north-west—I know that you had Joe Manning from Manchester on before. We identified 344 hotspots, and the north-west has about 15% of that number. In Wales, you have about 2% of that number. That goes back to my first point on the scale at which these things are operating. Obviously, the north-west and, in particular, Manchester are advantaged, because Manchester is a big city and the north-west has other big cities. We know that modern foreign direct investment wants to be in urban areas—not exclusively, but predominantly—because of the attributes and benefits that these types of firms, whether they are inward investors or domestic firms, are looking for. We have already heard about one: they definitely want access to a skilled workforce en masse—not one or two, but en masse. They want access to large pools of suitably skilled labour. They want to be co-located in quite small geographies with other firms that are reasonably similar but not necessarily identical to them. I will come on to that. Thinking about this through a sector lens is probably not the way to go, but thinking about related variety—how different firms relate to others and how they might work with each other—gives you a much better way of thinking about how these things work. So you need lots of skilled people and lots of firms that are a bit like them. Universities play a role, but it is mainly the R&D-intensive universities that have a significant effect on innovation hotspots. The fourth factor to think about is having big high-technology, high-innovation, high-capital-intensive firms that act almost as anchors and spinouts for lots of smaller firms. When you look at small innovation, firms are often co-located around big firms that they work with or simply borrow brains from.

May I ask Howard about what you just heard from Andrew, in terms of having like-minded or similar firms building off each other? How does that relate to the comments that you made just now about using the Taiwan example of the semiconductor industry and the success that that has had?

I think it actually fits really well. That may sound a little strange, but in the case of semiconductors or compound semiconductors, we are focusing on an enabling technology. The applications that the technology enables and the markets that they serve are incredibly diverse. Take something like Newport Wafer Fab, which does power semiconductors that go into windmills and net zero, and also into the automotive supply chain and data centres. I guess I am looking at the focus from a technology cluster perspective, rather than from the perspective of industry and application. It can work if you do it that way.

Is the Taiwan example using clusters as an economic driver as well?

Absolutely. Taiwan is very much focused on the role of manufacturing very small-scale semiconductors; but the applications that they go into are absolutely global, and the fields that they go into are very diverse indeed.

Perhaps I could come to Dr Rhian Hayward first, but this is a question for all of you. You talked about the work you have done with AberInnovation—that you want to have an impact across Wales, not just necessarily in mid-Wales, or in Aber where you are. In your experience, how do clusters impact a region’s attractiveness for inward investment? What is the impact that clusters can have?

I suppose our experience in Aberystwyth is coloured by the fact that we are not in a geographic cluster, so we look at almost everything we do through the lens of, “What is the network?” We are a company separate from Aberystwyth University and we are run as a joint venture with the university and UKRI. We are very much encouraged by our UKRI shareholder to have an impact as widely as we possibly can. It is a really interesting place to work because you have a rural context, a civic mission and an international impact requirement. I don’t hear the word cluster very often, to be honest. Our pipeline now—this is just our fifth year of operations finishing. We have done over 200 R&D projects for industry clients. We map them across the UK; 48% of them are for Wales-based businesses, meaning that 52% are from companies outside Wales. We have a few in Europe, but our brand is growing so I would expect more. We find that clients come to us because we have unique facilities for the UK and they are rare in Europe. They are coming, looking, seeking specific technology, specific expertise, that is sectorially quite narrow; and they see us as the place to go. So they will travel. That is the really positive thing we have experienced. We certainly did not know that that would be the case when we started our innovation. It was a risk. Clients come to us for that thing. What we try to do when they are with us, for however long, is to make them aware of all the other things that Wales has to offer. That is part and parcel. If they were to come to Wales to base themselves, either just their R&D activity or their headquarters—which is of course less likely—there is the Welsh Government funding on offer, which you cannot find anywhere else. There are the links to UKRI, the supply chain partners they might find while they are here. That is how we show a bit of a hub-and-spoke cluster—if I can mash the two together.

It comes back to the definition of a cluster. It is the point you made before, isn’t it? Andrew Carter.

I would say two things on that. First, our work tells us that areas with hotspots are more productive and grow faster. We have the data on that. They are on average 7% more productive. Obviously, that varies depending on the hotspot you are looking at. They roughly grow, over a 10 to 15-year period, at about twice the rate of areas with non-hotspots. Causal link is not perfect on that; we have to think about that very carefully, but they are clearly contributing. So areas with hotspots are more productive and grow faster than those without. If you think about that, that is quite a good thing, in the sense that if you can get firms into those locations, all things being equal, they also benefit from what the hotspot is offering. There is no reason why they equally would not contribute to that growth. Secondly, hotspots are essentially revealed preferences. We hear a lot—particularly from the public sector, and we love them dearly—about their strengths and their ambitions and their intentions. Where firms are located is just a revealed preference. They have sieved all of that information and they have chosen to locate somewhere else. If you are another firm from another part of the UK or from somewhere else in the world, you are looking for that revealed preference. Where are the firms that are a little bit like me? Where are they based? Why are they based there? Well, they obviously are based there, unless they are slightly irrational, as a result of rational business decisions. That gives them a signal that maybe those areas are important and worth looking at. That carries much more weight than any public sector strategy or ambition that we want to be the best in x, or we have got this or we have got that. So not only are they materially more productive, and better places economically, but they are also sending a signal to other firms about where there are literal strengths, rather than perceived or anticipated strengths.

Great evidence. Russell Greenslade, could I ask you the same question, please?

