Welsh independence and the Wales budget deficit myth
Llew Gruffudd
Following a recent article on whether Wales is too poor to be independent, this piece looks at the myth that many see as the greatest barrier to independence – Wales’ budget deficit.
A deficit that shows that Wales cannot pay its way.
A deficit that shows that Wales is dependent on the Westminster government to fund its public services
A deficit that would require large tax rises or public service cuts when Wales becomes independent
A deficit of £13.7 billion in the 2019 Wales financial assessment. A frightening amount
Except it’s a myth. A financial sleight of hand.
The figure, £13.7 billion came to prominence in a report of Wales finances by the Wales Governance Centre (Cardiff University) based on the Government Expenditure and Revenue, Wales (GERW) figures.
£13.7 billion. The shortfall between Wales expenditure and revenue. They have been used since, by a variety of sources, to beat independence on the head.
Except that deficit doesn’t exist, neither presently, nor in independence.
As the authors of the report concede, accurate financial data for Wales is problematic.
Very little is collected on a Wales specific basis. It is either Wales/England or UK wide. Tax revenues are collected on a UK basis.
When apportioned to Wales, this is carried out mainly by estimates, assumptions or adjustments (the words of the Wales Governance Centre and HMRC).
It used to be called educated guesses in the old days.
The figures in GERW and therefore Wales Governance Centre report are, at best, suspect.
Anomalies
Indeed Professor Richard Murphy, Professor of Accounting Sheffield University, a former Chartered Accountant and director of Tax Research, asserts that 90% of the financial data in GERW has no verifiable audit trail.
HMRC itself concedes that Wales’ revenues are understated. That some tax revenues (the amount undefined) mainly corporate taxes and VAT, of businesses producing in Wales, are allocated to the HQs of those businesses outside Wales, rather than to Wales’ revenue stream.
On the expenditure side, that is estimated, mainly on a population proportion basis and throws up such anomalies as Wales’ annual defence budget of £2 billion, which means that Wales has the largest defence budget of any country in the EU, per capita or as a proportion of GDP, and not a tank in sight.
Professor Doyle of Dublin University, is lauded for his analysis of Wales’ deficit in independence, however, he too is guilty of conclusions using dodgy data.
He rearranged the data for independence making sensible adjustments, but as it too is based on the data from GERW, his actual conclusion must be suspect.
Suspect figures
It is reasonable to accept his analysis that the deficit in independence would be considerably less than that assumed at present, but an accurate figure using this data is not possible.
Indeed with the present system of collection and distribution, and convenient accounting (the Wales Governance Centre concedes that its report was compiled outside normal accounting convention), no one really knows what Wales’ budget deficit is, or even if there is a deficit.
What we can be confident of, is that it isn’t at the level presented.
There is a common statistical principle, that when dealing with suspect figures, always ensure that any outcome makes logical sense.
In the period of Wales’ £13.7 billion budget deficit, the UK budget deficit was £39.7 billion.
Which means that Wales, with 4.8% of the UK population, is responsibles for 35% of the UK deficit.
Logical sense?
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.
“Which means that Wales, with 4.8% of the UK population, is responsibles for 35% of the UK deficit.” which would place any deficit closer to £2 billion but probably lower as most capital investment goes into Central and South Eastern England
I do agree. The finalsentences say it all. Our best guestimates in the end come down to our £75Bn economy which is by contemporary measures, underproductive as a direct consequence of UK economic policy … just as tracts of England find in this inequal UK. As someone pointed out, if we taxed the same as France, spending in Wales would be covered. I used to write a lot about GERW when I was active on Twitter. It was me who pointed out that the “GERW deficit” was not in fact Wales’ at all. It is the UK’s notional estimated internal… Read more »
More please, Llew. Wales needs all the Annibendods and John Balls we can get, to fix the figures in peoples’ minds. If Wales can be self-sufficient it completely shifts the mindset – from negative to positive. It looks like we may be self-sufficient or close to it. We need to know.
For independence to succeed we need honest, positive, strong and forceful AMs with balls to tackle Westminster and who are competent enough to fight for Cymru and the Cymry . Not ‘yes men’ who pander to Westminster and cower down when something we desperately need is refused and only in government to finance themselves. They must stop these outside developers coming here, profiteering on our resources and then legging it out of here across the border with their pockets full of cash and very often with Welsh government grants too. You couldn’t make it up. We give them grant money… Read more »
Prof Murphy’s research in 2019 showed that GERS (Scotland) was established by John Major’s team and the figures calculated in a skewered way to give the false impression of Scotland’s reliance on English funding….The intention was to “kill” the Indepenence argument.
Treasury documents back this research. The Doyle research shows that Westminster is just as devious when discussing Cymru.
The fact that both the main London parties continue to use this suspect accounting method to keep Cymru quiet is a clear indication of which nation they really support.
