Adam Price AM, Leader of Plaid Cymru
Jonathan Edwards MP, Plaid Cymru’s Treasury Spokesperson
Today’s pre-Brexit budget will be a work of fiction that should perhaps be filed under fantasy.
Without any clarity on our future relationship with Europe, it is impossible to make any meaningful forecasts or, for that matter, implement any meaningful change of policy.
Since the 2016 referendum, the UK economy has decoupled from the rest of Europe. Lurching from the top of the growth tables to the bottom, it once again teeters on the brink of crisis – a decade after the great recession.
The economy today is £40 billion smaller than it might have been had the vote gone the other way – and that is even before we leave the largest trading bloc in the world.
What is worse, the mitigation measures employed to cushion – albeit minimally – the catastrophe of the 2008 finical crises remain maxed out. The headroom to respond to an economic Brexit shockwave is nigh on zero.
Interest rates sat at almost six percent prior to the 2008 crash. The fragile economy that emerged post-recession has been handled with kid gloves, meaning interest rates now sit below one per cent.
In all three of the last recessions dating back to the early 1980s, interest rates were cut by around five per cent in order to sustain economic demand. A cut of that size would not be available any time soon.
Almost a decade of austerity has left public finances looking gaunt to the point of skeletal. Without fat to trim, any post-Brexit squeeze on the public purse will mean the collapse of services.
And a further round of quantitative easing, on top of the £445 billion since the crash, is unlikely to have many advocates.
With its wealth boosting properties for the wealthy, QE is in no way a reliable route out of any recession.
The great uncoupling from the rest of Europe has begun. From the top of the G7 growth table before the referendum, to the bottom now and behind the majority of the remaining EU countries, the UK economy stands on the edge of a precipice.
The UK’s broken economic system existed long-before Brexit and will persist come what may.
This is neatly encapsulated in a single statistic: only three UK ‘nations or regions’ – as the statisticians put it – are in budget surplus. That is, the tax take is higher than government spending in only three parts of the entire British State.
No prizes for guessing which – London, the South East England and East of England.
The geographic pattern of surpluses and deficits has persisted for decades and unless the UK economic model is radically changed there is no reason to believe that it will not continue.
Implicit in such a model is an acceptance that the level of economic well-being in most of the nations and regions of the UK will continue to lag substantially behind London and South East England and be below their potential.
And yet, Wales is forced to fight off the erosion of our economy with one hand tied behind its back. The powers we need to reshape our economy remain hoarded in Westminster.
In fact, emboldened by Brexit, Westminster now seems set to snatch back control over economic development and the money received as a result of our EU membership.
Vital finance used to mitigate Westminster’s negligence will be kept from Wales despite promises that our nation would not be a penny less worse off.
With Brexit set to create an economic and constitutional aftershock, Westminster should instead take this opportunity to give Wales the fiscal powers we need to rebuild our economy.
Powers over VAT, airport duty and corporation tax, to name but three, could be passed to Wales so that we can create Welsh specific solutions to unique Welsh problems.
For example, we have floated the idea of a rebated corporation tax, based on income per capita.
In other words, taxes are lower where incomes are lower, whilst ensuring no short-term loss to budgets.
This would not be designed primarily to draw in foreign-owned firms, but to help our own businesses retain a greater proportion of their profits here in Wales, driving up their levels of investment.
Tomorrow’s Budget will not back up the ‘austerity is over’ claims. Economic and geographical inequality is barely an afterthought for Westminster.
Plaid Cymru’s pre-Budget proposals will begin to rebalance the entrenched economic injustice created by successive Westminster Governments.
Within the stranglehold of the British State, however, Wales will never reach it potential.
It is only through independence will we be able to build a New Wales.
This article first appeared in the Sunday Times.