Yes, certainly. From our evidence, what we have learned is that they are catalysts for local supply chains as well. We have to remember that here in Wales—I will have to get the exact figure—around 90% businesses are SMEs. They are very much part of the supply chain towards it, and they put out high-value jobs, which means that there is more money being spent in the community, and there are more people moving into the area, spending money in the corner shop and so on. Those high-value jobs are retained here in Wales, as well as regional resilience. As Andrew just said, there is that continuity of breeding confidence, where as a business opens up somewhere, another business of similar ilk opens, and they can do cross-channel work. I think there was a figure that came out—there have been about 83 investments here in Wales and £3.7 billion of inward investment, which is also creating jobs just in that cluster section. That is the evidence that hopefully answers your question—it is hugely important.

I think the original question was about inward investment. We tend to think of FDI in the golden days of the Welsh Development Agency and these multinationals flying around the world and establishing facilities in new countries. Things have changed massively since those days. Inward investment needs to be viewed in a more nuanced way. If we look at the types or forms of inward investment that we see in the cluster, that includes the growth of existing companies. Vishay and KLA are investing about £400 million between them in Newport. That is inward investment. Supply chain growth was already mentioned. Suppliers want to be around these large companies. Investment in research infrastructure—the fact that Swansea and Cardiff have secured £150 million to invest in fabs to support the business—is inward investment to the region. Investment from new multinationals saying, “We are suddenly going to go and set up in Wales,” is very rare in our sector. We are not very good at VC investment and home-grown deep tech start-ups, but that is another form of investment. Then there are SMEs looking to scale up in a suitable environment. One of our core companies in the cluster is IQE. It originated somewhere around Essex or the east of England, but said, “We are coming to Wales to scale up.” If you want to scale up in compound semiconductors, there is no better place in the UK to do it than south Wales. Let’s think of inward investment as coming from different forms at different times in different ways.

Diolch. Because of the way you have worded your views on clusters—you said that they have no boundaries—do you think that they are a good mechanism to promote inward investment?

Concentrations of activity make sense, in that they tell us something about how firms in the economy more generally are organised, and we should be able to express and show that in different ways. I am more sceptical about the more expansive definitions of clusters, which roam over many hundreds of miles and are relatively tangential in that they simply look at anything that might have some similarity between firm x and activity y. They extend the boundary even further, which means that you get the kind of claims that “This cluster is x trillion, billion, trillion pounds worth of GVA”, or whatever it might be. Those are unhelpful to us. That is why, when we did the work and looked into this, we were very deliberate; we wanted to look at a particular part of the economy—the new economy as we have defined it—and think about the economy that is likely to be growing most rapidly in the next 10 to 15 years and the types of industries that are high-tech, high-skilled and high knowledge-intensive, and those sorts of things. We were concentrated. We wanted to know about that and the sorts of industries where they are tightly located—literally, in some instances, within 250 metres of each other. We are not talking about large, expansive and huge areas; we are trying to understand, where there are very intense concentrations of economy activity, what does that tell us? Why are they where they are? More particularly, what policy levers do we have to grow and expand them? That gives us a much more manageable way of thinking about how you connect the analysis to the policy prescription. A large definition of clusters does not give you many policy levers to deal with them other than a bit of branding and promotion, and I don’t think that really makes a difference, except at the margins.

Rhian, you mentioned that you do not work around the clusters. Do you think that the clusters are a way of promoting inward investment?

I do not think I can argue with urban clusters where everybody is physically co-located because that breeds collaboration and contacts. I cannot argue with that at all. We do not have that in many places in Wales; we have this large geography with some places that have pockets of expertise, like Aberystwyth, where the university has a long-track record. We must consider that as well as how we mobilise that more rural asset. It is the facilities now, with AberInnovation, and the people—how do we mobilise that? I think it is really hard. I have one example. There aren’t many around the world, frankly, that have this blanket rural sector-specific thing, but DK Denmark is one to look at. It is a bioenergy cluster. The Government call it a cluster. There are about 1,200 SMEs spread across Denmark. It is nationwide because the sector and the sorts of facilities that the bioenergy sector needs are dispersed geographically. With renewable energy, they are physically away from each other. Who knows under the hood whether that is working or not? But it is quite a prominent example of where a cluster is dispersed as opposed to the very recognisable urban example. When I am thinking about how to grow AberInnovation’s reach and impact, I am thinking in that kind of way. We run a lot of publicly funded programmes where we offer vouchers for companies to do work in our buildings. They are a mixture of programmes depending on the funding. Sometimes those recipients have to be in Wales. Of course it is brilliant to boost Welsh SMEs and microbusinesses, but it is very exciting sometimes to receive funding where we can extend that opportunity to businesses outside of Wales as well. That is how we build the reputation of Aberystwyth and what we have got. Now and again, those companies will decide to stay. We have got 45 tenants and members at the moment—tiny in comparison with others—but that is 61 jobs on site and in our very local network that we did not have before, for a relatively modest investment. I guess I am becoming a bit more of a champion of trying to think about ways to mobilise more rural assets.

Can I go to Russell for that Welsh view on whether clusters are a mechanism for bringing in inward investment?

They are very much part of inward investment. They are part of the toolkit, if you want to call it that. A strong cluster builds distinctive local unique selling points in Wales, wherever they may be, making Wales more investable globally. That is what I mean when I say that they are part of the toolkit. Look at the freeports we have here in Wales. They could be classed as a cluster. They have investment. They have benefits for businesses investing. So, yes, they are part of the toolkit for inward investment or FDI here in Wales.

We could see the semiconductor cluster as a cluster that has one job to succeed in. Is it then easier for you, Howard, to get that inward investment because you have your clear agenda?

