Item 7 on our agenda is a statement by the Deputy Minister for Economy and Transport on the foundational economy. I call on the Deputy Minister for Economy and Transport, Lee Waters.

Today, we are setting out the plans that will guide our economic recovery from the coronavirus pandemic. The COVID crisis has shown us very clearly the importance of an economy that is more resilient to external shocks. It has underlined the critical role played by key workers, and the importance of everyday goods and services to the well-being of our communities and to our economy. The limits of low-cost, long global supply chains became apparent very quickly in the early stages of the pandemic. Our orders for personal protective equipment from lower-cost countries too often went unmet. Yes, factories in China can make masks cheaply, but that is of little comfort when the supply chain proves fragile, breaking down when you need it the most.

As we begin to look beyond the pandemic, it’s essential that we draw lessons from the way our economy has fared in the face of the crisis, and set a path for recovery that makes our communities stronger. Today, we set out in our economic resilience and reconstruction mission five priority areas for recovery, and the first one is strengthening the foundational economy. That means making more of the goods and services that we rely on in Wales. This will not only make us safer, but it will create better jobs closer to home, and a growing band of Welsh firms that are rooted in our communities but capable of trading and exporting beyond our borders.

We have made progress in highlighting the role of the foundational economy in the last two years. We set out to experiment, to test approaches. We set aside £4.5 million to fund more than 50 trials in a variety of sectors to test interventions. In Blaenau Gwent, we supported housing associations to look at the local supply chain to help local firms to benefit from spending on new homes. In Carmarthenshire, the council, the health board and the university are working with food producers to get more local food onto local plates. In Treherbert, we’re helping the community to take control of the landscape around their town for generations to come, to use surplus public land and forestry to make a living—the excellent Welcome to Our Woods project, Skyline. Alongside this, we're supporting the creation of a wood centre of excellence to make sure that, instead of using Welsh trees for low-value products, as is so often the case now, like pallets and garden benches, whilst simultaneously importing large amounts of forestry, we can instead use them to build high-quality timber houses in Wales. Innovation and productivity are as important in the foundational economy as in the tradable sector.

We’re using the fund to grow food using new technology, using artificial intelligence to help develop new care models, using procurement to improve the quality of work in social care, and using microbusinesses and social enterprises to develop a more sustainable model for this key foundational sector. We're even importing the Sardinian model of alternative finance into north Wales through the Celyn, an alternative currency that can help stop money leaking out of our economy. It's worked there, so why shouldn't it work here? These are all trials, and we have set up a community of practice to help the projects to learn from each other. We are as interested in learning from what they are struggling with as we are in what’s succeeding. We might be the first Government to say that failure is fine, so long as we learn from it. We’ve set aside a further £3 million in the coming financial year to scale and spread what’s working in these trials, because we know that best practice is often a poor traveller, and we hope that the next Welsh Government will work on getting these innovations into the main stream. 

We’ve been learning too from the successes of elsewhere, from Preston council and others in England and Scotland, in building community wealth. Over half the Welsh public services boards set up under the Well-being of Future Generations (Wales) Act 2015 are currently working with us to identify those agents for change in their local economy—their local anchor institutions like the further education college, the hospital and the police station that are going nowhere and are currently spending much of their money outside of their areas. Line by line, we are going through their spending to see what opportunity there is to redirect money—public money—back into their own communities to stop the leakage and to help build resilience for our towns and villages in these tough times. Through this work, we've identified that half of the money spent on food by the NHS in Wales goes to food producers and suppliers outside of Wales. In each food category, there are local suppliers who could be sourcing that product.

Procurement is not just a tool for accountants; it's a key lever for social and environmental justice. We are now doing a major piece of work to build in resilience to our food system to support local suppliers and to cut food miles. We are sitting down with some of the major food distributors, like Castell Howell in Cross Hands in my own constituency, to understand how we can work with them to increase the number of made-in-Wales products that they sell into restaurants and schools. We are only just getting started on this wide-ranging and ambitious programme of reform. There is huge potential in the foundational economy agenda to build resilience in our local economies, to create better jobs closer to home and to build stronger local businesses. There is much, much more to do, and this is why we have placed it at the front of our list of measures to guide our journey out of recession. Diolch.

