Economic ABC

If an Independent Wales is to succeed, then we have to develop a stronger economy. I believe that employment activities can be broadly classified into three types:

A: Wealth Creators
B: Wealth Distributors
C: Wealth Consumers

The Wealth Creators are those jobs that result in something physical being produced – these include the older traditional industries such as coal and steel, as well as manufacturing, agriculture and construction, etc. These jobs are the engine that drives the economy – for every job created here, one or more are typically created elsewhere in support industries. We should do everything in our power to encourage and develop these ‘Type A’ jobs, but which should generally be provided by the private sector. This should include distribution of grants but I would prefer to give tax-breaks instead – give new enterprises a 5 year holiday against corporation tax. This tax loss would be offset by taxes paid by new jobs created elsewhere in the economy.

The Wealth Distributors are those jobs that do not make anything physical, but support the Wealth Creators – these include transport, financial services, IT, retail, etc. These are real, valuable jobs, but they simply move existing money around – they do not create any new money. These jobs do not directly add anything to the economy, and are dependent on the Wealth Creators for their success – they follow the economy – they do not drive it. The creation of ‘Type B’ jobs should be only passively encouraged and facilitated, for example by the removal of red-tape. However, they should not receive any precious grants, and tax-holidays should be limited to say 2 years.

The biggest legacy of the Thatcherite years was her policy of eradicating the Wealth Creators in favour of the Wealth Distributors. This worked well in the City of London, where the distribution is on a global level – but has resulted in the devastation of many Welsh communities. I am not advocating reopening the mines, as there were underlying reasons for their closure – but we have to replace them with real jobs – that are wealth creating and will encourage the creation of others, for example in manufacturing and construction.

The Wealth Consumers are those jobs that do not directly contribute to the economy, and are generally funded as public services – these include health, education, government etc. Despite their negative name, these jobs are an essential part of our society, without which the economy can not operate. But we can only afford a limited number of these jobs, and must ensure that these deliver value for money. I consider these jobs to be broken down into a further 3 types:

C1: Service Providers
C2: Service Supporters
C3: Service Passengers

The Service Providers are the front line jobs – the teachers, doctors, even our AMs. To provide these services effectively we must establish service levels (eg the right to a doctors appointment within 24 hours) and ensure that we provide the right resources to meet these service levels (eg one dentist per 10,000 population). These service levels should become manifesto commitments for our politicians and they should be judged against them.

The Service Supporters are those essential support staff, without whom the Service Providers can not function, eg school secretaries, hospital cleaners. We must develop ways to ensure that these support services are provided in the most efficient manner, using benchmarking to compare different service providers (eg Hospital A costs £x per patient to clean – Hospital B only costs £y – how can Hospital A match the Hospital B level?). This is not a question of ideology but of efficiency. I do not advocate that all such positions should be in the private or public sector – simply that we must spend our limited money wisely to ensure that our service target levels are met.

The Service Passengers are those staff that exist but which do not directly contribute to meeting any agreed service level, for example management, administration, compliance officers etc. While some of these staff are necessary, others clearly are not, and some hard questions need to be asked - Why does Powys County Council need a Communications Manager? Why does Bridgend Council employ an IT Manager to read staff’s e-mails? Why do some councils want to employ race relations compliance officers? What would happen if these positions simply ceased to exist ?? Some of these positions are a necessary evil, but many are simply jobs for the boys, and usually highly paid ones.

I suggest that we should grade every job in our local councils and public sector bodies as either C1, C2 or C3, and publish annual statistics on the percenteage of such jobs, and their cost.

The harsh reality is that in Wales we have become too dependent on such Wealth Consuming jobs, and that there are too many Service Passengers. Of course, this issue is not related to Welsh Independence, and can be adressed at any time. But this issue will become critical following Independence as we will have limited resources, and we will have to carefully prioritise our spending.

Misinterpreting Reality

This excellent analysis was posted by MH on the icWales Politics forum. It is worth reposting in full:

In the WM yesterday we had this story entitled "Wales Economy Worst in UK". It's well worth reading, it tells you a lot about how journalism works. The story was obtained from AP but, as is usual, newspapers that take it usually change the story around a bit... just to try and make it "their own". In this particular case, though, the journalist decided to mix two stories (i.e. Halifax and an ONS regular report) and deliberately mix them up. Hardly surprisingly, this is done for political reasons. People like Bob and his bogie's pick up on it without having the first clue what the statistics mean... they only read the headline and the political conclusion. So at the risk of teaching the more sensible among us how to suck eggs, let's look at the figures and see what they mean. The Halifax story is primarily about house prices compared with earnings, concentrating on the north-south divide.

