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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It will be essential for an independent Cymru to drop the self-defeating narratives of neoliberalism if it wishes to prosper, as Martin Shipton’s excellent article infers (Nation.Cymru 15 August 2026). As well as calling out the nonsense that is GERS (and GERW), we should also dispense with the commonplace fables of a ‘tax and spend economy’ (it isn’t – we spend then tax), the much-vaunted ‘independence of the Bank of England’ (BoE) (it isn’t), ‘taxpayers’ money’ (it isn’t – all money is government money, and it says so on every note!), that inflation can be controlled by increasing interest rates (it isn’t) and… Read more »
Murphy acknowledges that money creation is limited by ‘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’. A decade ago the primary constraint on economic growth was low demand following the financial crash. Money creation was then an appropriate counter-cyclical tool, although that experience showed that it simply inflates asset prices (shares, housing) if not used for fiscal expansion to increase incomes and jobs. Over recent years, the limits noted by Murphy have come to the… Read more »
Lyn E, your response seems to differentiate between the long-term (‘making the economy more resilient’) which you concede could be financed by money creation (and one must assume ‘climate change, biodiversity, pandemics’) and the ‘real problems’ in the short-term. I must ask what are these ‘real problems’? Please explain why money creation could not be used to provide investment to tackle each of those? Or do you propose some non-financial means? There is a risk of inflating asset prices unless integrated financial management is applied. The unwillingness of the UK Government to tax higher income groups (housing, returns on investment… Read more »
Money creation will not reopen the Strait of Hormuz nor end the war in Ukraine, nor end geopolitical competition between the US and China. Nor would it put out the wildfires ravaging Wales, here and now. Investment is about much more than money. Building a house needs real resources: land, skilled workers, building materials, planning permission, etc. You can only have one structure on one piece of land. Nobody can simultaneously lay bricks and drive a van. And so on. MMT provides a good descriptive theory of money creation. It rightly criticises fiscal rules as blocking needed expenditure. But replacing… Read more »
Too many straw men there, Lyn E.
Every one of those issues is real and cannot be solved simply by creating money, although in some cases that could ease a constraint.
I invited you, Lyn E, to distinguish each issue and explain why OR why not money creation could assist their resolution.
‘In some cases’ is too broad – which cases and why? Please be specific.
I gave the example of renewable energy. Money creation could also help finance other investment or taking assets back into public ownership, such as water, as an enabler for that investment. I emphasise the investment possibilities because it is important that expanding demand is balanced by expanding supply if inflation is to be avoided. There is an implicit assumption in proposals to use the power of money creation to rejuvenate or otherwise improve the economy that idle or underutilised resources exist that can be easily mobilised. Where idle resources are not immediately available the effect will be inflationary. The availability… Read more »
Please outline any example of an ‘every economic problem’ which CANNOT be solved (in your terms) by money creation.
Other examples are also of interest.
Although Hormuz may have economic impacts, it is a multi-level political problem.
You can’t draw a sharp line between the economy and politics or the environment. Are you trying to claim that the supply and price of raw materials is not an economic question? Although MMT tells a convincing narrative about how money is created and offers a useful tool to respond to demand deficiency in recessions, it does not offer answers to supply constraints or assumes money creation will on its own somehow resolve them without inflationary effects. Understanding how fiat money is created does not remove the need to consider issues such as class struggle, the distribution of wealth and… Read more »
Fail
Thank you for admitting that you are unable to explain how money creation can in and of itself solve supply chain problems.
I have made no such admission nor have I even made that claim, Lyn E.
What you have failed to do, to make it plain, is to give even one (others would also be welcome) example of any economic issue which CANNOT be solved by money creation.
Many commentators expect global food shortages and price rise next year. Output is disrupted by climate disasters and by war, both directly (Russia and Ukraine are major grain producers) and indirectly (transport for both food and fertiliser).
It is indisputable that the supply and price of food is an economic issue. Please explain how money creation will solve this.
You rightly say that output is ‘disrupted by climate disasters and by war’ – a supply issue.
But then you conflate ‘supply and the price of food’ – the latter is certainly an economic issue and amenable to some resolution by money creation (say, subsidies).
Another failed attempt, Lyn E.
Supply and demand are the most elementary economic matters. You cannot simply discount supply questions as not economics.
Yes, a government could choose to subsidise the price of certain foods to consumers and print money to do that. But I explicitly referred to GLOBAL supply and prices. Subsidising consumer prices in a country would not reduce prices on the world market. Indeed, by sustaining demand in one country it would push those prices upwards and worsen the problem elsewhere.