It is certainly very easy for us to focus. Look at the work we do with DBT. DBT has what it calls high-potential opportunities that it goes out and sells. It is not selling clusters per se; it is selling credible substance in a specific field. Whether it is biotech, semiconductors or a freeport, it does not really matter. You are saying, “We have world-class expertise in this particular thing.” You are really selling things that you do well as a country, if it is a whole-Wales thing. If I were to put a salesperson hat on when I am doing FDI, when it comes to financial incentives to bring companies in, we have nothing in the semiconductor industry versus €50 billion in Europe, $50 billion in the US and trillions in Asia, so I am not going to win that argument. Our infrastructure—meaning our offices and factories—does not differentiate versus anything in Europe or America, so people are not going to come here because we have got a better shed. What are the things I have got to sell? I have a skilled workforce, with very specific expertise. I have leading research infrastructure and institutes. The semiconductor industry spends 16% of revenue on R&D, and global R&D is critical. It is a huge part of our cluster. The third thing that we have in Wales is a viable cost base. Our industry is not particularly labour intensive. It is knowledge intensive and capital intensive, but you talk to companies like KLA and they will say that, as a site, Wales is globally competitive. Those are the things that I am selling—not clusters, but very specific expertise.

Howard, can I ask you a specific question? Obviously, Newport West and Islwyn is my patch, so I know a little bit about your semiconductor cluster. Would you like to give us a very brief history of how it came to be in Newport, and what worked and what did not work in terms of lessons learned that can be extrapolated to others?

I am probably the wrong person to give the very brief history, but the origin goes back to Inmos in 1982, which was a Government investment in microprocessors in Newport Wafer Fab. It is kind of funny that 42 or 43 years later, that facility is still going, still succeeding and getting further investment. It is a really good example of something that stuck. I think the question that you have to ask is, why did that stick versus all those other investments that came into Wales that did not? Panasonic, Aiwa, Hitachi and all those kinds of things came and went very quickly over a 20-year period, yet the semiconductor industry has endured and is starting to grow. Again, I think it is the nature of what you are doing. When we develop a process, it is very difficult to move. It is not worth moving. You could take a Hitachi video recorder factory and move it to Hungary or China and save money. There is no point in doing that to Newport Wafer Fab; it would take you two years and $100 million to do it, and you still would not save any money. Once you get things up and running, it is very sticky and the jobs are very high skilled. Probably the nearest parallel is pharmaceutical: again, very high investment in R&D and processes that they do not want to change. Once they are up and running, they are very sticky.

Ability is the key, isn’t it? I am going to pass on to Simon Hoare, please.

I have huge sympathy with all of you who seem to be saying as an underlying message that clusters, and the governmental support that can sit behind them and the initiative, can act as a driver. But ultimately, markets and investors decide, and they may take decisions across a range of things, not necessarily because a Minister has asked them to do something. Notwithstanding that, I think we all recognise that Governments can have a role to help facilitate, to bring together and to think strategically, particularly in infrastructure, and that can be IT infrastructure as much as physical road infrastructure and the like. My question is a UK Government role question to the four of you, if I may. How can UK Government funding support the promotion of inward investment opportunities? Conscious of the pressure on the public purse and the wider public finances, how can we ensure that UK Government money is spent wisely, and is not duplicating or subsidising that which the private sector would do of its own volition? I am perfectly relaxed as to who wishes to take that first. I am going to go to Doctor Hayward, actually. You seem to be more excited by the question than the other three.

Thank you. This is a very live discussion at AberInnovation and at our board right now. We exist because there was an ERDF investment in a business case that said there was a market failure. The market failure was suitable to put public funds into it. It was European money and UKRI money as well as the university. The market failure is that those companies—big and small, we have now realised—who want to do research and development to innovate and to invent cannot afford, find or access the specialist facilities. They cannot access the people who would run those facilities, or they cannot stop their manufacturing line at any point to do anything at pilot scale—small scale. That market failure warranted that public investment. Government are crucial if we want to help businesses do things that they cannot otherwise afford to do. And we want them to do it in the UK and in Wales. I think the live discussion at AberInnovation at the moment is, like many science, parks and innovation locations, the trajectory should be—I would suggest and my board definitely agrees—moving away from public funds. There is a point at which one moves to a mixed model of income to run that science park and innovation location. Sitting suspended for a Division in the House.

Order. Welcome back to this afternoon’s session. I thank the witnesses for their patience. Simon, I think you were in the middle of your questioning.

Yes, I think it was just Dr Hayward who had answered. Would colleagues like me to remind them of the question?

If you could remind us, that would be great.

Yes, of course. It would be a bit unfair of us to test your memory. What can the UK Government be doing to promote inward investment opportunities? Allied to that, how best can we make sure that the Government are not using, at a time when the public finances are under pressure, taxpayers’ money where the private sector and/or others would be willingly prepared to stump up the cash?

Did you finish your answer, Rhian?

Thank you. In terms of science parks and innovation locations, those assets where public money has been ploughed in initially to seed them and meet that market failure, it is reasonable—as with many UK science parks—to have a trajectory where we start bringing in other kinds of income, so that we become less reliant on public money to run those places. On the second part of your question, there are two areas where public money is crucial. In my area of work in creating innovation ecosystems, there are five parts to an innovation ecosystem; it doesn’t really matter what model you look at globally. You have entrepreneurs, risk capital, corporates, universities, and then Government is the fifth part. Where public money can really make a difference is for universities, who are fundamental to the knowledge economy. It is giving them enough resource so that they can commercialise intellectual property. If there was one thing in Wales—if I had £2.50, I would put it into helping the universities in Wales to do that at scale, because I think we are underpowered in Wales for university commercialisation. That is the invention step. That is the point of difference that any spin-out or company would need. The other area where public money can make a difference is incentivising companies that are currently not in Wales to engage with the science parks and innovation locations. As I mentioned earlier, a lot of our programmes are funded to support businesses already in Wales, and that is the criteria for participation. I often hope that we can get public moneys that will do exactly the reverse, so to be eligible you cannot be in Wales, but you have to do the innovation piece in Wales.

