Answering one of the biggest questions for an independent Wales
Llew Gruffudd
A widely held conception is that Wales independence will lead to higher taxes and service cuts.
It is inevitable, they say, due to Wales not being able to pay its way.
It is understandable that many of the public will fear this, given that this view is expounded by people who ought to know better.
The Commission on the Constitution says it.
In their ‘evidence’ led conclusions on independence, they say ‘whatever the size of Wales budget deficit, it will mean tax rises or service cuts.’
We are not allowed insight into this ‘evidence’ however.
Such a conclusion is a very large assumption and a very naive economic assertion.
A contributor to Nation Cymru and Senedd member, Mike Hedges argues similarly, I think I quote him correctly he says ‘I have no strong objection to independence except that it will lead to higher taxes and service cuts’. This again without offering any evidence in support.
This view is presented, ignoring the fact that belonging to ‘the Union’ leads to tax rises and public service cuts by the Westminster government, tax rises that don’t particularly benefit Wales and public service cuts that impact on the Wales public, imposed without Wales consent on a regular basis.
In any case this view is mistaken.
It is a view of independence, viewed through the prism of the present constitutional arrangements. The economics of an independent Wales is quite different.
An independent Wales will have economic and financial tools not available to the present Welsh government.
It will be a sovereign state, with a sovereign currency and a Central Bank.
There will be those, I know, who would wish to keep the pound sterling, however to make the necessary and urgent improvements to the Wales economy, will take significant investment. Investment that can only be raised by a sovereign currency.
An example. Wales has abundant green, renewable energy resources. So says the new Welsh Secretary, but more convincingly by a leading UK engineering publication, who states that ‘Wales has the greatest concentration of renewable energy resources, than perhaps anywhere on the planet’.
Three recent surveys by Carbon Trust, Marine Energy Wales and Crown Estates have identified, through offshore wind turbines, marine and tidal and floating turbines, 14 GigaWatts of installed capacity.
Wales in the ‘Union’
Under the present system the way it works is that The Crown Estates, only now with the new GB Energy tagging along, carries out surveys to provide data to private developers. It issues licenses and takes the license fees.
Then along comes the private developer, develops the sites, sells the energy and spirits the profits away, mostly to foreign lands.
The UK government gets the tax revenues from profits, with GB Energy looking to have a little stake, so they can have a little share of the profits.
And what does Wales get?. It gets some jobs. Amount unknown for Welsh workers, permanency unknown.
The Welsh Secretary describes the proposed scheme based in Port Talbot, as permanent jobs in manufacture and installation.
So permanent, temporary then.
There is no wealth creation in this exercise to significantly benefit Wales and whereas the effect of wealth creation can be shared throughout Wales, the creation of jobs cannot.
The alternative
An independent Wales would own the resources, can raise the finance through its Central Bank or its own bonds, could generate the energy (Through a publicly owned energy company, just like Norway) and sell it on the wholesale market, with 14 Gigawatts of capacity worth almost £10 billion a year at present wholesale prices.(The Crown Estates alone calculating a further 20 GigaWatt of potential for floating turbines off the Welsh coast)
It could alternatively sell the electricity internally at a discounted price, giving cheaper electricity to consumers, businesses and public services (it would still a have a tidy sum left over to sell)
Such a policy would still be wealth creating, with lower energy costs meaning more disposable income for the individual [ consumer spending being the biggest driver of economic growth ]
Lower costs for business, higher profits, a more attractive business environment and increased government corporate tax revenues for the Welsh treasury.
Lower costs for public services, hospitals, care homes, schools etc, meaning more money diverted to frontline services.
Just one example of the income an independent Wales would generate.
In addition
Plus there is the tax revenues and fees from existing energy generation that would now come to the Welsh exchequer.
The ability to deal with tax losses through avoidance, evasion and mismanagement, inherent in the present UK tax system, with Wales’ population share being £2 billion p.a.
In the medium term, there are gains from the new Wales ability to invest.
The Wales Governance Centre calculated that if Wales wage levels and therefore its tax revenues of income tax and NI, were at the levels of the UK average, it would add £5.4 billion per year to Wales government income.
This can be achieved by reversing the generations of lack of proper investment in skills and technology.