“Supply and demand are the most elementary economic matters”, Lyn E?
You should read what Murphy says about supply and demand curves…https://www.taxresearch.org.uk/Blog/glossary/S/#supply-and-demand-curves
I rest my case, and you have failed to make yours…
I didn’t mention curves. And I don’t think you’ve made any case. If you want to reference Murphy, then read again the quote included in the article. ‘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.’ This is exactly what I have been arguing, whereas you seem to deny that there are any limits to the power of money creation. If supply falls in any market below its current… Read more »
Utterly terrifying nonsense. You don’t spend then tax as you’d be bankrupt in five minutes. Hopefully you’re nowhere near the Welsh, or any other, government.
Excuse me, Tom, but the UK Government (and most others) do exactly that! Ask yourself, if there was no spending, what would there be to tax?
Unfortunately, looking north is the only thing we in Wales can do. We not only lack the magic money tree that England seems to have: the ability to fund projects to the tune of hundreds of billions, provided they are deemed “beneficial” to Britain; the ability to print money through quantitative easing Whitehall has. And unlike Scotland, we don’t have a national bank. We also lack control over our Crown Estate, while our water resources are not nationalised, unlike in Scotland, Instead, billions annually flow out of Wales into the coffers of English water companies and the Treasury in London.… Read more »
I can vaguely remember another government that thought this – until it had to be bailed out by the IMF. Those who don’t learn from the mistakes of the pasr etc.
Incidentally, its not government money its money paid by taxpayers to be spent appropriately and wisely
Precisely.
With respect, Gareth Owen, I think your assertion about the IMF bailout requires a little more research…
And alas not. You’re incorrect about how money works in our economy. The fact is that tax does not pay for anything…
Murphy’s framework is defensible as far as it goes, and his central point is correct: the constraint on government spending is real resources, not a shortage of money. But the argument as presented here skips the step that decides everything for a small newly independent economy, and it’s worth naming. A government can only create money in a currency it issues, and that currency’s value depends on demand for it. The UK could do QE at scale in 2020 because sterling is a currency the world already holds, with a central bank, decades of monetary credibility, and its own gilt… Read more »
I substantially agree with you, Domeinhorn, especially in relation to the exchange rate. I envisage our own currency, floating against a basket of the currencies of our major trading partners. Initially, we should anticipate some currency speculation in the first few days/months, and some depreciation might be of strategic value. It may be necessary to impose import controls for a while. We should not underestimate the strength of Cymru’s export economy. That plus our share of the UK’s financial assets should help us to resist external pressures from speculators (though not to defend an over-valued exchange rate). In the medium-… Read more »
Welsh exports could be disrupted in the event of independence, like many exporters to the EU have found following Brexit. Nor should we underestimate our import dependence. An independent Wales would take a share of the UK’s assets but also of its debts. Self-sufficiency is not an achievable goal in the modern world, even for the largest economies as Trump found out on rare earths. Moves in that direction are likely to make Wales poorer. A notable feature about small countries which are prosperous (not all are) is that they are highly integrated with the external economy, particularly that of… Read more »
It is fatuous to use Brexit as an example of anything but incompetence and mismanagement. I am confident that disruption on independence will be well-managed and minimal. Unlikely to be helped by speculators, of course. Self-sufficiency (on multiple levels) is becoming more necessary for every country. Even farmers in Cymru talk about it. Global trade has been declining for years and given the environmental impact of shipping, that decline is likely to be accelerated. The nature of the prosperity of small countries (or lack thereof – see Cymru) and their relationships with their current trading partners needs closer examination before… Read more »
Anyone who envisages Welsh independence as a serious political project should pay great attention to Brexit and its consequences. The Windsor Framework and its recognition that keeping the land border open in Ireland requires the North to accept EU rules with very few concessions deserves careful thought. A constitutionally separate Wales would find itself in a similar position regarding its land border with England. Why do you assume disruption on independence will be well-managed and minimal? Do you think England is going to be generous on dividing debts and assets or that it will want to give a helping hand… Read more »
On small countries, prosperity and trading relationships, I suggest you look at p.28 on YesWales’s ‘Independence in Your Pocket’. It informs us that ‘within Europe alone, there are 18 independent nations with smaller populations’ than Wales. It then selectively lists 8 of them. It is notable that 7 are members of the EU. The only exception is Iceland, uniquely located geographically, but with agreements with the EU and now debating if it should join. There is of course no mention of small countries like Moldova, Armenia, Albania or Kosovo. The booklet then makes the claim that its selected examples are… Read more »