Mr Carter?

For the sake of brevity and non-repetition, I think Joe Manning’s answer to this question at your last session is a very good answer. I encourage colleagues to re-read what Joe said around that. Without going into the detail, I would add on some points. Joe stressed very clearly that there is value in simply better co-ordination and streamlining of different activities and services. That is one of the points that he was definitely making. One of the roles is about how we streamline the process from a vague inquiry through to staff on the ground. He was very eloquent in saying what he thought about that. The second thing I would say, and you cannot get away from this fact, is that the UK Government take Greater Manchester—let’s use that as an example—very seriously as an economic hub and an economic growth potential hub. You can see that in all the decisions that the UK Government have consistently made, and not just this one but previous Governments of different iterations through different Administrations for the best part of two decades. Give them more powers. Give them more resources so that they can improve their skill systems and make them better adapted to the modern economy. Enable them to build more homes so that they can literally expand the size of their labour market by getting more people in at reasonably affordable rates. Help improve the transport systems in and around their city regions so that people can move around and access economic opportunity wherever that might be. That is about taking places very seriously. Here is my question. Does the UK Government take Wales or parts of Wales—the Cardiff capital region—as seriously? Does the Welsh Government take the Cardiff capital region as seriously as the UK Government takes GM? No. You can see that. It is just revealed preference in terms of investment decisions and prioritisation. The answer is no, whether they say they do or not. There is a really important point there about how seriously the Government take these places, and what they are then prepared to do in order to create some of the conditions that allow these places to grow—not just individual firms, but all firms. That is a really important message, and a question we should be asking of our national politicians and Government of the day, whoever they might be. Without going into detail, when we think about what is going on, there are information asymmetries and some market failures. Gains are captured in terms of innovation and so on, and there is therefore a strong case for public co-investment alongside the private investment. Co-investment should be important criteria to avoid simply dead weight and displacement.

Mr Greenslade?

First, I think the UK Government should be recognised for the efforts of inward investment here in Wales—long may that continue—and what is going on with the Secretary of State’s office. We are picking up from our membership here that it is now time to have a very clear road map for industrial strategy delivery in Wales—tactical, practical stuff on the ground, and what is happening and when. That would encourage further investment by existing and new businesses looking to camp here. We also need to define our unique selling points here in Wales, working with the UK Government. We need joint working between the UK Government and the Welsh Government, and a collaborative business strategy to be delivered. It is now time to deliver the UK industrial strategy in Wales and have a clear timeline. That is what we are asking for. As for the levers the UK Government have, we are picking up that whatever they can do to take away the barriers to do business would be really helpful. Any type of co-investment or co-funding—call it what you will—would help to do some of the heavy lifting on the infrastructure. As you mentioned, the private sector can then use that to grow and invest in certain areas here in Wales. I hope that helps.

It does, thank you. Mr Rupprecht?

In your question, you talked about ensuring that taxpayers’ money is not going on something that would be covered by industry in the first place. I would turn that around a little bit to say that we should think about leverage versus subsidy. A really good example: we are just closing on the Strength in Places project, which was, in total, about £43 million. I think about £25 million of that was innovation funding from Innovate UK. That was absolutely transformative to the cluster and the members in the cluster, and has certainly been a catalyst for further investment. We could track investment from many of the companies in the cluster that was direct leverage as a result of the innovation funding that has gone into that. You can call it a subsidy or you can say it was a good bet on encouraging more. Rhian made a really good point about market failure. In the semiconductor industry globally, there is a massive market failure. The UK semiconductor strategy allocated about £1 billion, and virtually none of it has been deployed in two years. The US CHIPS Act is more than £55 billion—okay, bigger economy, but still, that is orders of magnitude bigger. The EU is putting more than €60 billion into semiconductors, and you start talking trillions when you say China, Taiwan and Korea. You have to ask yourself the question as a country, “Do we still want to play in the semiconductor business?” We do some things that nobody else does in the world. We still have this tradable commodity here. Do we want to just let it die, forget about it and watch this managed decline, or do we still want to be a G8 nation who plays in the semiconductor business? We are a bit like an orchard—we need watering. We do not need subsidies, but we do need watering from time to time to ensure that we can successfully grow.

And sometimes a bit of pruning as well.

That’s what the farmers do.

Exactly. This is when you indulge me in my favourite game: let’s pretend I am the Chancellor of the Exchequer—thank God I am not—and that I can effectively tell every Secretary of State what they are going to do, because I have the chequebook. Each of you has one ask of HMG that you think would make a tangible, meaningful difference to growing the sectors and economy of Wales. What one thing would each of you have HMG do? Mr Carter?

Give the powers that Greater Manchester has got to the Cardiff capital region.

Reduce the cost of doing business.

So that is reduce business taxes?

Whatever the costs may be of doing business. That is quite broad, I know, but my one ask is to reduce the cost of business.

Dr Hayward, would you make Aberystwyth the capital of the world?

No—I would say help us to create a diverse, broad and deep venture capital landscape in Wales, for Wales.

To encourage the venture capitalists through policy—okay. Mr Rupprecht?

I would double down on skills. Simon Hoare: All very helpful answers. Thank you.

I want to turn now to look at SMEs. As we know, in Wales SMEs make up over 99% of enterprises. To Russell Greenslade in particular, what have SMEs in Wales told you about their experience of engaging with inward investment?

Challenging is a word that has been mentioned by SME members here in Wales. They are very much an important part of the supply chain for the industrial strategy and what is coming down the track from an inward investment point of view. But they find it challenging and want to know more information on how they can be involved and who to speak to as a landing page. That is why they are speaking to us, and then we as the CBI direct or get the information that they need.

