The illusion of autonomy: why is Wales so powerless?

Ryan Morgan

Wales is poor. That’s pretty much the only thing that every political party in Wales agrees on – that, and St David’s Day being the only day in the calendar where major constitutional changes can be announced.

This economic reality is usually blamed, in turn, on Thatcherism, Labour, devolution, the EU, austerity, Cymraeg, capitalism, socialism, God, and, occasionally, the WRU.

So let’s just set out the facts: Wales is poor by European standards; its average GDP per capita is £29,300, and productivity levels are significantly lower than the UK average.

This makes Wales about as wealthy (or poor) as parts of central Romania and rural Poland. And around 22% of the population lives in poverty, including 34% of children. Good stuff.

While there seems to be plenty of blame to go around, genuine solutions are relatively thin on the ground. This is hardly surprising, given how difficult it is to develop effective economic policy.

However, much of the fault lies in the entire debate around the problem; it is divorced from reality.

Even now with an ostensibly pro-devolution government at Westminster, in the form of the new Andy Burnham ministry, the debate on developing devolution is mostly focused on administrative powers.

Largely as they pertain to the function of regional mayors in England, as opposed to discussing serious fiscal reform for Wales and Scotland. Even Burnham’s choice of a new secretary of state for Wales, Stephen Kinnock, a man who said recently that he still needs to ‘be convinced’ of the merits of devolved government, signals continuity in Westminster’s approach to Welsh devolution rather than the much-merited new dawn.

Indeed, even within Welsh politics, the solutions offered to the problems are often ludicrous or grossly inadequate. Such ideas as ending the Nation of Sanctuary policy (total annual cost: £10.6 million) to unlock funds, or making well-meaning but extremely vague promises to support Welsh businesses, or to improve regional coordination. And these are the arguments put forward by the people who have at least a modicum of self-interest in this continuing! They all argue that, somehow, merely tweaking the budget or improving coordination among stakeholders will unlock billions in economic growth. It will not.

So why hasn’t devolution alleviated this economic decline? If we have our own government, then surely the continued sclerotic performance of the Welsh economy, the general dilapidated state of public services, and ageing transport, is their fault? This is usually the point where people start calling for devolution to be abandoned, for independence, or for technical tweaks to the Barnett formula. I have a slightly different suggestion: the entire devolution fiscal structure is to blame.

It all comes back to the UK’s unique constitutional setup; it is effectively a federal model, except that, unlike every other federal system, its constitutional sub-units have virtually no fiscal autonomy.

Budget levels are fixed by the central government, largely based on the priorities of whoever is in power in Westminster. This effectively means that budget negotiations in Wales – usually the core event of any legislative calendar – are largely irrelevant, and, by default, so is the Welsh Government.

Money

While the powers devolved to Wales are impressive at face value – including health, education, economic development, environment, local government, transport and agriculture, among others, effectively all the big domestic policy briefs people like to complain about (other than justice) – the enormous elephant in the room, the thing that virtually never gets discussed, is the part of government that actually makes a difference: the money.

Now, the Barnett formula may be a fascinating piece of fiscal policy, and discussing it is an assured way to be the centre of any party (I am speaking from experience here). The constant complaints about it miss the forest for the trees. Tweaking it, be that more rail funding or a fairer evaluation of actual need, is as far as discussions of fiscal autonomy tend to get in Wales.

It’s not that fairer rail funding wouldn’t be welcome. I’d love it! But it isn’t the panacea it’s presented as.

The current fiscal reality is that the Welsh Government is granted a fixed budget plus extremely limited borrowing powers (set at £150 million a year), greatly limiting the Senedd’s freedom to manoeuvre. The result is that the promised national autonomy under devolution is illusory.

This is why devolution, as it stands, will never deliver the genuine change Wales needs. That’s why living in Wales feels like living through managed decline. That’s why the Senedd seems so helpless.

Wales simply cannot set its own economic priorities. And despite the warm words emanating from our new Prime Minister, Andy Burnham, the reality is that London and the South East of England will continue to exert an inevitable economic and political gravitational pull on the UK political class. It’s this inescapable ruthless economic logic that means Wales will never be the priority for Westminster, and that’s a fact.

This logic strikes at the heart of Welsh politics, which is dominated by the issue of insufficient money and restricted access to finance. Need more housing? The Welsh Government can’t pay for that. Creaking rail infrastructure and crumbling schools? No money for that. Want to invest in research and development to take advantage of Wales’ universities? Absolutely no money for that.

Cap in hand

The Welsh Government simply cannot fund any of this without going cap in hand to Westminster and begging for resources. And if you’re wondering how effective that’s been as a strategy, go ask Eluned Morgan. Without this power, the Welsh Government, of any stripe, will continue to have its hands tied.

Wales needs fiscal autonomy, but what does that even mean? For an international comparison, one could look at the US or Germany. Both have defined and clearly structured federal models, with each state possessing strong borrowing powers. U.S. states can grant tax credits, borrow, finance capital investments, and issue government bonds to finance public investment. The Welsh Government can do none of this to any meaningful degree, and where financial powers exist, they have never been used.

If Andy Burnham is serious about devolution, he will need to recognise the quantitative difference between devolution to English regions on the one hand and Wales on the other.

They are not the same. One project allows different regions to deliver services within a single nation, but in a more localised way, and the other must allow significant fiscal divergence between constituent nations of the UK. Such a settlement would strengthen Welsh democracy far beyond devolving policing or the Crown Estate. It would allow devolution to finally have a fair crack at its original goals: improving the lives of the people of Wales.

Rot

Fiscal autonomy is the only serious solution to the rot at the heart of Welsh devolution – it would actually grant the Senedd – and therefore the people of Wales – genuine power. Until that happens, the Senedd will continue to be largely irrelevant to the Welsh economy and its people. Voter turnout will continue to be an embarrassment. And Wales will continue to slump.

Another benefit of such devolution would be that political leaders in Wales would – for the first time – become truly accountable for Welsh economic development or stagnation. As opposed to the current tradition of shifting the blame to Westminster whenever things don’t pan out.

But for now, without the tools to actually address Wales’ many problems, how will devolution ever deliver? Devolution in Wales is set up to fail. There is no real power in it, not really.

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