Is an independent Wales economically viable?

Jibreel Meddah

For as long as Welsh independence has been a serious political proposition, it has come attached to a number. Sometimes that number is £14 billion.

Sometimes it’s £21 billion. Sometimes, if you’re talking to the right economist, it drops all the way down to £2.6 billion.

Depending on who does the counting, Wales is either sitting on a fiscal black hole that makes independence a fantasy, or nursing a deficit no worse than most small European countries run every year without anyone questioning their right to exist.

Three months into the first Plaid Cymru government in Welsh history, that argument still hasn’t been settled. And First Minister Rhun ap Iorwerth, tellingly, doesn’t seem to be in any rush to settle it.

Sworn in on 12 May as the first person from a party other than Welsh Labour to run Wales, he has ruled out an independence referendum for the whole of this Senedd term. His “number one priority,” he told the BBC’s Walescast, is health, education and the economy, not the constitutional question that built his party.

That is either a sign of political discipline or a quiet admission that the sums still don’t add up cleanly enough to incite the debate. I went looking for the numbers behind both arguments. What I found is a debate where almost nothing is agreed: not the size of the deficit, not the method for calculating it, and not even whether the concept of a “Welsh deficit” means very much at all.

The numbers

Start with the figure that unionist politicians reach for first. According to Government Expenditure and Revenue Wales (GERW), a series of reports from Cardiff University’s Wales Governance Centre built using the same approach as Scotland’s official GERS statistics, Wales ran a fiscal deficit of £14.4 billion in 2019–20. That’s 18.4% of estimated GDP, or £4,560 for every person in Wales, a per-capita gap beaten only by Northern Ireland.

More recent UK government figures, using 2022–23 data, put it even higher: over £21.5 billion, or £6,888 per head.

That analysis measures Wales’s fiscal position as it currently sits inside the UK system; it isn’t a projection of what an independent Wales’s budget would look like.

During a Commons debate on Welsh devolution, former Conservative MP Rob Roberts – then sitting as an Independent – argued independence was “a fiscal impossibility,” claiming Wales would start “£125 billion in the red” and need an extra £18 billion annually “just to stand still.”

Ahead of the Caerphilly by-election, Secretary of State for Wales Jo Stevens claimed Plaid’s plans would cost the average working-age taxpayer more than £11,000 a year in tax rises and cuts.

It’s a brutal number. However, according to economists who have examined how it was constructed, it is not necessarily a reliable measure of the cost of independence. The figure was quickly contested.

Liz Saville Roberts, Plaid Cymru’s Westminster leader, commissioned a House of Commons Library analysis which concluded that Labour’s £21 billion figure “describes Wales’ fiscal position within the current UK system”, not what the country’s finances would look like after independence.

The Library found no data source to support the claim that independence specifically would cost £21 billion a year. The Wales Office maintained its figures were drawn straight from official ONS statistics.

Why the deficit might not be real

Here’s the problem with GERW, according to its critics: very little of the underlying data is actually collected on a Wales-specific basis.

Tax revenue is gathered UK-wide and then apportioned to Wales using estimates and assumptions.

Critics of GERW argue Welsh revenues are understated as a result: corporation tax, in particular, is recorded at a company’s registered head office rather than where its economic activity actually happens, which is why supermarket chains and other UK-wide firms headquartered in London or the South East show up as generating no taxable profit in Wales at all, despite many stores being run there.

On the spending side, defence expenditure is allocated on a rough population basis: Wales is assigned 4.7% of the UK defence budget purely by population share. Therefore, because Welsh GDP per head is lower than the UK average, this works out to roughly 2.6% of Welsh GDP. That’s above NATO’s 2% target and higher than most European NATO members actually spend, on paper, without a single tank stationed in Wales as a result.

Plaid Cymru commissioned its own answer to this in 2022, asking Professor John Doyle of Dublin City University to re-run the numbers using accounting methods that actually reflect how two independent countries would trade with each other, rather than treating Wales as a UK region.

Doyle’s conclusion: a fiscal gap of around £2.6 billion in an independent Wales’s opening years, or 3.4% of GDP, is close to the OECD average, and nowhere near GERW’s 17–18%.

Doyle isn’t simply rerunning GERW’s sums with better data. His model rests on a different set of assumptions from GERW’s: how much of the UK’s national debt an independent Wales would inherit, how defence spending would be set rather than population-allocated, how spending on non-devolved services like overseas representation would be handled, and how corporation tax and VAT should be attributed to where economic activity actually happens rather than where a company’s head office sits.

