Why Welsh Secretary Simon Hart’s claim that Wales is too poor to be independent in nonsense

John Ball, former lecturer in economics at Swansea University

It had to happen. Some six months into a new government and the Welsh Secretary Simon Hart must have been desperate for the chance to add his voice to the ‘Wales is too poor’ mantra.

A Twitter spat last week provided just the opportunity. Replying to a tweet in which the writer suggested that an independent Wales would be wealthy enough to pay its way, he responded with astonishing arrogance “good luck raising the amounts needed.”

Good luck raising the amounts needed. Given the number of Welsh taxpayers and businesses there is absolutely zero chance of that being realistic.

— Simon Hart (@Simonhartmp) July 6, 2020

Well Mr Hart, allow me to enlighten you.

The initial report in 2016 by Cardiff University on Wales’ taxation and spending suggested a deficit of some £13billion, a figure eagerly leapt upon by Mr Hart and his ilk to prove how poor we are and how grateful we should be for the odd handout. A deficit is often referred to as a percentage of GDP (which is in itself misleading, the accepted definition actually omits much of the Welsh economy); in 2016 it was apparently 24%; by the time of the second report in 2019 it was 17%; an illuminating illustration of the dynamic nature of the economy.

As with any report of this type based – of necessity – on a number of different sources, requires careful interpretation. In this case both revenue and spending are best estimates, the former is understated; not all the data on taxation is delineated by the different countries of the UK; many sources of taxation are earned within Wales by externally owned businesses which declare tax in their home areas.

The latter is overstated; the approach taken by the researchers was the “who benefits” approach (an entirely correct approach to such research), which in this case means the entire UK.

Thus, there is expenditure that clearly would not apply to an independent Wales: for example, £2bn each on defence and non- domestic pensions and £5bn on “non identifiable expenditure.” In reality, the deficit is almost certainly much less and allowing for adjustments is probably nearer some 5% of GDP, very much in keeping with western economies.

 

Long term

In addition to the existing tax base – which would improve with a growing economy -there are relatively lucrative sources of tax not currently available to a Welsh Treasury, including exported water and electricity, tourist and land value taxes could be worth up to £10billion.

In addition to taxation, governments also borrow. There is no country in the world that pays its way solely on taxation, although Norway comes close. Finance is raised by selling Government Bonds that carry an annual interest, a redemption rate and can be denominated in a currency other than the domestic currency.

Interestingly, hidden away in the “non identifiable expenditure” allocation of the Cardiff report is an amount worthy of further examination; over £2billion in interest payments, almost 10% of total revenue. If this debt reflected interest payments on sovereign bonds issued by a Welsh government at (say) 10% interest – far in excess of current rates – then an amount of £20billion would be available; at an interest rate of 5%, some £40 billion would be available.

Before banshee cries warning of getting Wales into significant debt are heard, we are paying this amount now. However, in the current world of zero or near zero interest rates, a Welsh government could borrow over the long term at almost no cost and the current £2billion would be put to better use.

It is sad that the Secretary of State responded with uninformed cynicism not worthy of his post. Since he clearly sees his role as Westminster’s voice in Wales perhaps he could deliver the following message.

The current UK national debt is £2trillion and growing – good luck with that.