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Opinion

For Wales to progress we need prudential borrowing powers

14 Apr 2023 4 minute read
North Wales MS Carolyn Thomas

Carolyn Thomas MS

From the climate crisis to the National Health Service through to the housing crisis and public transport, Wales faces both urgent and threatening challenges.

We are not unique in this regard; they are challenges facing most countries on the planet.

But Wales is almost uniquely disadvantaged in its ability to meet these challenges because of severe limitations on its ability to borrow to invest. Prudential borrowing is a relatively cheap form of borrowing which allows governments to finance long-term policy projects designed to make a return on investment.

Most national governments have access to a variation of this form of borrowing – some on better terms than others. But Wales is limited to just £1bn of borrowing per Senedd term.

It is difficult to overstate just how inadequate this settlement is.

Hamstrung

The £1bn cap is set by the UK Government and brutally hamstrings the Welsh Government. Not only does it mean that Wales is in a less favourable position than most other countries on the planet, but because County Councils in the UK have access to prudential borrowing, it means our nation is in a weaker position than local authorities too.

In October last year, the Institute for Welsh Affairs (IWA) published a report into Wales’ ‘fiscal firepower’. It concluded that the current Welsh fiscal settlement has a ‘chilling effect on policy’. With over 90% of the Welsh Government’s budget being spent on vital public services such as health, housing, education and local government, most of the money is essentially pre-committed.

The ’chilling effect’ referenced by the IWA is that Wales has almost no financial room left to make investments, conduct major infrastructure projects or kickstart transformational policies.

It relegates the Welsh Government to little more than “managing” public services on behalf of the Westminster Tory Government.

Such is the extent that Wales has been backed into a fiscal corner, it has led to the Welsh Government effectively resurrecting Private Finance Initiatives (PFI), under the new moniker Mutual Investment Model (MIM). This is a form of expensive financing of projects which relies on private companies carrying out major infrastructure projects on behalf of the state.

Instead of the Welsh Government building schools, profit-driven companies build them instead. The Welsh Government uses the MIM model whilst publicly admitting that it does not want to, which demonstrates how untenable the current situation is.

It is clear that this financial settlement doesn’t suit Wales.

But it very much suits the current UK Government. It locks in long-term reliance on neoliberal economic orthodoxy and prevents Wales from borrowing to invest in successful state-owned public services and infrastructure. And in so doing, it prevents the possibility of Wales showing that there is a better way.

Of course, like any national government, there is no guarantee that any Welsh Government with prudential borrowing powers would necessarily make the right long-term investment decisions. But, the ability to transform Wales should not be at the whims of whichever party happens to be in charge in Westminster – it should rest with the Welsh Government.

Incomprehensible

Accepting the existing status quo for any longer is incomprehensible. Across Wales, we have paid the price for doing exactly that.

The results of the last 12 years are impossible to escape, whether you live in Wales or England. The worst fall in living standards since records began, real terms wage cuts for workers, the NHS on the brink, a demoralised public sector workforce, a housing market which is completely out of control and more foodbanks than branches of McDonalds.

We should not merely accept this and hope for a change of government at UK level. We must embrace every opportunity we have here in Wales to lead. In order to do that, we must demand access to the tools required to lead properly.

If we don’t, Wales will continue to be handcuffed to the decisions made by whoever happens to be the UK Chancellor, with limited powers to brunt the worst excesses of his or her decisions.

I believe in Wales. I believe in our ability to craft our own future and I believe in our ability to build a state which is fit for that future.

A Wales with prudential borrowing powers could invest in the social housing we so desperately need to tackle the housing crisis. It could choose to invest in state-owned renewable energy projects, a Green New Deal, an expanded National Health Service and quality public transport.

It is a Wales that the Welsh people deserve, and we must demand it.


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Jonathan Edwards
Jonathan Edwards
10 months ago

Lets break this down. Create a Welsh State? Good. Will this Welsh State raise all/most of its own revenue? No answer, hmmm. Will the Wales NHS be reformed? No answer. Will we do this borrowing simply to fund Wales NHS deficits, or to restructure/reform? Makes a big difference, but no answer. Borrow to improve North South links? Seems yes, good. So just demand bigger block grant as per Drakeford insurance policy? Etc etc. Please can our Welsh politicians up their game. Thank you

Gareth
Gareth
10 months ago

But the problem is, that Westminster does not want to see Cymru progress, if they did, they would give us these powers and more, without us begging, and keep to promises made, such as electrification of our railways, but in truth, they are happy to watch us struggle, while the Labour gov here are happy to go along with them, because we are part of the UK, and as such enjoy the benefits of this union, as pointed out by Mr Drakeford, which, I for one, fail to see.