Can I thank the Deputy Minister for his statement? I agree with the Deputy Minister; I think the pandemic has strengthened the case for the foundational economy, for the reasons he outlined.

Fifteen months ago, Deputy Minister, you said that you would be building the road as you travel when it comes to the experimental approach to the foundational economy. Back then, in November 2019, which seems a long time ago now, I provided my party's support. Now that you've laid the road, do you believe that this experimental approach has worked, during what has been a turbulent time, to say the least? How have you reshaped your approach to take into account the challenges of the pandemic, when many businesses, of course, have been closed? What has worked and what hasn't? I suppose that's the question there.

The Federation of Small Businesses and ColegauCymru have presented a number of views that I wanted to raise with you and ask you for your perspective on. How are you going to scale up the approach for the foundational economy to make it relevant to a larger number of firms? That's the question. What is your view on the suggestion that a diverse mix of organisations—so, SMEs, social enterprises and the third sector—should deliver foundational services? How are you going to ensure that public sector procurement is accessible to SMEs within a competitive environment, and that adequate support is available so that they can build capacity and be in a position to capitalise on these opportunities? As the CollegesWales-commissioned report 'Enabling Renewal' says—I'm quoting from them here—

'one of the major Welsh problems is that the publicly funded foundational sectors are not organised to benefit local private contractors even when the work does go to local-grounded firms.'

There's an issue around the missing middle there, so I'd appreciate views in that regard. Then, how successful, Deputy Minister, do you think the Centre for Local Economic Strategies's work with public services boards has been in driving social value in local procurement? Are you now closer to defining what success should look like? Finally, what plans do you have in terms of cross-departmental working within the Welsh Government to address structural issues within the Welsh economy? Which foundational-area policies do you see as priorities? I'm thinking of suggestions here: climate change, housing decarbonisation, food procurement, health and social care, agriculture and construction. What others do you see as challenges that need to be confronted as priorities?

Well, my goodness, a dozen or so questions, which is going to be impossible to do justice to in the time. So, I'm not sure which one of the dozen Russell George really wants me to answer, because I can't answer them all. So, let me try and give an answer in the round.

He rightly quoted me using the Basque phrase of 'building the road as we travel'. I'd originally road tested a more flippant version—that we were 'making it up as we went', which I now understand has featured in Russell George's and Conservative election material, so I've clearly provided a service to them there. Completely disingenuously distorting the intent of my remarks. We're trying to do a genuinely new and innovative approach here, and this is what happens when you try and do that in party politics.

Come on—[Inaudible.]

Cheap, cheap points, which on the one hand makes contributions in the Chamber welcoming our different approach, and on the other hand in political propaganda belittling it. So, I was disappointed to see that, but not surprised.

But what we're really trying to do is—. He asked what we'd learnt, and I think through the provision of PPE—. He nods his head, but he can't score cheap political points and then try and elevate himself as a great statesman of the age at the same time—the two don't fit. What we're trying to do, through PPE procurement, we've learned a lot of lessons from this of how difficult it is, because during the pandemic, we have seen the difficulty of getting Welsh firms to be able to supply into the public sector quickly, and there were three particular barriers on PPE that we struggled with. One was procurement policy itself, and we're currently revising the Welsh public policy statement to learn the lessons from that. Secondly, there was the issue of price. We are able to buy masks, certainly in normal times, in China for considerably less than we can buy them in Wales, but as I mentioned in the statement, that supply chain is not resilient, so there's a genuine debate to be had about what is the premium we think it's right to pay for locally sourced goods, and that is an ongoing discussion we're having. And then there was the issue of standards and certification, because you can't simply produce a mask and then flog it to your local hospital. It has to meet medical standards. So, there are some real granular issues there, which definitely have slowed us down and created some genuine policy dilemmas for us, which we are working through.