You have probably covered a little bit of this already, but have they outlined exactly how they want to engage, or are they going to need some leading and working with to create the environment to help them better engage?

Yes. I think they are going to need that. There is more devil in the detail of how they want to engage and communicate. But it is more than an email of what is going on and when. We do quite a lot in north Wales. We pull sectors and working skills network groups together. That is where we gather the insights so that we are informed of what businesses want. That is what we provide to the Government. What has come forward is that SMEs find it more challenging to get information on inward investment. Industrial strategy is an example of that, hence why I mentioned to your colleague about the pace that is now needed and the practical, tactical stuff on the ground, so that the SMEs can be more involved and create jobs.

I am going to stay on the topic of SMEs. What are your opinions on how SMEs can be harnessed to create opportunities for inward investment into Wales? That could be directly through a microcluster—we have talked about a hub-and-spoke model—and also indirectly to feed the wider infrastructure around a particular cluster that already exists. I am also interested to hear, particularly from Andrew Carter, about what you think the potential would be to have a sort of hub-and-spoke model out of Greater Manchester for places in the north. The north-west and north Wales are very close geographically, and culturally in lots of ways as well. I asked our guest from Greater Manchester the same question, and I would like Andrew’s opinion on that too.

Our experience in mid-Wales with companies that are in food security, climate change mitigation, environmental monitoring—those themes within the life sciences—and also in agricultural technology, is that when they come and see the sort of facilities we have and do a piece of work here, if the magical combination of the facilities and the inclination of those business founders to live and work in mid-Wales comes together in a wonderful mixture and they want to base themselves near us, what they need is specialist facilities. A very encouraging thing is that under the mid-Wales growth deal, for example, there is a capital fund that companies can bid into. Things such as specialist workshops and test bed facilities—not laboratories per se—are rare and needed. When those SMEs are with us, they benefit from the credibility that being associated with a UKRI campus brings. There is a chance that they could grow their business and then start to recruit people. The value they bring there is just transformative. If you think about the rural place where we are, Ceredigion and Powys, the interesting, well-paid jobs that microbusinesses scaling to SMEs create are hugely valuable for the economy in mid-Wales.

We know that our members up in north Wales already work with businesses or regions in Liverpool and Manchester and share best practice, and they work quite well. We have a north Wales council, or committee, and businesses from across the border can and do attend our network meetings. In my understanding from our members in north Wales, that cross-channel working does happen. More of it can happen. There is an awful lot going on in north Wales. Billions of pounds are being spent there by the private sector and our Government here in Wales, so there is a lot of focus on it. As I mentioned, there are freeports there, and the list goes on, really. From our understanding, they do work together.

What are your thoughts on the microcluster model—lots of small SMEs working together to build a bigger product to offer? Does that have scope to develop in places that are more rural, or coastal like mine?

Quite possibly. There are different sectors. It goes back to what one of the witnesses said about similar businesses being located together, no matter the size. For instance, a business in Swansea, Au Vodka, grew to be a very successful brand. That started as an SME working with other SMEs. There is definitely food for thought on that.

I will focus on the role of SMEs in our industry. The nature of what we do is incredibly capital and equipment-intensive. It is a bit like a steelworks. You do not make steel in your shed; you need a steelworks. You do not make semiconductors in your shed; you need a semiconductor fab. We are not going to produce lots of little companies making semiconductors. That is just a fact and a given. If you are looking for economic growth in terms of employment, most of the 10-year growth that we have seen, going from roughly 1,000 jobs to 3,000 jobs, has come from the big four companies and academia. They are the ones that are really moving the needle in terms of employment growth. However, we recognise that there is an increasing role for SMEs, and we see it in two areas. The first thing we are trying to intervene in is the upstream supply chain. These are relatively small companies in the valleys that are feeding into companies such KLA and Vishay to supply a whole range of products and services to help them to do their business. It is a mutually good thing. The area that now needs a lot of focus is what we would call the downstream side of things. Semiconductor fabrication is quite low in the value chain. There is a whole system level, systems integration and an applications level that we could be doing much more of. It is taking the results of what is being done and what is being developed and capturing value through integrating systems and selling systems. There is a huge opportunity for us to grow SMEs in that area. That is where I would see it coming, not new fabs.

So that support network around bigger companies and universities is where you see the growth?

Yes, and the output from those.

Not to repeat, but in nearly all places, over 90% of the firm base is small firms. However, in nearly all places, less than 50% of the employment base is in small firms. When you look at rates of growth, innovation, development and capital intensity, it is almost exclusively skewed towards bigger firms. Politicians like small firms a lot. The evidence, sadly, does not warrant them in quite the same way. We need to be very careful when we are thinking about where we are going to get growth, good jobs from and more innovation from. Assuming a small business perspective does not lead us to good policy positions—not that we should not think about it, but big firms have important roles to play. They typically pay higher wages across every qualification scale, and similarly big firms relative to small firms. Big firms are really good. If you have big firms, you should be proud and happy about having them. That is my point on that, and I think it is important to make. In terms of your connections, Joe fudged it—it is a difficult question. I would think about connections in a couple of ways. There is supply chain connection that you have to think about, but I am not going to touch on that now. One connection we see is through the labour market. Over 50% of people live in one place and work in a different administrative area. There is no reason why people who are plying their trade and earning their living in, for example, Liverpool or Manchester are going to live in Manchester. Obviously a high percentage are, but a lot of them live elsewhere and take their wages back home, make investments and all that. That is a good connection. So there is a labour market connection that would benefit north Wales. It is a nice place to live, even if you go somewhere else to earn your living. We see that already—not huge commuting patterns, but we do see that a little bit. The second point is thinking about how, even within firms, they segment what they do and do it in different places. Take Nissan. We all know, or we should know, where Nissan builds its cars: in Sunderland. It has been in Sunderland since the 1980s; it was attracted by the Thatcher Government and has stayed there ever since. Where did it do all its design work and engineering work? Not in Sunderland, but in Oxford and Paddington. When you are doing design work, you need skills and talent. You do not need what Sunderland is offering you, which is essentially relatively low-wage labour—although it is higher than the wage for other industries—and you do not need loads of land, which is obviously what Sunderland was able to offer in the 1980s. Within firms, you can see the way that they segment their activity. I am not going to say, “Is north Wales the Sunderland equivalent of what Oxford is for Nissan?”, but we should be open to those kinds of questions and thoughts. Similarly—I have not looked at this for a few years—when I last looked at the impact that the Advanced Manufacturing Research Centre was having in Sheffield, some of the process and product innovation that was going on in Sheffield was directly benefiting the process of building wings in Broughton. In Sheffield, when I last looked, there were about 500 people employed in the AMRC, all in. When I last looked at Broughton, it was thousands. Thinking about those kinds of connections—that does span; it is a supply chain question and an innovation expansion question—gets you into different ways of thinking about the role of different places relative to other places, rather than thinking that every place plays the same role. They do not; they never do and never will.