That's how it was reported elsewhere, for example in the Telegraph. Wales was not singled out at all, it was included in Halifax's "northern area". But this wasn't quite "spicy enough" for our junior hack. So he decided to embellish it, by using ONS (Office of National Statistics) data. But the figures he quoted have not been published recently, so it took a bit of research to find where they he got them from.

The only place I could find the figures online was here (pdf). This is the UK Economic Indicators report of June 2007 (this particular version highlights the Southwest, but no matter). The essence of the criticism the WM story makes is this:

Wales contributes least to the UK economy, with a GDP of only £13,813 per head. By contrast, London has boomed during this time, with a 13% increase to £24,075.

We can all see the raw figures in table 5, on page 11. They are the estimated 2005 figures for GVA (gross value added) and not GDP. But most people don't know the difference. When you see a mention of GDP in the press, 9 times out of 10 they mean GVA. But let's look at the five year difference. London went up from £18,394 to £24,075 - an increase of 30%. Wales went up from £10,920 to £13,813 - an increase of 26.5%. True, not as good as London. But certainly not too shabby. However the figures show that Wales GDP has been rising steadily every single year (the figures go back to 1997).

There is no real reason to be over-concerned about GVA, because it's only one side of the equation. If the cost of living is greater somewhere else, then you need more money to pay for it. On its own, it says nothing about standard of living or quality of life. But we need to be quite clear about what this "contribution to the UK economy" is. The main way this figure is arrived at is on the basis of taxation. And whereas things like personal income tax and NI can be accurately assessed for each country and region, other things simply aren't. These include Corporation Tax and VAT.

As myself and others have said before, the VAT you pay in Tesco is accounted as having come from Tesco's head office in Cheshunt. The Corporation Tax companies pay is accounted as having come from their head offices, not the place where their workers actually produce the wealth. Therefore these figures are no indication whatsoever of how much Wales "contributes to the economy".

People think London is the powerhouse of the UK economy. But that's just because more headquarters are based there. In fact if you look at other indicators in detail, the opposite is more likely to be true. Let's look at unemployment. Ask any half dozen people and they'll tell you that it's bad in Wales. Well, I won't argue, it could be much better. But let's look at Table 18, page 28. The unemployment rate in Wales is 5.5%. For England as a whole it is higher, at 5.7%. For London it is 7.3%. Wales has less unemployment than England, and much less than London. Let's look at another indicator, exports. Back in January, to counter the idea that Wales exports "zilch" I said this:

Look at the ACTUAL FIGURES. Download this document (pdf). Look at table 1 on page 2 and you'll see that Welsh exports (EU and World) for 2004 and 2005 were £8.3bn and £8.6bn respectively, 5% and 4.7% of the UK as a whole. For the latest quarter they're at 5.1%. With a population of 2.96m out of 60.21m, the pro-rata should be 4.9% ... so Wales is performing EQUALLY with every other part of the UK. We can stand on our own perfectly well. In terms of our exports to the EU alone, we in fact do a few percentage points better (5.9%, 5.4% and 5.2%).

Now look at this story from a rather better journalist at the WM (quoted below):

Leading way on transatlantic trade Sep 12 2007 by Aled Blake, Western Mail LATEST figures show that exports from Wales to North America have increased at a rate nearly double the UK average since 1999. Official statistics from HM Revenue and Customs show that, since devolution, exports from Wales to North America have grown by 43%, compared with a UK average of 26%. Welsh exports for the year to June were up 1% on the previous four quarters to reach a total of £9.2bn – the UK equivalent figure was down 11.6%... Sales of Welsh products to North America have grown from £1.4bn in 2004 to £2bn in 2006. Over the past three months, sales totalled £569m compared with £484m for the same period last year. North America is by far the most important export market for Wales outside the EU – which bought £5.7bn worth of Welsh goods in 2006. During the year to June, the Wales percentage increase in export sales was the third highest among the UK countries and English regions, with Northern Ireland and the North East having the highest percentage increases over the same period. Overall, total Welsh exports have grown strongly over the recent years from £8.3bn in 2004, to £8.64bn in 2005 to the latest figure of £9.15bn for the year to June 2007. In terms of sectors, the most valuable for overseas sales was machinery and transport which accounted for £3.4bn worth of exports last year.

We have good reason to be proud of what we produce in Wales (but not complacent, because we want it to improve). The picture is very clear. We produce wealth in Wales, but the profits we earn get siphoned off, and get accounted as having come from elsewhere. - That somewhere else is, I'm afraid to say, usually London.

If it were not for the distorting effect of the UK Treasury's continuing refusal to properly account where taxes come from, we would see much more clearly that London has more claim to be the "basket case" of the UK economy. Poverty is greater. The amount government spends in London is greater (£1,100 a head more than Wales gets). But there are also some very rich people in London. It is a city of huge inequalities ... the direct result of over-centralization. In another topic, I've mentioned the amount of money that's being put into Crossrail. Where's our fair share of the pie?