Change any one of those assumptions and the £2.6 billion moves.

The Welsh Government’s own Independent Commission on the Constitutional Future of Wales weighed both sets of figures in 2024 and still concluded independence was “viable,” if the “most uncertain” of the options on the table.

Conservative MPs called that conclusion “hugely concerning.” The competing figures therefore don’t provide a simple answer to what an independent Wales’s finances would look like, and that uncertainty is doing a lot of the political work on both sides.

What ap Iorwerth is actually promising

For his part, ap Iorwerth has mostly stopped fighting the deficit argument on its own terms. In a 2024 lecture hosted by the Wales Governance Centre, he quoted the Centre’s own Professor Laura McAllister, who has argued Wales has become “too comfortable, cozy” politically to challenge itself.

He used the same speech to make a different case entirely: not that Wales could balance its books alone, but that it’s being shortchanged inside the union.

Wales, he said, citing the Welsh Government’s own estimate, has lost out on between £2.9 billion and £8 billion of rail investment since 2001 through Barnett-formula funding, and the Levelling Up and Shared Prosperity Funds left the country more than a billion pounds worse off than the EU funding they replaced.

He’s also been careful to insist his version of independence isn’t about pulling up the drawbridge.

His opponents aren’t buying it. Reform UK Wales leader Dan Thomas has accused Plaid of pursuing independence “by stealth” even while shelving a referendum.

The Welsh Conservatives warn that any drift toward a vote risks “uncertainty, division and real economic harm” at a moment Wales needs stability and investment, not upheaval.

And Welsh Labour, now facing life in opposition for the first time in a generation, has kept pressing ap Iorwerth on how he pays for his own spending pledges, including a flagship childcare expansion costing roughly £400 million a year once fully rolled out, without a clear answer yet on tax.

The Ireland comparison, and its limits

Independence-supporting economists point to history rather than the current numbers to make their case.

Ireland and Singapore, YesCymru’s Michael Murphy has argued, were both “ridiculed at the time of their independence… as being unsustainable,” yet both are now among the richest economies in the world per head.

Independence-supporting economists point to history rather than the current numbers to make their case.

Some go further, arguing devolution itself has held Wales back.

The “Flotilla Effect” study by Adam Price (later Plaid Cymru’s leader) and economist Ben Levinger modelled what Welsh growth might have looked like under independence from 1990 onwards, concluding Wales would have been substantially more productive than it actually became.

It’s a counterfactual built on a specific population-based growth model, not a consensus estimate, and other economists dispute both its assumptions and its size.

This comparison has limits, however, as Ireland had EU membership and a low corporation tax regime to build around; Singapore had entrepôt trade and city-state status.

Wales would need its own equivalent lever, and no such lever has yet emerged as a consensus answer among independence-supporting economists.

The Economics Observatory puts the structural problem more bluntly than most: unlike Scotland, Wales has no single high-value sector (no oil, no financial-services hub) capable of transforming its position quickly.

And unlike Northern Ireland, it has no obvious alternative economic “home” to plug into if it left the UK.

The three questions

Strip away the politics and the gap between £2.6 billion and £21.5 billion comes down to three questions any two economists can answer differently: what counts as Welsh revenue when a company’s tax is booked at a London head office; what counts as Welsh spending when defence and debt interest are allocated by population rather than actual use; and whether the baseline should be Wales as a UK region today, or Wales as a hypothetical independent state making its own tax and borrowing choices from day one.

GERW and the UK government’s 2022–23 analysis both answer those questions the first way. Doyle answers them the second way. They’re measuring different things, based on different assumptions, while producing figures that are often presented as if they answer the same question.

Where that leaves it

None of this gets resolved while there’s no referendum on the table, and that may be exactly the point. Deferring the vote lets ap Iorwerth campaign on the record of a government he now actually runs, rather than defend projections for a country that doesn’t yet exist.

It’s a strategy that keeps the constitutional debate off the front line while ap Iorwerth builds a governing record.

It also means the two headline numbers that have defined this argument for a decade (a deficit that might be £2.6 billion, or might be £21.5 billion, depending entirely on whose model you trust) will keep getting thrown at each other largely untested, because there’s no live campaign forcing either side to prove its working in public.

Ask the average voter in Wales whether independence is affordable, and the honest answer right now isn’t yes or no. It’s: nobody has built a version of Wales’s public finances solid enough for both sides to agree on, and until someone does, or until a referendum forces the question, that isn’t likely to change.

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