Print money to rejuvenate the Welsh economy

Martin Shipton

Working on the principle that Wales can learn from its Celtic cousins, it seems appropriate to look north.

Scotland has this week undergone the annual ritual of publishing the GERS figures – short for the Government Expenditure and Revenue report, which estimates the difference between what Scotland raises in taxation and what is spent on public services.

This is known as the net fiscal balance, or notional deficit.

It reveals – surprise, surprise – that Scotland continues to enjoy higher average spending on public services than other parts of the UK. So, of course, does Wales – but not to the same extent.

The GERS report outlines what superficially appear to be a bleak set of figures: “The scale of the challenge Scotland faces to match the UK’s deficit, meet the EU’s excessive deficit threshold or eliminate the deficit entirely is significant – a £15bn – 25bn challenge.

“Meeting the EU’s 3% deficit limit would need a £18.3bn reduction, equivalent to £3,304 per head — that would take a 18.6% rise in revenue, a 14.8% cut in spending, or some combination of the two.

“Matching the UK’s deficit would need a £15.1bn reduction, equivalent to £2,722 per head — that would take a 15.4% rise in revenue, a 12.2% cut in spending, or some combination of the two.

“Eliminating the deficit would need a £25.3bn reduction, equivalent to £4,563 per head — that would take a 25.8% rise in revenue, a 20.5% cut in spending, or some combination of the two.”

Such figures have opponents of Scottish independence salivating. They point out that Scotland has long enjoyed higher public spending than the UK average – and that it isnt the only home nation to do so, with Northern Ireland and Wales doing so too.

In Scotland, this is partly due to the fact it’s much more expensive to provide public services such as the NHS in remote areas like the Highlands and islands than in densely populated urban areas like south-east England.

In Wales, the figures reflect the poorer and sicker nature of the population.

The UK Labour Government argues that such higher spending demonstrates how Scotland and the other Celtic nations benefit from being part of the UK.

Douglas Alexander, the Scottish Secretary, said: “By pooling and sharing resources across the country, people living in Scotland benefit from significant additional public spending. That means £2,720 more per person compared to the UK average, which the Scottish Government can spend on vital services like schools, hospitals and transport.

“Our new Prime Minister has been clear that we will deliver good growth for every postcode in the country.”

SNP politicians, however, disagree. They argue that the GERS figures do not reflect what Scotland’s economy would be like under independence.

Finance Secretary Jenny Gilruth said: “GERS provides notional estimates for Scotland’s deficit as part of the UK – it simply does not show what an independent Scotland’s position will be.

“With the powers of independence we would be able to chart a different path, ensuring we grow the economy to allow Scotland to reach her full potential.”

Caustic response

I came across a much more caustic response in video footage dating from September 2022 in which Nigel Farage, in his alter ego as a TV presenter for GB News, asked the then SNP MSP Angus MacNeill to explain how Scotland, with a big notional deficit, would pay its bills after independence.

MacNeill responded: “Well you’d have to ask the same question of Finland, you’d have to ask the same question of Iceland, the same question of Sweden, of Portugal and everybody else.

“You do know, of course, that since 1945 the UK hasn’t paid the bills at all. It’s been putting on loan and loan and loan and debt and debt and debt, and it’s only paid back about 1.7% of all monies borrowed in the last 70 to 80 years. So to ask Scotland how they would pay the bills when the UK hasn’t paid its own bills, I find is a bit rich.

“We do see round about the prosperity of Ireland, having left the UK, the prosperity of Norway with its oil reserves, and do your lot for the green agenda. We see how Iceland is getting on with the population of Dundee, and we’ve seen how Scotland’s getting on with a [UK] government we haven’t voted for since 1955. I’ve no worries about how Scotland will get on after independence. I just don’t think we’ll be sending too many food parcels south of the border.”

This is a neat answer and takes us out of the Thatcher mindset, which is to treat a national economy as if it was a household one.

There is, however, a further step to be taken, with the assistance of economist Richard Murphy. In the run-up to the elections in May, both in Scotland and Wales, Murphy defended his policy of printing money to stimulate the economy.

Banknotes in wheelbarrows

Rebutting the usual argument that it would return us to the time of the Weimar Republic, when spiralling inflation forced Germans to wheel banknotes around in wheelbarrows, Murphy wrote: “Creating money is easy. The government does, in fact, do it every time that it spends. Nothing that it pays out is ever paid for with taxpayer money, as it’s called. Nothing is paid for by taxes. Nothing is paid for by borrowing. Everything is paid for by money creation through the Bank of England.

“The real limits on that money creation process are the availability of workers and their skills, the availability of goods and materials in the economy, and the productive capacity to put people and materials together to produce something of use.

“Inflation happens when we haven’t got those capacities, people, materials, and the ability to put them together. Wise governments know that. They also know that the story about printing money is wrong, even if too many of them deny it.

“Money creation is in reality used for all routine government spending, but in addition, and it’s important to remember this, it’s used in recessions to replace lost private spending. That prevents economic collapse at those moments. It’s also used to fund investment when resources are lying idle. That is anti-cyclical behaviour by the government to make sure that we have a stable economy.

“A government that refuses to use its capacity to create money leaves people and capacity unused. It guarantees no growth, high unemployment and economic stagnation. The mistake is treating inflation as being automatic; it isn’t. Inflation is about resource pressure, not money creation.

“The question isn’t, can we create money? It’s, do we have the real resources to spend money on?

“If the answer is yes, the government should create the money through its spending to put those resources to use.

“If the answer is no, it should not spend because that will result in inflation.

“That’s the real rule we have to follow in economic management. It’s simple, it’s straightforward, and it’s easy to understand. Now you know it, please talk about it.”

During the Covid pandemic, the UK Government printed money to the value of hundreds of billions of pounds. By using the euphemism “quantitative easing”, it obscured the message to the extent that the majority of people didn’t know what was going on. Hundreds of thousands, if not millions of jobs were saved as a result. Printing money literally saved the UK economy from crashing.

Why then could Murphy’s prescription not be applied by a newly independent country – Wales or Scotland – to the same end?

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