Another example of how London is treated as a special case is the Olympics. This is apparently now going to be classed as a "UK" project. That will mean that an equivalent (Barnett) proportion of the money spent on East London's transport and infrastructure improvements will not be given to Wales or Scotland. Yet one more example of how "identifiable spending" depends on what the government chooses to identify.

Wise up! Wales' economy is not that bad. Our relative poverty has nothing to do with all we produce, but where the profits go. When people keep perpetuating myths, you need only ask what their agenda is.

It's obvious, isn't it? To make us believe that we're not capable of running our own country.

The truth is out there......

MOF points out in his blog, that it is impossible to prepare an accurate picture of the cost of Welsh independence because there is no published data on Welsh tax revenue.

A shop in Rhyl collects its VAT from Welsh spending, but this appears in the accounts of the Companies head office in Chester.

A factory in Treorchy collects its NI contributions from its Welsh workforce, but declares it in its company accounts in Birmingham.

The profits from a multinational car components firm, with its manufacturing base in Wales, are declared as that of its UK subsidiary from its London headquarters.

It would be a simple matter to declare the source of this income on a geographical basis - it would only take a few lines in company spreadsheets and a few lines of code in government databases.

I can not believe that at some stage the UK government has not carried out this excercise - just in case we got our way - and I am certain that if the figures demonstrated that an independent Wales would be quickly bankrupt then these figures would have already been published. If as I suspect the figures showed that an independent Wales would be more than capable of being self-sufficient then the figures would be locked away to gather dust in some dusty filing cabinet.

The truth is out there ..... probably kept in the LL files!

An Independent Wales Be Too Poor.....

Wales is clearly one of the poorer parts of the UK, but this is relative. According to the International Monetary Fund, the UK has a GDP per Capita of around $35,000 making it the 12th richest country in the world.

I do not have exact figures for Wales available, but I have seen it quoted that Wales’s GDP per Capita is only 80% of the UK’s figure. This would put the Welsh figure at around $28,000, which would place us at around 26th place – out of more than 200 countries.

This would also place us around 12th place in the EU.

Would an independent Wales be poor? – only relatively.

We would actually be the envy of much of the world!!

Opportunities in Independence

In an Independent Wales, we would receive a substantial 'peace dividend' as we would no longer need to support the UK's imperial ambitions and military adventures.

However because of our poor economic performance our funds would still be limited and we would not be able to afford heavy public spending commitments, particularly large scale state investment or supporting bloated government or municipal bureaucracies. We would have to live within our means.

But one major advantage that we would have following independence is the ability to create a different economic climate than the UK (or England). We could follow Ireland’s example and cut Corporation tax to encourage inward investment. It has also been suggested that instead of providing development grants (which usually seem to be wasted away) that we could give tax breaks for new investments instead.

Inward investors could be given a tax exemption for say 2 years for creating service jobs, or say 5 years for manufacturing jobs. Personally I would give the highest tax exemption to developing sustainable value-added initiatives, for example developing furniture workshops based on the Welsh forestry, or dairy products using local milk. What we lose in Corporation tax should be more than compensated for in increased personal tax revenue.

Independence would also give us the opportunity to deregulate sectors to attract tourist money – why shouldn’t Rhyl have a supercasino - why shouldn’t Cardiff develop an ‘exotic’ nightlife zone. Maybe controversial, but we need to learn to think outside of the box.

To survive and flourish we have to encourage outside investment and create a climate where local businesses could flourish, while at the same time ensuring that individuals rights are adequately protected.

We should not be afraid of independence – we should seize the opportunity with both hands.

Interesting Links - making the case for independence

Here are some interesting links making the case for Scottish independence, posted by Rhys on Welsh Language Discussion Forum maes-e:

A Case for Independence Part 1 (Economy)
A Case for Independence Part 2 (Location of Power)
A Case for Independence Part 3 (Identity + relationship with England)

Debt Reduction through Independence

In 2006, the National Debt of the UK was £461.5 Billion, equivalent to £7,692 per head of population, or more realistically £16,193 per working population. As Wales is effectively a 5% shareholder in the UK, we would become liable for our fair share of this debt following independence, but what constitutes ‘fair’ ?

There is a piece of international law called the Vienna Convention on Succession of States in respect of State Property, Archives and Debts 1983

This is effectively a piece of international divorce law which lays down guidelines for who gets what in the event of a countries breakup, and would be directly applicable to Wales.

The first part of this Convention says that an independent Wales would receive any immovable UK assets on Welsh soil, together with related movable assets, for example the DVLA building in Swansea, together with its computers, desks, cars etc.

Wales would also be entitled to receive a proportion of the movable assets of the UK, in proportion to Wales’s contributions. If Wales has paid say 4% of the UK’s tax revenues, then we would be entitled to receive 4% of UK Gold Reserves, 4% of the British Army’s tanks etc.