It still gets down to the real world of politics which says Welsh independence is not on the political cards at Westminster and that won’t change. I mean the majority of Welsh seats are Labour, to start with. The chance of PC getting all the seats is just nil – they only get votes in Welsh language strongholds and that doesn’t allow PC any appeal into the majority of English speaking Wales. PC can’t even be the Senned government . Even if PC somehow got all the Westminster seats the numbers involved are so small that Westminster would just ignore… Read more »
“Which makes this sort of opinion piece irrelevant.”
The calculations make it awkward, inconvenient and difficult for British and English Nationalists or Unionists as they prefer to be known as.
All we need to do is demonstrate a democratic majority to establish a Welsh State, then we call a constitutional convention and if there is a majority, we UDI. There is no legal means for the UK to prevent that owing to the fact that Wales was annexed. If we want our Statehood they’ll have to send the tanks in to stop it and become international pariah’s in the process. They tried it with Ireland and failed. They couldn’t cling on to their colonies. All we need is that democratic majority. So, in fact, a highly relevant opinion piece.
No need to send in tanks. England could just seal its own borders. In a computerised age, stopping cross-border payments would probably suffice to end UDI. If Cymru-Wales is to become an internationally recognised independent state, it will have to negotiate that.
Again, good luck with that. Pariah status incoming and a stack of litigation. Of course negotiation will be necessary but they cannot stop us if it is our demonstrabe democratic will.
The people of Cymru-Wales will not vote for independence without knowing how the many issues around the border with England will be resolved. Independence is impractical if it implies isolation. Nor will most people want conflict with family and friends living in England.
You are missing the point about UDI. See my comments below.
Actually there’s a small lobby within the Welsh Labour Party that support Independence. Whether or not that will grow only time can tell yet many Welsh Labour Party members do not align themselves with the Blairite agenda of Starmer. What you say about Plaid Cymru struggling to make headway outside the Bro Cymraeg is on face value very true, but that hasn’t always been the case. In the 1999 Senedd Elections they actually won In The English speaking constituencies of Rhondda and Islwyn and turned Swansea East and Gower into marginals. However they failed to build on that and their… Read more »
This sort of opinion is meant to inform. To let the Welsh public know that they are misinformed about the barriers to Independence. Then they can make informed decisions. Welsh public opinion is a vehicle for change. So no. This opinion is not irrelevant, much more similar would be welcome. When the Welsh people decide they want Independence, the views of Westminster becomes irrelevant.
Westminster decisions have many downsides for Wales, but like many others I am still to be convinced of the case for independence. We need a rigorous and honest debate about the fiscal costs and benefits and none of what I’ve seen yet persuades me.
Professor Doyle’s report is frequently quoted as showing that the fiscal deficit of an independent Wales would be smaller than often thought, and he makes some good points. But his heroic assumption that English workers would pay Welsh pensions illustrates how realism is too often sacrificed for fantasy.
Lyn. Of course you need to be convinced and no single opinion or report will do that. It is right however that you get a balanced view, something that has been lacking so far, You are right in demanding a debate, again something that has been sadly lacking. To do so however, we need the correct facts in that debate, I said in my piece that Professor Doyle was in error by his use of dodgy data. The same accusation could be levelled at you, using the argument of English workers subsidising Welsh state pensions, whereas Welsh pensioners have contributed… Read more »
The question here is not whether Welsh pensioners’ contributions entitle them to a pension but which post-independence state should meet that obligation, England or Wales. The Spain/France analogy would apply only to the case of someone who had spent their working life in England then chose to retire to Wales. That case cannot be generalised to apply to all pensioners living in Wales. Welsh workers are indeed paying into the UK Exchequer but at the same time Welsh pensioners are being paid out of it. Doyle makes no allowance for that. If it is ‘fair’ that the English exchequer (the UK state would no… Read more »
” But would any English Prime Minister want to explain to the House of Commons that English taxes must be increased to pay pensions to the citizens of a foreign state?” But they already do pay state pensions to citizens of a foreign state. Those People who have emigrated to the Rep of Ireland and have taken up Irish citizenship receive a UK state pension. You’re posing a question as a problem when the solution has already been set by precedent. It’s possible to work out what proportion of state pension should come from past NI contributions to the UK and… Read more »
I’ve just realised that I used the incorrect basis for the ratio.
The 17:1 remains the same it’s the time ratio that changes from
35:0 down to 0:35.
35 years being the time needed to be eligible for present UK state pension.