But we do think there's huge potential in the medium term for this agenda, not just in things like low-cost things in PPE, but in high-cost things like orthopaedics. For example, in hips. The UK imports something like £1.2 billion worth of hips and orthopaedic joints every year from high-cost countries, and we could be making those things ourselves. So, there is a big reform agenda, that if we get it right, Wales's small and medium-sized enterprises can genuinely benefit from.

But the devil is in the detail, and it is difficult, and Russell George rightly pointed out that some of the problems are within the small and medium-sized enterprises themselves—their capacities to be able to win procurement contracts and so on. Cross-departmental working, as he rightly says, is a challenge for us too. None of this is easy, but we are building the road as we travel and we are learning as we go. From the trials that I mentioned, there are a number of successes that we now hope in the next financial year to start scaling, and keeping learning as we go.

I'd like to thank the Deputy Minister for his statement. It's encouraging to hear the progress that is being made, and while the Deputy Minister is absolutely right to say we can learn things from other countries and other institutions, as the Welsh Government is clearly seeking to do, personally I don't think there's anything wrong with a little bit of 'making things up as you go along' when you're starting to try to do something that's really innovative and requires massive change. And just a couple of specific questions and points to raise. Is the Deputy Minister able to tell us any more about what are some of the barriers that the trials are identifying? I think it's obviously helpful that there's such a wide variation of trials and that they're in a range of different communities, but I think it would be helpful to understand what some of those barriers are. And I think it would also be helpful to understand how the community of practice, which is really helpful that he's mentioned—how that plan and how he sees that addressing those challenges that he rightly identifies in terms of spreading good practice. I think, Deputy Presiding Officer, we'd all acknowledge that that's one thing in Wales we haven't always been good at. We've had a lot of good innovation, but we haven't always been very good at mainstreaming it. So, I'd be interested in hearing a little bit more about that.

The Deputy Minister mentioned in his statement that over half the public services boards in Wales are currently working on this agenda. I think we'd all aspire to see them all doing that, and I wonder if the Deputy Minister can tell us what plans he has to roll that out. I mean, obviously, this will be a matter for the next Welsh Government, but whoever forms that Welsh Government, I very much hope that they will be wanting to build on this work that's been done.

And a final point, a bit about cross-departmental working: I was very pleased to hear the Deputy Minister mention, for example, that he is working with Castell Howell, one of our leading food firms. Because there are some businesses in the food industry who've been telling me recently that because of this issue that they fall partly within the economy as businesses, but also partly under the environment portfolio, that they're not always sure that they're taken as seriously as they ought to be as contributors to the economy. Now, obviously, they've got an absolutely vital role to play in this agenda, in the foundational economy. So, can I ask the Deputy Minister today to give us a strong commitment that he will work with others across departments so that he is identifying players, particularly in the food in sector, that might not have existing relationships with the economy department but that may, of course, have existing relationships with the department for the environment and agriculture?

Well, thank you for that and for the endorsement of an experimental approach. Just to take the final point first, I think it's a really legitimate point about businesses in the food sector falling between the food division and the economic development division, and one of the challenges of the foundational economy is it does cut across a number of different silos. And I think that also speaks to the fact that, in traditional economic development terms, a lot of these sectors have been seen as too mundane to bother with, really, because they're not glamorous, they don't produce massive gross value added or productivity gains, they tend not to be in the higher range of the salaries. So, in terms of the legitimate task we set officials working on economic development, it was to fix many of these problems we have. This is not the easiest part of the spectrum to start with, so they have, understandably, focused on other areas where they can get gains faster. And I don't criticise that; I merely observe it, and I think that this is something that we need to address and that we are doing through this work.

