The Zero Option

Now that Scottish Independence is firmly on the agenda, and the sovereign debt crisis threatens to engulf the Eurozone, it is time to look at the implications of national debt on the finances of an independent Wales.

Firstly some facts and figures – the UK National Debt currently stands at £940 Billion with interest payments on this debt amounting to £43 Billion per year. Or to put it another way, every UK citizen owes almost £16,000 each, and has to pay around £720 per year on interest. If you remove the economically inactive, then the average taxpayer is having to pay around £1500 per year on interest payments alone.

Looking at this from a Welsh context an independent Wales would initially assume responsibility for 5% of the UK National Debt, or around £47 billion but we would also ‘inherit’ a 5% share of UK National Assets.

While Wales would undoubtedly want its share of Gold & Forex reserves and other transferable assets, as well as physical assets located on Welsh soil, it would be impractical to share out many of the assets (for example central London property portfolio, and overseas embassies) and politically unacceptable to share others (for example Trident submarines and their nuclear deterrent). In reality, a valuation of all assets would need to be made, and where it is not possible or practical to share out the assets proportionately , then a corresponding reduction in share of the debt would need to be made.

This is not just wishful thinking, this principle was established during the breakup of the Soviet Union, Yugoslavia and Czechoslovakia; and in many cases the easiest solution was to transfer neither debts nor assets other than those physically located in the new country – the so-called zero-option.

In practice I believe that Wales would take a proportion of UK assets and liabilities but that these would be closer to a 1-2% share than a proportionate 5%.

And this means that in an independent Wales, the average taxpayer could see a reduction in interest payments of more than £1000 per year.

To put this in a personal context, this is the same as getting yourself out of a debt crisis by moving to a smaller house to reduce the mortgage, while watching your next door neighbours struggle to make finance payments on their new speedboat.