Last Thursday marked 80 years since the end of World War II in Europe. The 2025 VE Day events honoured veterans and commemorated the victory of the great British nation. It’s a poignant reminder of the strength, courage, and unity shown by so many during times of extreme hardship.
Indeed, I remember my late Dad telling me his own story. He was just 20 years old when war broke out in September 1939. He completed his military training at Aldershot before becoming a soldier with Monty’s Desert Rats and spending the best part of five years on tour in Africa and Italy. I am very proud of him. His resilience and fortitude always remind me of the need for perspective when faced with challenging times.
And, so, it was perspective that was at the forefront of my mind when reviewing the results of our latest national Business Confidence Monitor (BCM) for quarter one of 2025. The UK-wide data found that confidence continued to fall and turned negative for the first time since late 2022, reflecting tax rises, rising inflation, weak economic growth, and increased global uncertainty.
In Wales, confidence fell deeper into negative territory at -17.6, significantly below the UK average of -3.0. Our members told us that the tax burden was the main business concern in Wales, while the political backdrop is also becoming increasingly uncertain in the run up to the Senedd Election next May.
However, companies in Wales reported a modest uplift in capital investment growth, with an increase of 1.9% year-on-year, matching the historical average. We also recorded one of the strongest increases in R&D budgets of any UK region during the period. Growth of 2.7% was only lower than the increase recorded in the North West (2.9%).
Investment lies at the root of economic growth and prosperity. It is what will improve productivity and increase the competitiveness of our economy. With Wales’ output per hour standing at 17.2% below the UK average, we must do more to foster investment in R&D as the key driver of innovation.
Multiple factors contribute to Wales’ productivity gap. Firstly, spending on R&D per job is lower in Wales than the UK average. Secondly, SMEs report greater barriers to accessing finance than the UK average, with the differential increasing over the long-term. Wales also has a relatively high proportion of the working age population with low levels of education attainment plus we have relatively high levels of economic inactivity and high levels attributed to long-term ill health.
As Chair of the Wales Productivity Forum, I fully appreciate the challenges that we face as a nation around investment, infrastructure, and connectivity. These are all important factors raised in the 2025 Wales Forum Insights Report as part of our request to Welsh Government to establish a long-term commitment to improving productivity, with independent guidance and assessment of performance.
There is no doubt that addressing the country’s productivity challenge will require a coordinated effort on the part of individuals, businesses, business support organisations, public sector service providers and local and national policymakers.
That’s why we need a national conversation on productivity to address the scale of the challenge and a national plan that identifies short, medium, and long-run priorities to support productivity growth. There should also be a focus on public sector productivity growth as a means of supporting future public service delivery.
As a forum, we recognise that addressing Wales’ productivity challenge is a long-term and intergenerational project. It will require significant government investment in people and infrastructure.
A clear vision and strategy will provide direction and purpose, and it should be aligned with the eagerly awaited industrial strategy that is due to be published at the Spending Review in June. This is expected to focus on tackling barriers to growth while creating the right conditions for investment. It will be key to inspiring business confidence and boosting productivity with the focus on promoting investment and cultivating a pro-business environment.
It is more important than ever that the forthcoming industrial strategy provides certainty, clarity, and stability to business to avoid damaging confidence and stifling investment. We want the UK to be the best place to invest and to start, run and grow a business. Our members have repeatedly told us that the industrial strategy must demonstrate long-term policies to encourage investment and boost growth.
As Chartered Accountants, our members are at the heart of building a better, more resilient future. Confidence is important but perspective is everything, and in the words of Sir Winston Churchill ‘we will never give in’.