‘Closing Wales’ fiscal gap will be a huge challenge, whatever the country’s constitutional future...’
Llywelyn ap Gwilym, YesCymru committee member and founder of AUOB Cymru, assesses a new report on how closing Wales’ fiscal gap will be a huge challenge, whatever the country’s constitutional future...
THAT headline grabbed your attention, didn’t it? While the Western Mail’s reporting on Friday of the Wales Governance Centre’s report into closing Wales’ fiscal gap put “Independence” instead of “Union” in its headline, both are equally valid headlines.
The Wales Governance Centre said as much, responding to a comment on Twitter, writing: “This report poses serious challenges for advocates of union and independence alike.”
This welcome report gives us an estimate of the current state of the Welsh economy.
The concerning picture that is painted is not due to any inherent weakness in Wales or her people, but is due to decade on decade of both deliberate and unconscious policies from Westminster, whose purpose is to direct growth, opportunity and investment towards the south-east of England, to the detriment of the rest of the nations and regions of the UK.
Consequently, it is no surprise that Wales is joined by Scotland, Northern Ireland, and all but three regions of England in running a deficit under the current constitutional settlement, which has led to an increasingly imbalanced UK economy – one of the most imbalanced in Europe.
Though Wales is not alone, people on both sides of the independence debate must admit that the current situation is not satisfactory.
In a strictly economic sense Wales’ current position is weak – our notional net fiscal deficit amounts to approximately 18% of estimated GDP.
In other words, under the current constitutional settlement and economic regime, public sector revenues raised by Wales (and by Westminster on Wales’ behalf) are lower than public spending by Wales (and by Westminster on Wales’ behalf ).
This position is only “sustainable” due to a transfer of money within the UK, largely from London and the south-east of England.
And what do these transfers produce?
Many of our brightest and best feel the need to leave the country to find opportunity, many never to return.
A quarter of the population lives in poverty, while in some areas half of all children do.
Life expectancy is falling and the suicide rate is increasing.
“Sustainable” may not be the appropriate word for our present situation.
If not the status quo, then what? The counterposing view, presented by Guto Ifan, Cian Siôn and Gareth Poole, is independence.
Their report does not, however, give a definitive view of the fiscal situation Wales would find herself in on her independence day.
It cannot do so, because through no fault of the authors, many factors would be up for negotiation.
An example given in the report is that “Wales’ share of interest payments on historic UK government debt would be decided by negotiation between both governments on the division of government assets and liabilities”.
While potential outcomes of these negotiations are discussed, alongside other choices that would need to be made, such as what currency to use, the debate is framed in the economic orthodoxy which would mean a future Wales in the same vein as the current UK.
Many advocates of independence believe, however, that independence can and should be the catalyst for more radical change in Wales.
Independence can be the vehicle through which a radically different Wales is forged, one that is economically more sustainable, and also one that is fairer, kinder and more equitable.
If all that is delivered is a Wales which looks like a smaller version of the UK, then the project will have failed.
One of the more radical policies that is being investigated regards shifting the focus of taxation from income, where Wales is relatively poor, to wealth such as property, land and investments.
Such a shift in our tax system, which is not without its challenges, would not only seek to reduce the fiscal gap, but could also be a better way to redistribute wealth from the richest to the poorest in society.
This would have the effect of “levelling up the country”, which Boris Johnson is currently trumpeting with little of substance to back up the rhetoric.
It could, in conjunction with other initiatives such as a jettisoning of GDP as the measure of Wales’ success in favour of more rounded measures of wellbeing (such as New Zealand have recently implemented), contribute to creating the type of fairer, more equal society that most would like to live in.
These non-economic considerations are vitally important to advocates of independence as, as noted in the report, “economic arguments have seldom been the main driver of successful independence movements throughout history”.
The Wales Governance Centre’s report is to be welcomed by those on both sides of the independence debate.
Though understandably limited in its scope of what an independent Wales could, or indeed should, look like, it poses questions that both sides must seek to answer as the debate around the constitutional future of the UK intensifies.
This is reflected in a blog post written by Cian Siôn, who says that “it is becoming increasingly clear that improving Wales’ current fiscal position will require a fundamental change in the nature of the UK economy – or indeed, Wales’ constitutional settlement”.
As Guto Ifan said on publication: “It is hoped this report will stimulate an informed and wide-ranging debate about what type of economy and society we want to see in Wales and how that is best achieved.”
Let us all seek to contribute to this debate.
■ To read the Wales Governance Centre’s report see: www.cardiff.ac.uk/news/view/1767147-unionor-independence