Thank you so much—that is really interesting. Sorry, Chair, I realise that I am taking up quite a patch, but just to finish on your points about the labour market and building a skills base, transport will be absolutely crucial to that. We know that there has been some good cross-border work on planning transport infrastructure. I completely agree that that is an area that we can really improve on, and that the way that people work and live their lives now makes it totally possible to open opportunities in north Wales. Thank you—that was excellent input from everyone.

In the business roundtable that we held in May—this is a question specifically to Mr Greenslade, if I may—businesses told us that they have experienced inconsistent engagement from the civil service and wider officials. That is particularly the case when officials change roles. We all know that the one thing that business absolutely requires is certainty, and some decisions take a little longer than others. I think we would welcome, as a Committee, your observations about what you hear from your membership on whether that is an issue, particularly if people who want to locate for the first time and/or expand are passed from pillar to post between the local authority, the Senedd and the Government Department here in Westminster. If that is the case, what impact do you think it might be having on delivering on wider and further opportunities for investment and growth?

When there is change, there will inevitably be an element of confusion about who they go to and so on, no matter what position it may be. Yes, we have heard that about who people should speak to about moving in or investing in another area. Most recently, I had a conversation with an overseas company based here: who do they need to speak to in order to get information about support, or possible support, for a multimillion-pound investment here in Wales? Obviously, that is what we do as the catalyst between Government and business, so our members tend to come to us for that and then we point them in the right direction, due to our close relationships with the UK Government and with the Welsh Government as well. However, from an SME point of view, I believe that it also goes back to the previous question: given their smaller size, who do they go to in the UK Government or in the Welsh Government, given the people ever-moving around different posts, or changing positions?

While understanding the need to respect the devolution settlement, is there any merit in Westminster, Cardiff and the local authorities considering the creation of a one-stop shop or front door for investment, which can then provide signposts and advice, rather than people either having to think to come to the CBI, or potentially to waste an awful lot of their time talking to the wrong person about the right thing?

I believe that discussions have happened along similar lines previously, but those were just conversations. Yes, I think that perhaps it would be worth having a conversation about that with the Governments as well, regarding a one-stop shop, as you called it; I think a “concierge service” was mentioned previously, as well. However, we have an investment summit happening here in Wales in December, which the Welsh Government are doing, and that is accelerating at a rate of knots. I think that a one-stop shop would be useful, but are we talking about inward investment or are we talking about businesses that are here as well? I ask that because we know of at least one manufacturing company here in Wales that is looking to expand its warehousing and manufacturing, but it cannot find the space in Wales to do it, and it has been trying to find it by working in collaboration with Governments. That is difficult to do, as well. That is also picked up in the industrial strategy regarding key sites investment. That is why I go back to what I said about the industrial strategy now needing to be delivered at pace here in Wales.

Just on that point, and just so we do not lose this thought when we, as a Committee, start to think about our reports—I think part of the answer to this is “yes”, but it strikes me that there would be merit, if access to sites or finding sites and space is a premium and a difficulty, in triaging on a market-led demand basis a post-industrial clean-up of sites, to make them readily available for investment and regeneration, as a matter of priority in the areas where business actually wants to be, rather than where the pointy-hatted bureaucrat, whether they sit in Cardiff Bay or Whitehall, believes that they should be, which very often can be two entirely different places.

Yes is the answer to your question. There are definitely pre-packaged sites, with the connectivity that is needed for a business—not just internet connectivity, but transportation connectivity, so workers can get there, and so on. As I said, that is happening in south-west Wales and in north Wales. That is what I mean by Government infrastructure. Connectivity is important as part of those sites as well, not just the site itself.

Thank you very much.

Before I bring in David Chadwick, I am conscious of time, and I am also conscious that we have taken a chunk of time out because of voting. If witnesses were able to stay for another five minutes after 4 pm, that would be really helpful. However, can we shorten questions and answers, because we want to make sure that we get as much in as possible?

This is a question on the role of further and higher education, which I know has been touched upon a couple of times already. Dr Hayward, how would you currently describe the role that higher education plays in promoting Wales for inward investment?