So, the work with Castell Howell is very interesting because that's a good example of where we can seduce ourselves with postcode procurement, as it's called. So, the Welsh public sector spends a significant amount with Castell Howell and, on paper, that's good news for Welsh procurement. But, actually, only about 10 per cent of the goods Castell Howell supplies are from Welsh producers. Now, there are all sorts of reasons for that, so we're sitting down, working with them, and they are as keen as mustard to address this. They've been—as Helen Mary Jones knows—keen advocates of local producers for their entire history. But there are real barriers in the way that make it hard for them to get up that figure from 10 per cent. But we're working with them to get that up to 30 per cent and then learning lessons for the rest of the distribution sector for how that can be done. Because often, it is through the buyers that we can make the greatest advances rather than just through the producers themselves. And one of the interesting things, speaking to the Hywel Dda health board director of finance, is that the directors of finance don't have visibility of the business sector. So, they may say, if they were to set themselves a target of increasing spend, for example, they're not connected into knowing what capable businesses there would be in their region who would be able to fill that opportunity. So, that's another thing that we're learning through this and putting right.

So, I think there are lots of exciting and huge potential developments in play, but it remains a fact that the NHS food bill is something like £22 million, whereas the Welsh supermarket household prize is something like 20 times that. If we can get Welsh food suppliers into Welsh supermarkets, that, really, is where the prize is, and, obviously, farmers have been making this argument for a long time. But we need to diversify the food that we grow in Wales and grow far more crops and vegetables year round and find a market for them locally. And that's absolutely on point with all of our agendas, not least the future generations agenda. So, I think we are learning and, as I say, it's frustrating in that progress hasn't been as fast as I would have liked, and COVID hasn't helped that. But we are getting somewhere. We're doing a major piece of work now, as I mentioned, on understanding the potential and the barriers.

Helen Mary Jones asked about the work we're doing with the Centre for Local Economic Strategies, and I shared a platform with them this morning at the NHS Wales Finance Academy conference, where we looked, with NHS finance directors, at these issues in detail to try and get them to see the role they have to play in economic development, not just in healthcare, and they are certainly very much up for that challenge. So, the ambition is, with all public services boards, to mainstream these learnings. We've started off with a smaller group to trial it, but the intention, as always, is to scale—and I'm talking to Vaughan Gething and Andrew Goodall about doing that, and they are very supportive as well.

And to finish with her first question on the community of practice and the barriers—. I mentioned in the answer to Russell George some of the barriers we've been facing. So, the community of practice, again, has been delayed because of COVID, but it has proven useful in the cross-fertilising between projects or the common problems they're having. I think the work we need to do now for the final period of their work is to really get into the guts to understand the barriers, and I am certainly working with senior officials from across different departments to look at the projects relevant to each department, so they know—. And, as I say, I'm as interested in what they've struggled with as what they've succeeded with, because that'll be a symptom of a broader problem.

Can I first of all thank the Deputy Minister for his statement? Can I also say the post-COVID economy is going to be very different to February 2020? It's not a return to the past. 

Of course, there is a difference between the foundation economy and the foundational economy—although people sometimes confuse them. The foundation of Swansea's economy was coal and metal; it is now Government services, insurance, universities and small-scale but highly-skilled manufacturing and services provision. Within Swansea, the foundational economy is mainly the sport economy; the difference between provision of services and goods outside and inside the city's boundaries. 

I agree with the Minister that COVID has underlined the critical roles played by key workers—some of these people were not really considered key workers until COVID came in, and now we realise just how much we need them—and the importance of everyday goods and services to the well-being of our communities and our economy. But does the Minister agree that for procurement to work for small companies, or smaller companies, the size of the contract needs to reduce to a size where local companies can bid? And an example has been some road schemes where the size of the contract has been such that only four or five very big, multinational companies were able to bid, where, if they split it down into one and two-mile sections, local companies can bid. And the key is that the bigger the contract you set, the fewer and fewer companies who can bid, and you've got rules that a contract cannot be more than 10 or 20 per cent of the total turnover of the company. So, if you make the bid for the contracts too big, then only a few companies can bid, and the local companies end up sub-contracting, and the property goes elsewhere.