The Convention states explicitly that these assets are transferred without compensation – we have already paid for them.

Now for practical and political reasons, the UK is not going to give Wales 4% of the Trident submarine fleet (currently valued at £76 Billion) even though we would be entitled to our share, so it would need to come up with some form of alternative compensation.

The Convention then goes on to say that

The state debt of the predecessor state (UK) shall pass to the successor state (Wales) in an equitable proportion, taking into account in particular the property, rights & interests which pass to the successor state in relation to that state debt.

In practice this means that if the UK was only to transfer say 3% of state assets to Wales, then we could expect to only take over a corresponding amount of debt. This would result in an overall reduction in the National Debt per head of population for Wales, with a small increase for England. This is only a statistic, but the real benefit would be in the reduced interest payments on this debt, which will have to be funded from the Welsh budget.

There would obviously be a huge amount of negotiations and horse trading to arrive at the final settlement, and anybody who has been through a divorce will now how protracted and acrimonious this can get – but one thing is clear – Wales would be financially better off following independence

Neighbours from Hell?

In his new book 'Neighbours from Hell?', Mike Parker - an Englishman who has made Wales his home - disagrees with the tired old argument that Wales, as part of the UK, gets much more than her fair share of money, and that the economy would collapse if Wales gained independence.

OK, we may not have Scotland's Oil, but isn't Water 'the New Oil' in the 21st century? And Water is something we have plenty of...

The central thrust is always the same: that Wales (and Scotland) get way more than their fair share of money and power, and that the poor 'taxpayers of England are forever giving hand-outs to the other parts of. the UK. Some more rabid commentators take their thoughts further and regularly describe Wales as the 'Albania of the British Isles' (or of Western Europe), and declare that the Welsh economy would collapse without the munificence of the English tax-payer.

The figures show that the Wales-to-UK proportion in population, public expenditure and tax revenue are all fairly close, and that Wales, despite being one of the hardest-hit areas in western Europe, receives considerably less per capita than Scotland, Northern Ireland, or parts of England. In a way, however, that's not the point. Although the foaming-at-the-mouth English nationalists, who stalk the internet and are for ever ranting on radio phone-ins, would like to believe the same old rubbish that has been spouted for most of the last two hundred years, it is patently untrue. Even in the current situation, in the aftermath of the swingeing destruction of Welsh heavy industry and with an economy that is relegated to the status of marginal there is much potential in Wales. It exports gas, oil and refined oil, electricity, food and many industrial components. There are thriving information technology, specialist research and cultural industries. Perhaps most importantly, every pundit is pointing to water becoming the essential commodity of the next few decades; something that Wales has been exporting in huge quantity for over a century now (interestingly, English consumers generally pay considerably less for Welsh water than do customers in Wales). Many valuable minerals still lie within the Welsh landscape. Wales has all the ingredients for a successful, integrated economy, and all the necessary enterprise to make it happen.

The Cost of Dependence - by Ted Jones

Another good post for you, this time by Ted Jones a political boffin and keen fisherman who is looking forward to his retirement. :-)

The Cost of Dependence

Unionist politicians always try and talk down Wales with their scaremongering about our dependence upon subsidy from Westminster. Peter Hain comes up with a rounded figure of £1000per head, conveniently neglecting the fact that if Wales had grown at the modest rate of UK growth over the last generation, then each person would be £1000 richer in terms of GVA. If we had matched EU growth, then each person in Wales would be £4000 richer. And if Wales had matched the Republic of Ireland each person would be an astonishingly £19,000 richer.

The reality of the situation is somewhat different of course. In real terms wealth levels in Wales is in free fall. GVA in the European Objective 1/Convergance Funding areas is only 65% of the UK average. In hard figures this means that in most of Wales GVA per head is £11,126 whilst the UK average £17,677. Most worryingly, the trend is downward.To put things in context two hours down the road in London GVA is at 140% compared to the UK average – clearly portraying the wealth inequities caused by the prioritisation of the service sector of the South East of England by the London parties, and their clear failure to compose let alone implement a genuine regional economic policy.

Labour despite a decade in power, far from addressing the infamous north-south divide has exacerbated the divergence. So when the London parties harp on next about how Wales is to poor and weak to achieve its potential – ask them exactly what are the economic benefits for the people of Wales in being ruled by a fiscal and economic strategy that works against the key components of our economic make up. Ask them how after ten years most of Wales continues to be amongst the poorest regions of the whole of the EU – despite the inclusion of 10 new member state, most of which had to endure half a century of Soviet totalitarianism.

The Economic Case for Welsh Independence - by David Thomas

The following is an excellent post by David Thomas, Plaid Cymru's Montgomeryshire Candidate at the Welsh Assembly elections in May, that appeared first on his PLAID4MALDWYN blog.