In the world of innovation that I operate in, universities are fundamental. The research-intensive universities in Wales have significant numbers of international collaborations; that is the nature of research. Each university already has, and has had for years and years, lots of international connections, networks and points of contact in different parts of the world. They are very valuable for networks with other universities and for the ecosystems that those universities have developed. We can always do more to draw out that ready network, which is already there. The second point is that, as I touched on earlier, universities generate considerable amounts of intellectual property. Sometimes, that intellectual property creates not just a social and policy impact but an economic impact, if it is licensed out of a university or spun out as a business from a university. Universities the world over are engine houses—engine rooms, if you like—of that sort of commercialisation activity. As I said earlier, if we could put more resource into that for our Welsh universities, we would probably tap into a lot of latent value that is sitting there. Part of that is cultural. Different universities around the UK and around the world see that activity differently, depending on who is leading the university at the time and what their local economy looks at and needs.

Thank you. I have a similar question for Howard: how does higher and further education impact the work of your clusters?

I will give you a fairly concise answer. There are two reasons. Cutting-edge research is absolutely essential for the semiconductor industry and the global collaboration that comes with that. If we don’t have good research universities in higher education, we are not a cluster, so that is incredibly important. The second thing is skills. We require very skilled people, and some of that comes out of higher education, but remember that we still manufacture in Wales. There is a lot of focus on semiconductor strategy, which says, “We just want to design chips in Cambridge.” We capture a lot of value for the local economy from manufacturing, but that means that we need a wider range of skilled people in multiple levels of jobs. FE plays a very strong role in everything from graduate apprenticeships to vocational training, which is critical for the operation of our facilities. So we need skills and cutting-edge research.

Apologies for missing half your evidence—I was in the Chamber. Dr Hayward, we met one of your businesses at the Royal Welsh, and it was fantastic to hear how the programme was supporting the owner. Could you explain to those of us who were not at the Royal Welsh how AberInnovation works with businesses? How do you see people through?

We don’t have time to do a lot of proactive business development, because the good news is that we are getting a lot of inquiries, and we have since we opened, so we react. A business will come to us because they have seen our facilities online or through word of mouth—probably 65% of our interest comes through word of mouth—and we try to understand what they need to do. Where we fit is at that low technology readiness level—proof of concept. We understand what they want to achieve and then put a package of support around them. Either they pay for that because they have won grants or public money—Innovate UK-type money—or because they have found another way to pay, whatever it may be. We then do as much of that work for them as they need, or they come in and do the work. We are very much an R&D hotel-type set-up. Where we are resourced to do it, we also try to understand what their future funding needs are. We also try to understand whether they are ready to employ anybody yet and, if so, what sort of skills we can signpost them to through university careers at Aberystwyth. We have other organisations such as Mentera, Antur Cymru and BIC Innovation—other agencies that will help to do that. We try to get them along the journey. It is probably apparent that we are nowhere near the product on the marketplace with those companies. We are much further back from the marketplace in that, but hopefully we are helping them set up to be a bit more prepared to get to market eventually.

At the moment, this is primarily for businesses in Wales. Can you see it being extended out to invite businesses outside Wales and develop that inward investment?

As I mentioned, 48% of our clients are from in Wales, so 52% are outside Wales. It has already settled into a good mixture, not by design but by how the brand is growing. That feels like a good balance, and we have a few clients that are companies in Europe, from the Netherlands and Germany, but not many. Again, it is a resource thing, but we could do an awful lot more international outreach because we can work with anybody in the world.

I would like to hear from three of our witnesses about their experiences of dealing with UK Government on inward investment, and how that compares with their dealings with the Welsh Government’s inward investment team. As a supplementary question, have any of your clusters received any direction or encouragement to promote opportunities for inward investment in Wales? Howard Rupprecht, will you start, please?

For inward investment, we work extensively with the Welsh Government, and the Welsh Government have been a very stable team, who recognise the importance of the sector. We do a lot of work together, and we are currently in joint efforts with them and Cardiff capital region to see how we could streamline the process and make it better. My comment would be that it is not very customer-centric. It is rather bureaucratic, and involves being passed off to a lot of different people, so we are making joint efforts to smooth the journey. At a national level, our primary interface is through DBT. I think I mentioned that DBT identifies high-potential opportunities. The DBT is very aware of what we do and how we fit into the UK offering, so we tend to be involved in trade missions, visits and conferences with relevance to what we are doing. Next week, I will be at SEMICON Taiwan as part of the DBT delegation. We also go to Photonics West, but there are things that the DBT will go to that have nothing to do with anything we do; the DBT knows that and we know that. That level of collaboration goes on when selling UK Inc. but the closest collaboration is with the Welsh Government.

We have most engagement with the food division and the innovation specialists of the Welsh Government. We do not have a huge amount of interaction with the group in the Welsh Government that is tasked with inward investment per se. That said, when there is an agritech, or agricultural-type interest from an external organisation—let us say a delegation coming to Wales—we might be contacted to say, “Are you available? Can we bring that delegation up to Aberystwyth?” That sometimes does not happen, because we are far from where they are otherwise going to spend their time. So from a logistics point of view, it just does not work, which is unfortunate. There is probably a lot we could do to make our offer visually, through video and other collateral, more available for those delegates to see, even if we are beamed in to talk about it when they are in the M4 corridor. That is what I would say about the Welsh Government. It is patchy, but that is partly geography. UK Government-wise, DBT will contact us from time to time for a similar purpose—it has a delegation and it is perhaps collaborating with the Welsh Government to bring them here—but our main point of contact is UKRI. We are one of the five BBSRC, so I meet regularly with different parts of UK Research and Innovation and we get a chance to shape how they think about innovation across the UK. That is definitely our main point of contact.

We work very closely with both Governments, as one would expect. Our members increasingly want to know more about the UK Government as well as the Welsh Government. We cannot underestimate the political stability that we have here in the UK—outside looking in. I was talking to an international member earlier who pointed that out, which is interesting. Sometimes we can look inside the UK rather than outside in. We work very closely with both Governments and we have very good relationships with them. We speak to them frequently about matters of all different shapes and sizes. The collaboration is clearly there because they created the working together industrial strategy, which is now a live document that, as I said, is being delivered. So our relationships are strong with the UK Government and the Welsh Government as well.