Studies by Nat West Bank and Deloittes found that if Wales productivity levels were at the UK level it would add £1.7 billion per year to Wales economy and if it reached the productivity of the best in Europe it would add £7.4 billion per year to Wales economy.
This would be done by reversing the historic underinvestment in innovation, research and development in Wales.
Just a sample of the benefits of investment, bringing large scale wealth gains to the nation.
A sovereign Wales with a sovereign currency and a Central Bank, would have the means of raising that investment.
So why on earth would an independent Wales need to raise taxes or cut services.
Support our Nation today
For the price of a cup of coffee a month you can help us create an independent, not-for-profit, national news service for the people of Wales, by the people of Wales.
Too right! Westminster knows only too well that an independent Cymru would prosper – that is one of the reasons it keeps Cymru down and poor. England would also have to buy much of it’s renewable energy and water from Cymru – how humiliating. It’s messages like the one in this article that need to be spread far and wide. Put on and in every Welsh town hall, public notice board and local newspaper. Belief in an independent Cymru has to be won – this would be a first step.
The fact is that there are a tremendous number of unknowables simply because we do not have any firm proposals from any political party on how a future Welsh State would operate. We can’t really know in full until we get there and have our first Executive of our newly independent State in place. Even then, it will take years untill we hit our straps. The economic performance of our future State will depend hugely on the performance of the government we elect. Is any of that an argument against independence? Certainly not. The point being is that it is… Read more »
I do agree that effective government is vital, in fact it is of greater concern to me than the economy of which I am confident. However to get to Independence, the public in particular needs to be convinced and that’s down to the economy. On that depends the Public Service improvements, pensions and earnings, the things that most concern people.
My point is that the economy of a future indy Wales will always be contested. I guess the UK could become so bad folk give up on it but I don’t see it as the main tenent of our case. I think we’ve all been blindsided by this. Whenever I make the case for Statehood based on nationhood and democracy, I face little argument. Once it turns to government or the economy, it just send everyone into entrenched positions. Don’t get me wrong, the economy was my go to. We’re constantly attackedbon it so I felt “stuff it, I’m going… Read more »
Competence must include economics. The Truss lettuce government showed that. People will not support abstract arguments on ‘statehood’ if they do not believe proposals will improve their lives. Have you nothing to say to those living in poverty?
Independence should not be seen as an end in itself but instead judged by whether or not it would benefit the wellbeing of current and future generations. The economy is central to that assessment.
I agree we must improve governance.
Independence should be seen as the means by which we establish, through democracy, our political agency to progress our political, economic, cultural and educational development. That is how the UN frames statehood. That is our right, our case and the purpose of our efforts. This is also an issue with the indy campaign – is this purpose clear and are we all in agreement. Does the public understand what we are trying to achieve?
The purposes of the Indy campaign are certainly not clear. Independence’ has become a slogan for a range of proposals vastly different in their implications for people’s lives. Confederal union, UDI, hard or soft border, in or out of the EU, etc.
How can people be expected to support ‘independence’ without knowing what it means?
Who’s decided and on what basis that “ Independence’ has become a slogan for a range of proposals”? (is it you that’s decided) The definitions in these links should help as a starting point https://en.wikipedia.org/wiki/Sovereign_state https://en.wikipedia.org/wiki/Nation_state To address the particular issues you’ve raised. The decision to become part of a Confederation or not can only be made after Cymru becomes a nation state. UDI is for some a fantasy and for others used as reductio ad absurdum to make up for a less than convincing anti-independence argument. Hard or soft border is a -project fear – tactic used by the No… Read more »
Quite right, Llew Gruffudd! But an independent Cymru will have many other choices we could and should exercise. Not to become a clone of England but to enhance the quality of a distinctive Welsh way of life for all our residents. This means adopting the deep green path of degrowth towards sustainability. Away from the growth fixations of fantasists and from the lopsided distribution of wealth to freedom, equity and peace. To ensure opportunity for all. To ensure there is a safety net for all. To ensure the preservation and development of our cultures. To contribute positively to the world.… Read more »
A hard border with England would impose severe costs on Cymru as it would impede free movement essential for both economic and social benefits. The difficulties Brexit has caused in Ireland suffices to show that.
Herein lies a problem with our movement. As I allude to above, there are as many versions of indy as there are opinions. The conversation is healthy but there is no single solid proposal to put to the Welsh electorate. We probably need to look at 4 or 5 options and whittle them down.