Thank you. I entirely agree with that analysis, and the point about key workers, I think, is very well made, and it helps address one of the questions we have: what is the foundational economy? It's a clunky phrase; it's not a terribly elegant political concept. But I think people can see now who key workers are, and how valuable they are, when the chips are down especially, and how they have been neglected. And I think they symbolise, really, the everyday economy that we are trying to harness through this approach. 

The point I think on the size of contracts is a really important one, and I think there is a job of work for both parts here, both for those letting the contracts—Government—and for the private sector in upskilling and being able to take advantage of them. And in that, there is some really good work being done by Wynne Construction in Bodelwyddan who have been recognised many times in the industry for the work they've done in developing their own supply chain, and helping smaller firms to be able to get those larger contracts. So, there's definitely a skills issue, and there's partly the nature, particularly in construction, of the size of many Welsh firms, that they simply don't have the back-office functions to be able to do bid writing when competing against much larger multinationals who have teams who know how to get around the scoring system, shall I say.

So, there's definitely a job of helping the private sector to become savvier and to pool their resources for common good, but there's also a job of work for the procurement professionals themselves. And this is an agenda we've been working on for some time, and it's something the First Minister has been championing about raising the status of procurement professionals, moving them from the back room to the board room, in Professor Kevin Morgan's elegant phrase, and giving them the skills and the space to be able to develop contracts that local companies stand a better chance of getting. Because, often, it is the easier solution to come up with one large contract, which is easier to manage, than a whole patchwork of smaller contracts that would help smaller firms, but are a nightmare for an overstretched local authority. So, there's no easy answer to that, but it's something we're hoping to address as part of our reform programme for the profession.

Can I thank the Deputy Minister for his statement? I can say that I share the Deputy Minister's enthusiasm for the foundational economy, as, indeed, I do for the co-operative movement. I believe they both have the ability not just to provide jobs, but also to create a greater degree of community spirit and aspiration.

Whilst I acknowledge that the public sector has a very large part to play in creating and supporting the foundational economy, if it is to be successful, it must also embrace the private sector. The emphasis must be on growing the pie, not redistributing it more equally. I truly believe that if we grow the pie, society as a whole will benefit. This is borne out by the fact that we are all vastly better off than our grandparents or great-grandparents; we have all benefited from the expansion of the economy as a whole, and it must be so for the foundational economy.

Although I believe that Government should be regulating against whatever excesses can apply to free enterprise, I also believe their primary role is to create the conditions under which free enterprise can flourish. The foundational economy gives the Government the opportunity to reinvent a truly co-operative style of business. I'd encourage you to do all that you can to achieve this sea change in Welsh local economies. There is risk in what you are doing and the whole of the political spectrum must accept failure as well as success, and support those—to paraphrase someone else—two imposters just the same. So, will the Deputy Minister take those points into consideration?

Well, this is a pro-business agenda. It's pro local business, small business, grounded firm, and we want capable Welsh firms to grow, to innovate, to have higher productivity, to export. This isn't about some sleepy backwater of the economy that we want to keep sleepy; we want to disrupt this part of our economy, where fair work is a part of its features and higher wages too.

Thinking of social care, social care should not be seen as a low-wage, low-skill part of the economy. It is an essential part of our well-being and our society, and there is huge potential, with a different business model, for the skills mix and its status to be transformed. So, all of these sort of hidden away, mundane parts of the economy, as they've been characterised—the foundational economy—have within them high-skill and high-wage roles. Think in terms of the pipes and the plumbing and the infrastructure. Think of Dŵr Cymru, think of broadband. These are all foundational, these are the everyday infrastructure of our lives. Once they're not there, society notices.

So, I don't accept the implied premise of the question that—I think the quote was we should be growing the pie, not just redistributing it. This is not some low-value part of the economy where we are going to keep everything cosy and featherbedded. The opposite. We want to change the way this part of the economy works for Wales and our communities, because its potential is so great.

