Thursday 25 January 2007

The Economic Case for Welsh Independence - by David Thomas

The following is an excellent post by David Thomas, Plaid Cymru's Montgomeryshire Candidate at the Welsh Assembly elections in May, that appeared first on his PLAID4MALDWYN blog.

The Economic Case for Welsh Independence

With polls showing 52% of Scots in favour of independence and 58% of people living in England in favour of Scottish independence maybe it is time to think again about the economic scenario should Wales become “independent” of the rest of the UK. I say “independent” because no country is really independent these days and the term tends to conjure up images of complete separation and isolation. The UK, along with all the other countries in the EU, has ceded some of its legal independence to the European Commission and has ceded other rights to the UN. It is also a signatory to a number of international agreements and has binding terms of operation with the G8 group and the World Bank and IMF so not even the UK acts completely “independently” in all it tries to do. By “independent” I simply imply that Wales would be a full member of both the EU and the UN and would negotiate its position in any external concords. But crucially it means that wealth created and taxes raised here in Wales could be spent exclusively in Wales.

Size Does Matter – Small is Good!

It is not the size of a country which determines its success. Eight of the ten richest countries in the world, including all 5 Nordic countries, have populations of less than 10m. Slovenia (pop 2m) is already richer than Wales and Luxembourg (450,000) enjoys one of the highest standards of living in the EU. In Ireland (pop 4m) in the 1960s living standards were two thirds lower than those in Britain, only 20% went to Higher Education and there was mass emigration because of poverty yet by the late 1990s Ireland enjoyed a higher standard of living than Britain because it maximised its potential and optimised its position as a small country. Small countries are more agile and can respond more quickly to global opportunities, small countries are more cohesive, information flows more quickly and they have more of what economists call social and network capital. Small countries can also clearly identify their interests and tend to guard them fiercely. In addition natural resources (though Wales has plenty of these) are no longer essential to a successful economy and distance is no longer a determining factor for profit making (at least in “information” industries).

The Legacy of Direct Rule

The 1536 Act of Union abolished Welsh laws and effectively created a single country of EnglandandWales (Scotland voluntarily joined the Union in a looser sense in 1707). From 1536 until 1999 Wales was basically under “direct rule” from Westminster where its MPs were hopelessly outnumbered when it came to voting on national interests. The Welsh Office was established in 1963 which introduced some decentralisation into Wales but it only administered the decisions already made in Westminster. The 1999 National Assembly for Wales brought about a small element of devolution but only some matters were devolved to Cardiff and the decision-making was confined to secondary legislation.

The net effect of centuries of “remote control” has been a scandalous under-investment in Welsh public services and a woeful neglect of its historic problems including the legacy of the extraction industries. The GVA (gross value added) per capita is now £3000 or 22% less than the UK average and still declining. Wales’ long-term growth from 1972 – 2002 was 16th, i.e. bottom, of the EU countries, with Ireland and Luxembourg, two of the smallest countries at the top and its projected growth to 2013 is the lowest of all the UK regions.

Will Things Ever Get Any Better?

Is it inevitable that Wales will continue indefinitely as the “poor man of Europe”? For the second time in 6 years the Valleys and West Wales have been considered so poor that they have been given Objective One money from Europe to try to lift them from the chronic cycle of unemployment and deprivation. On a crude level it is probably true to say that Wales has 5% of the UK population and generates about 4% but consumes about 6% of its wealth so on the surface it looks as if Wales is relying on “subsidies” from the rest of the UK to keep it afloat but there are a number of assumptions here which need to be challenged.

First it has to be said that while the current situation makes Wales look like a “debtor” nation (and, it should be remembered, most nations, except for China, are) historically Wales has generated vast amounts of wealth for the UK exchequer which have been spent outside Wales. One can only guess at the billions of pounds (on today’s levels) of tax which have been levied in Wales in the past when Coal was King. The first million-pound cheque was signed in the Coal Exchange in Cardiff in 1913 and, had Wales been able to spend the taxes raised here exclusively in Wales, we would have been like present-day Norway – a small country enjoying a very high standard of living on the basis of having natural resources which the whole world wanted.

Secondly, historically and still today, natural resources such as water, electricity and forestry are “exported” to England with no identifiable taxation returning to Wales.

Thirdly, it also has to be said that it doesn’t matter how much “subsidy” Wales appears to receive from the rest of the UK no amount of money will ever, ever compensate for the tragic and avoidable loss of innocent life on 21 October 1966 when 114 children and 28 adults were engulfed in a tide of coal waste in Aberfan.

Coming to the present, however, it is not inevitable that there be a perceived gap between what Wales puts into and what it gets out of the UK.

First, the government itself admits that there are “no meaningful statistics” about the tax collected in Wales apart from personal income tax – nobody has any idea how much corporate tax, VAT or other taxes such as vehicle licence is raised in Wales because it all goes to London before it is redistributed to Wales. Better figures exist for Scotland but even there it has recently been calculated that Scotland was in “credit” to the UK by £300m last year. This is particularly interesting as Scotland receives public spending per person of £7346 each year compared with Wales’ £6901, England’s £5940 and a massive £7945 for N Ireland. Wales is quite possibly “richer” than the figures on personal wages and income tax suggest.

Secondly, it should be possible for Wales to increase its wealth by following Ireland’s example in its economic miracle and cutting corporation tax. This would attract firms and compensate somewhat for the physical remoteness of Wales from major markets and generate more corporation tax, jobs and, hence, income tax. An independent Wales would also probably join the Eurozone (as Ireland) which would give a further impetus to businesses.

Thirdly, Welsh tax payers’ money is currently being used to “subsidise” UK projects which Wales really has no interest in. Wales has no need of nuclear power and the Assembly has voted against any new power stations (though is powerless to stop them being build in Wales because the decision rests with Westminster). The UK government, however, is setting aside £75bn for decommission costs for the new generation of stations of which Wales’ share is nearly £4bn. It is inconceivable that an independent Wales would want to share in the new Trident nuclear deterrent so we would receive £1.75bn back from that. An independent Wales would probably also baulk at having to contribute 5% of the £32bn the UK spends on defence each year. The UK government is currently paying £161bn for PFI (Private Finance Initiative) schemes, almost all of which are in England. Wales should receive a rebate of £8bn. Given that the Welsh Assembly receives only £14bn from the UK in the first place this already amounts to virtually a year’s budget and some of it would recur each year.

Fourthly, it is true to say that the UK government does spend money in Wales of course. The DVLA in Swansea organises the collection of car tax for the whole country and there are UK armed forces stationed and training in Wales. The Patent Office for the UK is based in Newport and the government may shortly be sending a lot of jobs to St Athan – its biggest investment ever in Wales. Historically, though, the government has invested nothing like the money Wales should have received according to its population or its “need”. In Defence, for example, 85% of government money is spent in the south-east region of England.

“Wales Can’t Survive Outside The UK”

Of course nobody knows whether Wales would prosper economically as an independent country or wither on the vine but there is not one of England’s former colonies from the USA to India or Hong Kong which is banging on the door and begging to be ruled once again by the mandarins in Westminster. Wales has enough expertise to succeed and is just the right size to carve out a number of “niche” markets for itself. Even coal, of which there are millions of tons left to be extracted, could once again become a source of wealth for Wales with the development of “clean coal” power generation. Wealth could be increased and need could be decreased as the ill health legacy of heavy industries wanes and the workforce becomes better educated as Wales' curriculum and assessment policies are currently almost entirely dictated by Westminster.

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