Those who have spent their working life in England then retired to Wales would indeed have a claim on the English state. I have already acknowledged that. But this is not the general case. Pension claims cannot be assumed to be met by the English state (the UK state would have dissolved) for those who have worked in Wales. The error here is to assume that the UK Treasury holds a pot of gold accumulated from pension contributions to be divided up amongst those who have contributed. That is not how state pensions work. They are paid from current taxes… Read more »
“The error here is to assume that the UK Treasury holds a pot of gold accumulated from pension contributions to be divided up amongst those who have contributed. That is not how state pensions work. They are paid from current taxes and NI payments.” It’s not an “error” it’s the choice of UK governments electing to do it that way for 100 years. That choice has a consequence which your last sentence outlines. That choice has been with the case of the Rep of Ireland citizens been “honoured” in the past. That an independent England would in the case of… Read more »
The Rep of Ireland precedent does not deal with this. The UK government does not pay pensions to Irish pensioners who have never worked in the UK. Similarly, I see no reason to expect an English government to pay pensions to Welsh pensioners who have never worked in England. Yes, it was a decision of the UK government to fund pensions through pay-as-we-go rather than through accruing a fund. Wales was part of that decision-making process. Indeed, Welsh politicians, elected by large majorities, were at the heart of creating the UK welfare state as it exists today. It would not… Read more »
For simplicities sake the following principle considers the issue for Cymru and England only. Cymru like England is part of Englandandwales and workers in both would be paying NI contributions into the Englandandwales pot until both achieved independence. Up until that point (based on population sizes). Workers in England would be paying seventeen eighteenths into the Englandandwales pot and workers in Cymru one eighteenth. Therefore each year up until independence, as it is an Englandandwales pot rather than two separate ones, 17/18ths of NI contributions from workers from Cymru go to paying the pensions of retirees in England and 1/18th… Read more »
If you want to claim our past contributions as relevant then you also have to recognise the relevance of our past receipts. I haven’t examined the figures but I suspect that this balance would be less favourable to us than setting aside both past debits and past credits.
As you say, there would need to be considerable negotiation. Our integration within the UK is far broader and deeper than that of the UK was in the EU, and experience has confirmed the difficulty of disentangling that.
“If you want to claim our past contributions as relevant then you also have to recognise the relevance of our past receipts. “ And of course that works both for all manner of things. We could claim 1/17th of the British Museum and it’s contents! The relationship between England and Cymru has historically been an extractive one in England’s favour and looks very much like continuing in that manner. I haven’t examined the figures but I strongly suspect that in it’s entirety this balance would be more favourable to us. Better to come to a deal that includes everything than pick… Read more »
A comprehensive balance (if it could be calculated) might well show that England has extracted value from Cymru. I have been responding to a specific claim about pensions which I don’t think is accurate.
Your British Museum example is unfortunate. Many (perhaps most) of its artefacts have been stolen or bought through forced or unequal exchange. They should be restored to their rightful owners, not shared with us.
This illustrates a wider issue. England has exploited Cymru but Cymru has participated in, and benefitted from, the UK’s exploitation of much of the world.
Surely you’d have to concede that Cymru’s share of the UK assets goes beyond the example (made for effect and annotated with a !) I gave.
If Cymru is a member of a Union then we are entitled to a share of the Union’s assets.
If we are a colony of another country we are not.
Assets AND liabilities. And we have to recognise that Cymru has benefitted from Britain’s imperial history.
“an example where such a thing has has been achieved”. Where did you have in mind?
Republic of Ireland
I guessed RoI. The past century illustrates the difficulties of still unresolved disentanglement, as ongoing disputes over the consequences of Brexit confirm. And Cymru is today much more deeply integrated with England and the UK state than Ireland ever was. Independence is possible but would not be easy.
I haven’t said it would be “easy”.
But solutions are to be found to obstacles whether the obstacles are under or over estimated.
.
On a personal level divorces can be very complicated but partners breaking up does happen .
Partnerships that on every level imaginable are much more deeply integrated than England and Cymru ever will be.
England is more dependent on Wales than Wales England truth be told. It’s just fact. The supply of Welsh Water is fine example. The likes of Liverpool, Birmingham , Manchester and those regions supplied by Severn Trent would collapse if the taps were turned off. I’ve often used this argument to Unionist who dared state Wales is too poor to survive on its own. I replied. If the United Kingdom is so great for Wales why then is Wales too poor to survive on its own seeing we have it so good. Shouldn’t Wales be prosperous meaning we have the… Read more »
Wales and England and interdependent in many and varied ways. Rhetoric does not answer the practical questions people will want answers to before voting for independence: is my pension secure, what about my job; will my business be able to trade across the border; will I need a passport to visit my children; will my taxes be higher or lower; etc. Those advocating independence would do well to address such matters, not to persuade Westminster but to convince their fellow citizens in Cymru-Wales that it would improve their lives.
This is true, but you should be aware that for a long time now, we have been told a deceit that we are dependent on England. That is why many Cymru have an offensive defence on these matters.
I understand that but ‘offensive defence’ alienates more than it convinces.