And there should not – at this stage, Annibendod – be a ‘single solid proposal’.
I particularly like your suggestion of 4 or 5 options – what I’d call scenario planning – within the independence envelope.
Then it would become a process of mixing and matching, wide participation, deep criticism, reiteration, resilience testing and refinement to develop a specific set of proposals.
A non-binding referendum utilising single transferable voting could then assist in determining the preferred options for political parties to adopt and re-form accordingly.
Thanks, Lyn E.
Depends how it was done really…
I’m all for free movement.
Please not that for the first time, thanks to a border tax recently imposed by the UK, the UK government will know who is in the country. Definitely a step forward. Loss of social benefits minuscule.
On economic benefits, might we not want to impose some tariffs to protect our workers and producers? So-called free trade is good for traders. For the rest of us, not so much.
Many people would baulk at needing a passport or visa to visit family or friends across the border.
But seriously, although a – project fear – tactic will successfully deceive some people, do you genuinely think that passport control at Pont Hafren is anything but the stuff of dystopian fiction.
It’s a real not fictional concern. Think about how travel or staying in EU countries has become less straightforward since Brexit.
If England becomes a foreign country, then it will be free to control its borders as it pleases. The price of an open border might well be Cymru adopting English rules on who we would allow into our own country.
“If England becomes a foreign country, then it will be free to control its borders as it pleases. “ This sounds very like repeating the -project fear – argument. As an independent state Cymru will have to decide what relationship it wants and will accept with its nearest neighbour the independent state of England and vice versa. It’s naive to assume that Cymru would have little or no say in how the relationship is set. It’s wrong to think that Brexit and independence for England and Cymru are equivalent. An appreciation and understanding of what the EU and the UK are… Read more »
Why would people need a passport. You are in the realm of extremes. There already exists a free movement zone where the citizens of The Irish Republic, a member of the EU, citizens of the Channel Islands and Isle of Man, neither subject to the UK parliament, all can move freely throughout the UK, Other countries have similar arrangements. Free movement between Norway and Sweden, one a member of the EU, the other not, Citizens can cross the border between USA and Canada by showing a driving license. So why do you think Wales would be subject to more onerous… Read more »
There is certainly a need for economic policies that pay greater attention to the needs of Wales that happens today. Renewable energy has potential. But there is a lot of wishful thinking here. It is a delusion to think that independence with a central bank would suffice to reverse historic underinvestment in innovation, research and development. There are many examples of countries with their own central banks that are economic failures. A sovereign currency does not in itself enable a country to buy the imports it needs at a price it can afford to pay, not in its own currency, but… Read more »
I think you misunderstand me. There is no suggestion in the article that a Central Bank is an end in itself. It is a catalyst, providing, as the examples show the investment for Wales vast resources of renewable energy. The returns from this will in turn provide further investment, together with the finance to improve the well being of the people of Wales. It will take more than just one economic tool to do the job. But Wales with a sovereign currency and Central Bank has access to them.
A central bank that increases its money supply can, in certain circumstances, catalyse investment and growth. But ultimately those depend on mobilising real resources, both people and capital, which are otherwise unused or poorly used. Through most of the 2010s, there was a good case for this as to stimulate demand. Over the past few years that has not been the case, as problems have been primarily caused by supply issues, such as those provoked by covid, Ukraine and climate change. Without mobilising new resources, increasing money supply generates inflation rather than growth. A Welsh Central Bank would bring risks… Read more »
With respect, Lyn E, and as a matter of fact, you are incorrect in your final sentence. But we would be foolish to rejoin the EU anyway. Ask Greece. The single market and customs union are fine… Similarly, such ideas on inflation need a broader macroeconomic understanding and less of the faulty analysis of the Bank of England, Treasury, Reeves et al. See Murphy on Funding the Future. Increases in money supply have mostly funded housing speculation and share buybacks, not productive investment. We are running out of cheap resources, and material growth is likely to be even more elusive… Read more »
The Maastricht treaty specifies that new adherents to the EU should commit to adopting the Euro, managed by the ECB. In practice, there has been no fixed timescale for adoption but commitment to it would be required. As I’m unconvinced of the independence case, I don’t have a firm view on whether an independent Welsh state (if it ever happens, which I doubt) should join the EU. If you want to make a convincing case for an independent Cymru, then you need to demonstrate how such a state could take advantage of opportunities that might exist. You have not done… Read more »
“If you want to make a convincing case for an independent Cymru, then you need to demonstrate how such a state could take advantage of opportunities that might exist. “
Then a convincing case for Cymru to be within the UK, the same advantage of opportunities needs to be demonstrated.