Thank you. That was really interesting.

I want to build on the point about where bureaucrats want the locations to be and where markets or businesses want to be located, particularly in the context of collaborative working across regions in Wales. I will start with Andrew and how you see collaboration across regions working. You might comment on regions perhaps working competitively against each other.

It is a tension and an issue that applies not just in Wales. You see the same in England. The most obvious tension is the prevailing political sense that Cardiff gets everything and we need to push activity elsewhere. In the same way in England, London gets everything and everywhere else should get something, or Manchester gets everything and other parts of the north-west should get it. So it is a recurring issue that is evident. Similarly in Scotland, Glasgow and Edinburgh get everything and the highlands do not get much at all. So that is not particular to Wales, but it is problematic if, for example, we are not allowing in firms that want to come and be based here, wherever they want to be based—whether it is an urban or a rural area, it does not matter—and if we are in some ways making it harder for them to be where they want to be relative to where the politicians want them to be. That is about responding to the market signals, which we have already heard about. Are we making sites available in and around the Cardiff capital region for firms that want to expand, or are we making it at the margins just a bit more difficult, because ideally we want them to go to Mid Wales or north Wales? I do not know what the answer is, but it is a live issue that you see playing out. The reality—this is partly about connections, and it goes back to your question—is that if the Cardiff capital region becomes more prosperous, more dynamic and more innovative, because it is able to attract more firms and more innovation activity, the rest of Wales will benefit as a result. People will access the opportunity that is generated as a result. Opportunities never stay where they are. They always go into other places. The more opportunities you have, the further it will go into other parts of Wales. It will generate more revenue, however you think about that, that can be redeployed into doing whatever it is that you want to do. So this idea of zero sum is a bad one. It is not proven by the evidence—we have done some work that clearly shows that that is not the case—but it is always there. It is not particular to Wales, but it is partly to do with the nature of the south, particularly the coastal south and then the rest of Wales. There is always that tension in terms of whether we can push activity into certain parts. This goes back to what was said earlier. We saw this in previous FDI iterations where we probably pushed firms into locations where it was revealed that over the long term it was not optimal for them and they left. As soon as the subsidy ended, they left. That is the tension. I do not have an answer for that, but it is a tension.

Is there an element of different areas in Wales, different regions, having a speciality and a comparative advantage in pushing that?

Rhian has highlighted this, and we have talked a bit about Denmark. We know when we look at the nature of firms and the nature of activity that there are clear geographies to that. You can see that a lot of our staff around the production of net zero and clean growth will not be in urban areas. They will be in rural areas or on the coasts, because it needs hills, land or sea. None of those firms will be based in urban areas. But if the firm and lots of others like it require high levels of skills, by definition they are not in rural areas. If there were lots of firms and skills in those areas, they would not be rural; they would be urban. So it is about finding and thinking about the distinct roles that different places play in the economy. We know all this. It is quite clear—you can look at economics and see it. It is about playing to those strengths, rather than pushing firms into places that do not fit them. You end up subsidising them and, as soon as the subsidy ends, they disappear. That is the story—not the only one, but part of the story—of FDI into Wales, and to a degree in Scotland and England, during the period from the ’70s until probably the late ’90s. It is not sustainable.

Does anyone else want to come in on that? Howard Rupprecht: Yes, I will briefly. If we think of our cluster, we go from the Severn bridge to Swansea, and the way the cluster has developed has been independent of geographic boundaries. It is really defined by related activity rather than whether you are over the border here or there. We do not see forced growth going into other areas. If growth happens, it will be because of proximity, wherever that may be. What we are worried about going forward, though, is when political geographical boundaries start defining how funding is deployed. For instance, investment zones and local innovation funding are going through the Cardiff capital region—which is naturally focused on itself—but that excludes Swansea. To put funding through one but not the other cuts our cluster in half, and our two main companies, Vishay and KLA, both work extensively with Swansea University. If they do not have the opportunity to leverage that funding, you start breaking up the cluster and losing the value of the funding. We should just remember that political geography lines are completely arbitrary, and clusters do not necessarily follow them, because there are other reasons for our development.

I absolutely agree. To build on a couple of points, the natural capital we have in Wales will attract certain businesses to certain places, so there is opportunity there that we probably do not talk about enough. The other thing is that more rural locations are perfect for service provider companies. We have talked a lot about manufacturing, where you need a place and a workforce, because there are widgets, gadgets and so on—physical stuff. But in the modern world, if you think about digital, and about a combination with a company that provides a service that can be exported digitally around the world, just like that, we should think about the rest of Wales as possibly places where we want say to businesses, “If you want that environment around all that natural capital, and we can find you the people to work there, because that is key, all of Wales is up for grabs for where you put that business.” We try, but we do not advertise the rest of Wales enough for service providers.

Russell, just quickly? I am conscious of time.

Yes, certainly. There are fragmented messages from the different regions, just because of what they do as regions. If we look at west Wales, with the clean energy, Dragon LNG, Milford Haven port authority and freeports, that is totally different from what is happening in Swansea, for instance. There are fragmented messages from the regions, but that is because they do different things as organisations. They have different things to say to different people at different times. There is scope for more of a team Wales approach to that. From an inward investment point of view, combining everything that all the regions do into a one-stop shop, as mentioned earlier, would really shout about the amazing stuff we have going on here in Wales.

In bringing the sitting to a close, I thank all four witnesses for their time this afternoon. It has been incredibly useful, and I can tell that the Committee has been really wrapped up in what you have been saying. I am sure there will be lots of questions afterwards. Thank you for your time and for your honest, comprehensive answers.