We first need to get our own act together if we are to convince people that we are capable of running more of our own affairs. Too many Welsh institutions (Welsh Government, political parties, fire service, WRU, BBC Cymru, S4C, etc.) have suffered recent scandals that have damaged their reputation. No wonder many people living here are sceptical about Cymru-Wales having more power in or out of the UK. We need to fix this.
Waiting for things to be perfect is a device to prevent change. Independence isn’t about creating a perfect state. It’s about the freedom to make our own mistakes instead of suffering the mistakes of others. And let’s not forget the current crop of administrators in Wales isn’t the same as those who would be running an independent state. More power means more interest in the jobs. Many of the diaspora who left to find this power would return to take these roles. That’s why devomax should be seen as an opportunity to upgrade the ruling class in Wales, whatever your… Read more »
Quite right – see the UN declaration on colonialism … “lack of preparedness is no excuse to deny statehood”.
Expecting the diaspora to rescue us is like the Arthurian legend of awaiting the return of the king. We can’t wait for outsiders to solve our problems. We must tackle them ourselves, here and now.
Ever heard the phrase “softly, softly …”? It works both ways. I remain convinced that the best approach is Plaid’s policy, albeit underdeveloped and insufficiently shared. That is a confederal union of Welsh, Scottish and English nation states. Such a creation would require a British Council or “Council of the isles”, akin to the European Parliament. The majority of people I talk to outside of the indy bubble respond very positively to the idea – people from all over Britain that is. The only ones who don’t like it are Tory/Unionist diehards (a minority) and those who want 100% sovereignty… Read more »
As I’ve said, I have no in principle agreement to a confederal union on the right terms.
But I do not believe a majority will ever vote for that unless we can prove we are capable of managing our own affairs and can answer the practical worries about how it would work.
You believe wrong.
So you believe a majority of the people of Cymru-Wales will vote for independence even without confidence that we could run our own affairs, do not know the future of their job/pension/business/taxes/mobility, and many other questions.
Those wanting independence would do much better to address such issues than arrogantly dismiss them.
The obvious answer is for an independent and respected body to complete what would appear to be the difficult and complex task of assessing our true financial position. This would enable the debate to move forward and for those on both sides to have an accurate reference point. It is time for the hard yards in the movement to greater independence.
Unfortunately, this is easier said than done. The Office for Budget Responsibility struggles to give apolitical estimates, as the current arguments over the ‘black hole’ illustrate. Trying to estimate the fiscal or other positions of a putative independent Cymru-Wales is harder still. The required data are often missing or of poor quality. The Office for the Internal Market’s estimates for trade between the component nations of the UK vary widely from year to year, partly because it is still grappling with the statistical challenges. Fiscal and trade balance estimates post independence also critically depend on assumptions about external relations, an… Read more »
Yes, do try. You have a clear starting point and presume a great deal.
I notice that neither you nor anyone else has tried to refute my point that workers in England cannot be expected to pay for the pensions of citizens of a foreign state, except in some special circumstances.
They could be expected to pay as they and their predecessors received the benefit of the work those now pensioners undertook. State pensions are paid to those who contributed wherever the recipient lives Based on the general good and prosperity of the UK as a whole and the contribution to it made by now pensioners in Cymru then a ration based on population of about 17 to 1 would would make an independent England paying a pension outlay of 17 from England 1 from Cymru This.arrangment would exist at independence with Cymru over time contributing more util it was paying… Read more »
All this nonsense urban myth about independence meaning isolation! Let’s clear this up. It’s like wading through treacle honestly! I feel like I’m debating with Mike Hedges again … Plaid Cymru wants Democratic Statehood for Wales. Should Plaid Cymru in future receive that democratic mandate it would begin the process of negotiations to realise that end. In fact, in those circumstances, Plaid’s policy is to seek constitutional reform and look to agree on a replacement for the moribund UK which would be a confederal union of Wales, Scotland and England. If, in the unlikely event that the UK govt of… Read more »
The treacle is spread by avoiding the issues. I repeat – again – that I have no objection in principle to a confederal union if that is the democratic wish of the peoples of the nations involved, and if the negotiated terms are right. Those terms are not irrelevant to the desirability of such a union. They must protect the rights and opportunities of our people. Learning from Brexit, this time there should be a referendum both to initiate negotiations and to agree their outcome. UDI is the antithesis of a negotiated confederal union. Your belief that UK government would then… Read more »
UDI by Cymru is an extremely unlikely scenario.
UDI without the support of a large majority it is even more unlikely
UDI as the result of the machinations of a small group is pretty much fantasy fiction territory.
UDI by Cymru and its consequences for Cymru as in the case of any other democratic country only happens when the status quo is even worse.
I agree. I wish people would stop fantasising and focus on solving our real problems, of which we have more than enough.