Last edited 10 months ago by Gareth
Rob
Rob
10 months ago
Reply to  Gareth

Wales is a political football between Labour and the Conservatives. Its not like Scotland where the SNP are in power & London are terrified at the prospect of a second referendum, or Northern Ireland where politics are far more sensitive.
The Tories deliberately hold Wales back, and then they can blame it on Labour or on devolution. The problem is some Welsh voters will eat it up.

Mab Meirion
Mab Meirion
10 months ago

Well said, staked out for the carrion to feast upon…what’s new…

Dr John Ball
Dr John Ball
10 months ago

The problem is not borrowing powers, or the way the money is committed or indeed whether Westminster has some kind of evil intent. Wales has a third world, colonial economy. The Senedd has had considerable economic development powers since day one. There is no economic development policy, indeed there’s never been one, a series of economy ministers who’s knowledge of economics is at best questionable and the junior environment minister admitting that when it comes to the economy, the government doesn’t know what it’s doing.Discuss borrowing and lack of powers all you like. The reality is that things will only… Read more »

Riki
Riki
10 months ago
Reply to  Dr John Ball

Everything in your comment smacks – “The Welsh – Too stupid to do things for themselves”. Perfect summation of how Unionist have and continue to see the people of Wales. Always talking down like they are some how superior. Well guess what, They aren’t! Wales is in the state it is for one reason. Foreign control over all aspects of it for almost 500 years….pillaging it dry.

Ernie The Smallholder
Ernie The Smallholder
10 months ago
Reply to  Riki

PLAID CYMRU IN GOVERNMENT AT THE SENEDD – THE ONLY ANSWER

Dr John Ball
Dr John Ball
10 months ago
Reply to  Riki

Please do not insult me, I have spent my life working for a free Wales.
You totally (deliberately?) miss the point. The way to pay for things (unless you’re on Corbyn’s fantasy island) is a healthy, growing economy.
The Senedd has the powers to do just that and has had those powers since day one. I can’t decide whether its the Labour unionists plan to keep us poor so we can blame the Tories – and others – or simply incompetence, or both.
Please do me the courtesy of reading my contributions with your eyes and ind open.

Gareth
Gareth
10 months ago
Reply to  Dr John Ball

I agree on your points, I think the fact that a Labour MP recently said she would be against devolving justice and policing, no reason, she “just wouldn’t”, and Labour in Cardiff bay not utilising all the powers we already have, and also appearing to be far less vocal than politicians in Scotland and Ulster standing up for their people, shows that the union, to them is far more important than the well being and prosperity of the electorate in Cymru.

Rob
Rob
10 months ago
Reply to  Riki

I think you might find that Dr Ball was criticising the Welsh Government but was not criticising the concept of Welsh self government. Its imperative in a democracy that we understand the difference. It reminds me of people who say “the WAG is a failure , abolish the Assembly”

Kerry Davies
Kerry Davies
10 months ago

Has Wales ever once used that power to raise a £Billion? They never used what they had when it was £350M so to make a case to Westminster the first step is to show the need. If we don’t use what we already have how can we do an Oliver Twist and ask for more?

I may well not understand these things so can someone explain my errors?

Rhosddu
Rhosddu
10 months ago

This is one reason why financial control of the Crown Estate would be better placed in the hands of the Senedd.

Jonathan Edwards
Jonathan Edwards
10 months ago
Reply to  Rhosddu

Yes, in theory. But our problem is that our Welsh politicians do know have the knowledge, skill or ambition to us the powers we have – except to tinker with social policy like fizzy drinks. Plaid used to have people who tried to acquire the necessary know-how. Given what social tinkering did to Scots nationalism recently, we in Wales are going to have to start all over again.

Fran
Fran
10 months ago
Reply to  Rhosddu

I agree and would welcome a financial and ownership mapping of wales. Who owns and manages the land to begin with.

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