I can think of a big opportunity that has recently been denied to Cymru – membership of the EU.
The Leave majority in Cymru is immaterial as it’s very unlikely that an independent Cymru membership would have been such a big issue never mind having a referendum on it.
We cannot dismiss the Leave vote in Cymru because we dislike it. It happened.
Brexit has complicated the independence case. Cymru as a member state of the EU with equal status to other nations now in the UK would be far more viable than other options. Joining an EU without our major trading partner (which is and will remain England) would be difficult.
I note you didn’t even attempt to address –
Then a convincing case for Cymru to be within the UK, the same advantage of opportunities needs to be demonstrated.
I must admit I am struggling to understand your point. My article is in the context of an Independent Wales and in which case the present depressed state of the Welsh economy poses little risk of inflation through the injection of money. In this scenario the money is used for investment and economic growth. Your apparent dismissal of energy as a vehicle for such growth is also misplaced, when the few examples given, shows the potential, so wishful thinking , no. As for your point on a Central Bank being an obstacle to EU membership, I can’t see that argument… Read more »
I should have said ‘sovereign currency’ rather than central bank’. Members of the eurozone do have central banks but with much reduced powers. I certainly don’t dismiss renewable energy as a path to growth although it will not suffice on its own. There are also challenges around the environmental implications of large energy infrastructure (e.g. proposed solar farms on the ecologically precious Gwent Levels). Money creation can stimulate growth but other countries cannot be obliged to accept a country’s currency. Imports for consumption and investment will be unavoidable. Paying our way in the world needs us to produce what others… Read more »
Any restrictions on Wales own currency would only apply if Wales were to adopt the Euro and that is by no means a given. Wales would be free to make that choice and consideration of all the advantages and disadvantages in such a move. It is not however a condition of Wales becoming Independent. That’s what Independence means, free to choose it’s own alliances. With regard to renewable energy, you are not only unduly pessimistic, but underestimate the benefits. The environmental implications you are concerned about are not a necessary part of Wales renewable energy sector, the major part which… Read more »
The data I used is that GVA in Wales is approximately 75% of the UK average. The only way it has got anywhere near balancing an independent Wales budget is by not funding retirement pensions.
Your letter, Mike, merely demonstrates the foolishness of understanding independence through the lens of a UK-style monetary and fiscal system, as if that is the only option.
“The data I used is that GVA in Wales is approximately 75% of the UK average. “
That’s the sort of go to figure beloved by Unionists that underlines, so they think, a reason that Cymru being part of the UK is so tremendous.
“The only way it has got anywhere near balancing ….”
Might that be because of a lack of balancing skills.
So, the dreaded GVA. An indiscriminate and crude measure of a nations economy. GDP, or in Wales case GVA, loves wars. You can spend a lot of money on wars, arms, rebuilding contracts. That will grow GVA. Crime is another. Lots of money spent on the prevention and aftermath of crime. That will grow GVA. As someone else once said, you can sit in a slow moving traffic jam for an hour and that contributes to GVA, but volunteer in your local hospital for a day, that doesn’t. So your 75% example, even if accurate, which, with the way data… Read more »
OH MY GOSH!!! OUR GVA IS 75% OF THE UK AVERAGE!!!
Clearly an appalling inequality. Why would I wish to continue in a union that made us poor then Mike?
https://en.m.wikipedia.org/wiki/List_of_countries_by_GDP_(nominal)_per_capita
I note that the EU has an average GDP per capita almost identical to Wales’. D’ya think the UK should take over the poor old EU for their own good?
Daft argument, always has been. Umpteen independent states with a lower GDP/GVA than Wales. Always assumes the worst case scenario. Read Tom Nairn, Mike.
Mike likes a good list. There’s a good list of facts and figures about States in this article: https://bylines.cymru/voices-lleisiau/welsh-independence-economics-one/