And finally, Huw Irranca-Davies.

Diolch, Dirprwy Lywydd. Minister, I really welcome the statement and I absolutely endorse the idea that we need to experiment with this and try it, but we also need then to roll it out at scale. I just came back at lunch time from a walk down my high street. Now, prior to coronavirus, we were starting to pick things up, and, in fact, we've got a lot of investment here in Maesteg, but I could do the same in the Garw and in the Ogmore valley and elsewhere. We're going to have to have such a pushback for these communities coming back from COVID, and particularly when we've seen some of the announcements over retail, for example, and so on. It strikes me, Minister, that the diversity of the approaches that have been taken in the different pilot areas are excellent, because we can all pick something that would give us strength and a different approach, but what strikes me is that this seems to lend itself to an approach that is not just driven on a regional basis by PSBs and by local authorities, but actually something to do with the fora of local communities that can sit down, can learn from that community that you were talking about, about what has worked, where the difficulties are, and then fashion their own grasp of that future, whether it's around food procurement and delivery into local agencies and authorities, whether it's to do with community ownership and management, whether it's building local enterprise on high streets and within those Valleys communities. There's something here, Minister, about engaging with local people, not just with local authorities, PSBs and so on. Now I'm looking forward to this. I really hope that this will continue, not just now, but after the next election into the sixth term. And if we do that, Minister, what would your advice be on the best way to roll this out, so that this bites deeply into each local community, and each local community throughout Wales can really take this forward? There's something about doing it for yourself, but rolling out that community of practice that says, 'We've got some ideas about how this can work.'

I think one of the exciting things about the agenda, which also is one of the most difficult things about the agenda, is the richness of its diversity. There are so many different elements to it, but at its heart it is about iteration, experimentation. So it's in that co-operative, guild spirit of local enterprise and adaptation to local circumstances. And so that's why community ownership and social enterprise is very much within the grain of the movement.

When we identified the £4.5 million challenge fund, which originally was a joint agreement with Plaid Cymru that we then built upon, the schemes that we agreed to fund came almost equally from the private sector, the public sector and from the third sector. This is not a monolithic, public sector-led project; it's about a cross-fertilisation of these different areas working together. And I think Huw Irranca-Davies mentioned the high street as quite a useful dashboard, really, of this approach, and Mike Hedges was contributing just earlier. It's interesting that one of the first pieces of work done by the University of Manchester group that has been pioneering this approach intellectually was in Morriston high street, where what they found through understanding what people wanted from their high street was that they valued the social infrastructure: they valued the toilets and the park more than they did free parking, actually. And we've lost a focus on that through austerity. And they also identified a key insight, which was the role of the public sector in placing themselves on the high street. They made the point that, in Morriston, for example, you're within spitting distance of the DVLA and Morriston Hospital, but those two institutions have turned their back on the high street. So, how can we get large institutions like that placing themselves in our shopping areas?

And also, not far from Huw Irranca-Davies's patch, in Bridgend, we've seen another of the challenge fund projects taking work that began in Merthyr on what are called 'meanwhile spaces'. So, in town centres, creating a space, a pop-up shop, possibly, where traders—sole traders, online traders, market traders—can grow and expand and trial having a shop space to see if they can make a success of that before moving on. So, creating a space where they are in the meanwhile between the two parts of their journey. And that's been a really interesting experiment, which has got huge potential to roll out across our town centres.

So, I think one of the challenges of this is how you manage it, because the more you dig into this, the more potential there is to go off in all sorts of different directions, and bringing a degree of discipline and priority to it, I think, has been one of the challenges. And this is definitely an agenda, I think, for the next Welsh Government and the Senedd. We've just begun to scratch the surface, I think, and started to generate an enthusiasm and awareness amongst the groups that we're working with of the potential of this agenda, and I hope that it will grow and grow.

Thank you very much, Deputy Minister.