The Economic Case for Welsh Independence

With polls showing 52% of Scots in favour of independence and 58% of people living in England in favour of Scottish independence maybe it is time to think again about the economic scenario should Wales become “independent” of the rest of the UK. I say “independent” because no country is really independent these days and the term tends to conjure up images of complete separation and isolation. The UK, along with all the other countries in the EU, has ceded some of its legal independence to the European Commission and has ceded other rights to the UN. It is also a signatory to a number of international agreements and has binding terms of operation with the G8 group and the World Bank and IMF so not even the UK acts completely “independently” in all it tries to do. By “independent” I simply imply that Wales would be a full member of both the EU and the UN and would negotiate its position in any external concords. But crucially it means that wealth created and taxes raised here in Wales could be spent exclusively in Wales.

Size Does Matter – Small is Good!

It is not the size of a country which determines its success. Eight of the ten richest countries in the world, including all 5 Nordic countries, have populations of less than 10m. Slovenia (pop 2m) is already richer than Wales and Luxembourg (450,000) enjoys one of the highest standards of living in the EU. In Ireland (pop 4m) in the 1960s living standards were two thirds lower than those in Britain, only 20% went to Higher Education and there was mass emigration because of poverty yet by the late 1990s Ireland enjoyed a higher standard of living than Britain because it maximised its potential and optimised its position as a small country. Small countries are more agile and can respond more quickly to global opportunities, small countries are more cohesive, information flows more quickly and they have more of what economists call social and network capital. Small countries can also clearly identify their interests and tend to guard them fiercely. In addition natural resources (though Wales has plenty of these) are no longer essential to a successful economy and distance is no longer a determining factor for profit making (at least in “information” industries).

The Legacy of Direct Rule

The 1536 Act of Union abolished Welsh laws and effectively created a single country of EnglandandWales (Scotland voluntarily joined the Union in a looser sense in 1707). From 1536 until 1999 Wales was basically under “direct rule” from Westminster where its MPs were hopelessly outnumbered when it came to voting on national interests. The Welsh Office was established in 1963 which introduced some decentralisation into Wales but it only administered the decisions already made in Westminster. The 1999 National Assembly for Wales brought about a small element of devolution but only some matters were devolved to Cardiff and the decision-making was confined to secondary legislation.

The net effect of centuries of “remote control” has been a scandalous under-investment in Welsh public services and a woeful neglect of its historic problems including the legacy of the extraction industries. The GVA (gross value added) per capita is now £3000 or 22% less than the UK average and still declining. Wales’ long-term growth from 1972 – 2002 was 16th, i.e. bottom, of the EU countries, with Ireland and Luxembourg, two of the smallest countries at the top and its projected growth to 2013 is the lowest of all the UK regions.

Will Things Ever Get Any Better?

Is it inevitable that Wales will continue indefinitely as the “poor man of Europe”? For the second time in 6 years the Valleys and West Wales have been considered so poor that they have been given Objective One money from Europe to try to lift them from the chronic cycle of unemployment and deprivation. On a crude level it is probably true to say that Wales has 5% of the UK population and generates about 4% but consumes about 6% of its wealth so on the surface it looks as if Wales is relying on “subsidies” from the rest of the UK to keep it afloat but there are a number of assumptions here which need to be challenged.

First it has to be said that while the current situation makes Wales look like a “debtor” nation (and, it should be remembered, most nations, except for China, are) historically Wales has generated vast amounts of wealth for the UK exchequer which have been spent outside Wales. One can only guess at the billions of pounds (on today’s levels) of tax which have been levied in Wales in the past when Coal was King. The first million-pound cheque was signed in the Coal Exchange in Cardiff in 1913 and, had Wales been able to spend the taxes raised here exclusively in Wales, we would have been like present-day Norway – a small country enjoying a very high standard of living on the basis of having natural resources which the whole world wanted.

Secondly, historically and still today, natural resources such as water, electricity and forestry are “exported” to England with no identifiable taxation returning to Wales.

Thirdly, it also has to be said that it doesn’t matter how much “subsidy” Wales appears to receive from the rest of the UK no amount of money will ever, ever compensate for the tragic and avoidable loss of innocent life on 21 October 1966 when 114 children and 28 adults were engulfed in a tide of coal waste in Aberfan.

Coming to the present, however, it is not inevitable that there be a perceived gap between what Wales puts into and what it gets out of the UK.

First, the government itself admits that there are “no meaningful statistics” about the tax collected in Wales apart from personal income tax – nobody has any idea how much corporate tax, VAT or other taxes such as vehicle licence is raised in Wales because it all goes to London before it is redistributed to Wales. Better figures exist for Scotland but even there it has recently been calculated that Scotland was in “credit” to the UK by £300m last year. This is particularly interesting as Scotland receives public spending per person of £7346 each year compared with Wales’ £6901, England’s £5940 and a massive £7945 for N Ireland. Wales is quite possibly “richer” than the figures on personal wages and income tax suggest.

Secondly, it should be possible for Wales to increase its wealth by following Ireland’s example in its economic miracle and cutting corporation tax. This would attract firms and compensate somewhat for the physical remoteness of Wales from major markets and generate more corporation tax, jobs and, hence, income tax. An independent Wales would also probably join the Eurozone (as Ireland) which would give a further impetus to businesses.

Thirdly, Welsh tax payers’ money is currently being used to “subsidise” UK projects which Wales really has no interest in. Wales has no need of nuclear power and the Assembly has voted against any new power stations (though is powerless to stop them being build in Wales because the decision rests with Westminster). The UK government, however, is setting aside £75bn for decommission costs for the new generation of stations of which Wales’ share is nearly £4bn. It is inconceivable that an independent Wales would want to share in the new Trident nuclear deterrent so we would receive £1.75bn back from that. An independent Wales would probably also baulk at having to contribute 5% of the £32bn the UK spends on defence each year. The UK government is currently paying £161bn for PFI (Private Finance Initiative) schemes, almost all of which are in England. Wales should receive a rebate of £8bn. Given that the Welsh Assembly receives only £14bn from the UK in the first place this already amounts to virtually a year’s budget and some of it would recur each year.

Fourthly, it is true to say that the UK government does spend money in Wales of course. The DVLA in Swansea organises the collection of car tax for the whole country and there are UK armed forces stationed and training in Wales. The Patent Office for the UK is based in Newport and the government may shortly be sending a lot of jobs to St Athan – its biggest investment ever in Wales. Historically, though, the government has invested nothing like the money Wales should have received according to its population or its “need”. In Defence, for example, 85% of government money is spent in the south-east region of England.

“Wales Can’t Survive Outside The UK”

Of course nobody knows whether Wales would prosper economically as an independent country or wither on the vine but there is not one of England’s former colonies from the USA to India or Hong Kong which is banging on the door and begging to be ruled once again by the mandarins in Westminster. Wales has enough expertise to succeed and is just the right size to carve out a number of “niche” markets for itself. Even coal, of which there are millions of tons left to be extracted, could once again become a source of wealth for Wales with the development of “clean coal” power generation. Wealth could be increased and need could be decreased as the ill health legacy of heavy industries wanes and the workforce becomes better educated as Wales' curriculum and assessment policies are currently almost entirely dictated by Westminster.

The Price of Independence - 5

and finally

Capital Settlement
When simply considering current finances, Welsh independence looks feasible, but it is when you consider the settlement of capital assets that things start to look interesting.

There is an international law called the Vienna Convention on Successor States which to summarize states that:

Wales is entitled to receive, at no cost:

• all immovable UK assets (eg buildings) on Welsh soil (at no cost)
• an equitable share of all movable UK assets (eg gold reserves, military hardware etc) in line with its contributions towards them (ie taxes paid)
• an equitable share of all UK assets overseas (eg embassies)
  

But on the downside, Wales would be responsible for:

• an equitable share of national debt,but taking into account the transfer of assets and its associated debt
  

To put it more simply, Wales is a 5% “shareholder” in the UK and as such is entitled to 5% of government assets (and also 5% of national debt). But for practical purposes, not all assets can be transferred – eg Channel Tunnel, Windscale Nuclear facility etc and Wales would not be responsible for any debt associated with these assets. Similarly, where assets could be transferred but are not, eg Trident Submarines, then there would need to be an equivalent reduction in debt.

There would need to be some horse-trading of assets and debt, and it is likely that Wales will only take possession of say 3% of UK assets, but also only 3% of debt. This is very significant, as it would not only reduce national debt repayments but would have a direct impact on current expenditure, as it would reduce depreciation and interest payments.

UK budget depreciation was £15.7 billion in 2003/04, which would represent a cost to the Welsh budget of £0.8 billion if 5% of assets were transferred, but only £0.5 billion if 3% of assets were transferred. There would also be a corresponding reduction in interest payments across all departments, which would reduce projected expenditure by around £0.5 billion, to £20.0 Billion

Final Figures
Ok, if you are still following these threads, I predict that the Current budget for an Independent Wales (based on 2003/2004 figures) would look something like this:

Revenue - £20.4 Billion
Expenditure - £20.0 Billion
=======================
Nett Revenue - £0.4 Billion
Less Depreciation - £0.5 Billion
=======================
Surplus(Deficit) - (£0.1 Billion)

OK, these figures do not quite break even, but the deficit of only £0.1 Billion has to be compared with the current UK deficit of £21 Billion which is equivalent to £1.0 Billion for Wales.

To those of you who question whether we could afford an independent Wales - I respond how can we afford not to!!

The Price of Independence - 4

So how would we pay for this??

Government Revenue

In 2003/2004 the UK government revenue (in Billions of Pounds) was made up as follows:

VAT..........................................79.8
Customs & Excise...................55.9
National Rates........................18.7
Income Tax.............................154.7
Miscellaneous..........................8.0
National Insurance.................78.7
Inheritance..............................2.9
Council Tax..............................19.0
Operating Surplus..................18.3
Interest/Dividends.................5.4
Rent...........................................2.1
Total................................444.0

Contrary to what some people think, we pay our fair share of taxes in Wales. This will be generally proportionate to the UK revenue, but with some exceptions: In particular, the money received from VAT will be reduced due to lower economic activity, and Income Tax will be lower due to lower salary levels. Assuming that these particular figures are reduced to 90% of the UK levels, then the Welsh figures could be projected as:

VAT……………………………….3.5
Customs & Excise………..2.7
National Rates……………..0.9
Income Tax…………………..6.7
Miscellaneous……………….0.4
National Insurance……….3.8
Inheritance…………………..0.1
Council Tax…………………..0.9
Operating Surplus………..0.9
Interest/Dividends……….0.3
Rent……………………………….0.1
Total:…………………………. £20.4 Billion


The figures will need much more detailed analysis and checking than I have been able to do, as there is very little data available to support a breakdown by individual country. But the initial headline figures are saying that an independent Wales would generate almost all of the revenue (£20.4 Billion) than it would require (£20.5 Billion).

These figures are genuine and realistic, but it is not yet the end of the story………...

(almost there)

The Price of Independence - 3

Projected Expenditure:

Health
In 2003/2004 the UK Health budget was £72 Billion, or £1,210 per head, which allowing for inflation would be around £1,285 today. On this basis, Wales’s proportionate Health budget would be £3.8 Billion. In a written question to Parliament on 25 Jun 2006, it was stated that the NHS expenditure per head for England, Scotland & Wales was as follows: England £1,228; Scotland £1,374; Wales £1,154. Contrary to popular misconception, it would appear that the cost of health services in Wales is actually cheaper than the UK average, and on this basis, Wales's health budget could be reduced to 3.5 Billion. However, I would prefer to increase this and will use the proportional figure instead, ie £3.8 Billion

There are contradictory statistics published by the Institute of Fiscal Studies – Survey of Public Spending in UK - which states a slightly higher health costs for Wales, but I believe that this includes programs which are included within the Social Security budget so I will deal with this there.

Transport
In 2003/04 the UK Transport budget, was £15.9 Billion, or £266 per head, which would result in a proportionate Welsh budget of £0.75 Billion. However, Wales does not have a sophisticated transport infrastructure with no major airports or ports, and this figure could be reduced significantally. The Institute of Fiscal Studies reported that Welsh expenditure in this area was around 75% of the UK figure, resulting in a Welsh budget of £0.6 Billion

Education
In 2003/04 the UK Education budget, was £59.5 Billion, or £992 per head, which would result in a proportionate Welsh budget of £2.9 Billion. The Institute of Fiscal Studies reported that Welsh expenditure in this area was around 4% higher than the UK figure, resulting in a Welsh budget of £3.0 Billion

Public Order
In 2003/04 the UK Public Order budget which includes Fire & Rescue; the Courts; & the Police, was £27.7 Billion, equivalent to £464 per head, which would result in a proportionate Welsh budget of £1.4 Billion. While the costs of Fire & Rescue in Wales are comparable to UK costs, the cost of Courts and Policing are considerably lower, as both of these are heavily London based. The Institute of Fiscal Studies report referred to above identifies Welsh expenditure as 95% of the UK figure, which would reduce the Welsh budget to £1.3 Billion

Defence
In 2003/2004 the UK defence budget was £28 Billion, which rose in 2005/2006 to £32.2 Billion, equivalent to £481 per person. Wales’s proportionate share would be £1.4 Billion. Following independence, Wales should probably adopt a similar military strategy as our nearest peaceful neighbour – Ireland. The Irish defence budget is E522, equivalent to E126 or £87 per person. If Wales followed Ireland’s example, we could cut our defence budget to around £0.25 billion


Social Security
In 2003/04 the UK Social Security budget, which includes pensions, unemployment, sickness benefits etc was £129.5 Billion, or £2,169 per head, which would result in a proportionate Welsh budget of £6.4 Billion. Unfortunately, due to our poor economic performance and levels of deprivation, the per capita spending in Wales is higher than the UK average, and the Institute of Fiscal Studies reports this as being 20% higher. This would result in an expenditure of £2,600 per head, and a Welsh budget of £7.7 Billion.

The biggest challenge facing a new Welsh government would be to reduce this social services budget by addressing the causes of deprivation.

‘Other’ Expenditure
Within the UK budget there is a large ‘black hole’ of ‘other’ expenditure equal to £80.2 Billion, or £1,343 per head, which would result in a proportionate Welsh budget of £3.9 Billion. This budget includes the cost of government itself, including the royal family, and overseas embassies, civil service pensions etc. It also includes the cost of nuclear industry subsidies; the security services; and other expenditure which the government would prefer you not to scrutinize too closely. Without a detailed breakdown it is difficult to accurately apportion these costs within an independent Wales but I am certain that it will be massively less than the UK figure. For sake of argument, I have conservatively adopted a figure of 50% of the UK figure, which would result in a proportionate Welsh budget of £1.95 Billion.

Remaining Items
For the remaining items, I have assumed that these would be generally proportional to the UK budget, which would result in the following Welsh budgets:
Environment £0.4 billion
Housing £0.4 billion
Enterprise £0.4 billion
Culture £0.3 billion
Agriculture £0.3 billion
Science & Technology £0.1 billion

Total Projected Expenditure
Adding these to the figures above, I conclude that the required budgeted expenditure of an independent Wales would be £20.5 Billion based on 2003/04 figures.

The Price of Independence - 2

An Introduction:

Before starting to look at the figures in detail, a few words of explanation – all the figures I have used are based on the UK government’s 2006 ‘Blue Book’, and refer to 2003/04 data in £billion. I have then initially estimated the Welsh element on a purely proportional basis, based on the nominal populations of Wales & the UK of 3million/60 million = 5%.

Category .................UK Budget..... Proportionate Welsh Budget
Social Security...................129.5........................... 6.4
NHS.......................................72.1........................... 3.8
Education............................. 59.5...........................2.9
Defence.................................28.............................. 1.5
Public Order........................27.7............................ 1.4
Transport............................15.9.............................0.75
Environment........................7.7...............................0.4
Housing.................................7.5...............................0.4
Enterprise............................7.2...............................0.4
Culture.................................6.3................................0.3
Agriculture.........................5.2.................................0.3
Science & Technology.......2.2.................................0.1
Other................................. 80.2...............................3.9
TOTAL..................... 449.......................... 22.55

I have then looked at each of these individual categories and created a projected Welsh budget by adjusting these initial figures, based on the best information I can find, and/or by making a series of assumptions (which are all documented).

But a word of warning – I am not an economist or a public finance accountant – these figures may not stand up to detailed scrutiny and need to be developed further by an expert, but I am confident that these figures are realistic and are far more accurate than anything which leaves the lips of Peter Hain.

(A lot more to follow - you will need to keep up at the back....)

The Price of Independence - 1

One of the common responses to Welsh Independence, is that we could not afford it. Where would we get the £25 billion or so that the Welsh budget requires ? simple answer – Taxes. No, not new or increased taxes, but revenues already generated here in Wales.

The unionist parties have perpetuated the myth that Wales receives more taxpayers money than it generates, but this is simply not true, and over the next few weeks I will set out to prove this in detail – step by step.

Just to start things off, can you imagine the reaction of Peter Hain to a proposed Welsh budget which predicted a £1 billion gap between spending and income??

Well in 2003/2004 the UK government current expenditure (ie the bit that has to be paid for out of taxation) was £449 Billion. For the same period, current income (ie income tax, VAT, surpluses etc) was only £444 Billion which represents a budget deficit of £5 billion. However, the current income also has to cover the cost of annual capital depreciation of £16 billion, leaving an overall UK budget deficit of £21 billion – with Wales’s proportional share being equivalent to £1 billion. Can the UK government afford its own independence??

We should not be asking if we can afford to be independent – we should be asking if we can afford not to be!!!!

(More to follow)

Can we afford to remain part of the UK?

Independence – surely a small country like ours just couldn’t afford to go it alone?

These GDP per head of population for 2005 are taken from the Economist. Only two countries with a population of over 10m appear.

(01) Luxembourg $52,990 pop 0.5m
(02) Norway $49,080 pop 4.5m
(03) Switzerland $44,460 pop 7.2m
(04) Denmark $39,330 pop 5.4m
(05) Ireland $38,430 pob 4.0m
(06) USA $37,240 pop 294m
(07) Iceland $36,960 pop 0.3m
(08) Bermuda $35,940 pop 0.1m
(09) Sweden $33,890 pop 8.9m
(10) Japan $33,860 pop 127.7m

Meanwhile, Wales always under performs within the UK set up. Our GDP figures are consistently the lowest in the UK. In 2003 London had the highest level of GDP per head of population in the UK, whilst Wales had the lowest, at £12,629 (Around $25,000 USD). Our GDP per head is lower than that of any of the non ex Eastern block EU members, bar Portugal.

Perhaps that the real question should be – Can we afford to remain part of the UK?