Independence might seem like an appealing idea, but can it work in practice? Is Wales truly capable of standing on its own two feet?

A common argument against independence is that Wales runs a fiscal deficit, meaning more public money is spent in Wales than is raised in taxes. In 2020, this deficit was estimated at £14.4 billion,^[17] after being further impacted by the COVID-19 pandemic.

However, it is important to note that this fiscal deficit is neither inevitable nor unusual.

Where Does Wales’ Deficit Come From?

Wales currently runs such a deficit due to the economic mismanagement of being part of the UK. There is nothing preordained about Wales having to endure such a shortfall in revenue. Furthermore, there are no barriers – whether in terms of abilities, our education system, or our place in the world – that would prevent us from addressing this issue as an independent nation.

A look at fiscal balances over the last 20 years shows major fluctuations, from a low in 1999/00 to a high in 2020/21 (due to pandemic-related spending). The UK as a whole also runs a deficit, projected to reach £127.5 billion in 2024/25.^[18] At the peak of the COVID crisis, the UK Government borrowed up to £313 billion in a single year.^[19] 

Running a fiscal deficit is not unusual for independent countries. In fact, nearly all OECD countries have averaged deficits of between 3%- 8% over the past decade. According to OECD data^[20] the UK last recorded a budget surplus in 2001, with only six years of surplus since 1970.

As an independent nation, Wales would have the ability to reshape its economy – rather than being trapped in an exploitative, extractive system that prioritises Westminster’s interests over our own.

Would Wales Have to Raise Taxes or Cut Public Services?

Opponents of independence argue that unless Wales can close the gap between spending and income, independence would mean either significant tax increases or cuts to public services.

A major report commissioned in 2022^[21] suggested that Wales’ actual deficit could be as low as £2.6 billion. The final figure would depend on several key factors:

• Negotiations on state pensions and how the UK’s existing debt is divided.
• Policy choices an independent Wales could make in areas like defence spending.
• Adjustments to tax collection to ensure revenues generated in Wales stay in Wales.

A major example of how UK spending distorts Wales’ fiscal position is HS2. Despite not a single mile of track running through Wales, HS2 was classified as an "England and Wales" project. This means that billions of pounds that should have come to Wales were spent elsewhere, worsening the fiscal deficit figures.

Similarly, the UK Government allocates £2.7 billion per year to Wales for defence spending^[22] – a figure that could be significantly reduced in an independent Wales (see the section on Defence). Other spending that contributes to Wales’ supposed deficit includes:

• £13 billion to refurbish the Houses of Parliament.^[23]
• £10.5 billion lost to fraud during the COVID pandemic.^[24]
• £31 billion for a new fleet of nuclear submarines.^[25]

These are not costs an independent Wales would be forced to bear.

Can We Trust the Deficit Figures?

Scotland publishes annual reports on its finances (Government Expenditure and Revenue in Scotland – GERS). However, economists like Jim and Margaret Cuthbert argue^[26] that these reports fail to provide a full picture because they exclude investment flows and capital movement – crucial data that is recorded for the UK economy in the Pink Book but is not available for Scotland or Wales.

There are also serious limitations in the way Welsh financial data is recorded. Many figures are based on estimates rather than actual spending because the UK Government refuses to provide detailed breakdowns.

Economist Richard Murphy has challenged some of the underlying assumptions in the debate.^[27]

For example, because Wales and England share a legal jurisdiction, companies with multiple office locations often register in England, meaning that tax revenue generated in Wales can be recorded as English tax income.

The Office for National Statistics (ONS) has no access to more accurate data, meaning that much of Wales’ so-called deficit is based on guesswork rather than hard facts.

Wales in the Regional & Global Economy

Wales’ economy is not dependent on tourism or government jobs, as critics sometimes claim.

In 2022, the Welsh economy was valued at £85.4 billion ($105 billion).^[28] Per head, an independent Wales would rank just outside the top 30 in global rankings, comparable to countries such as Spain, Saudi Arabia, Japan, and Estonia.^[29]

Trade with the rest of the UK is important, but it’s a two-way relationship. Each year, Wales exports £32.5 billion to the rest of the UK and imports £37.4 billion in return. This trade is dominated by manufactured goods, not services, meaning that an independent Wales could still operate successfully within a wider Great Britain trade framework.^[30]

Wales’ Economic Strengths

Wales has several major economic advantages that could be fully developed after independence.

1. Renewable Energy

Wales already generates twice as much energy as it consumes.^[31] But to fully benefit from this potential, Wales must gain control over the Crown Estate, which currently directs profits to Westminster.

2. A Highly Skilled Workforce

In 2023, 45% of working-age adults in Wales held a qualification equivalent to a university degree,^[32] a higher proportion than six English regions. This skilled workforce is a key asset for industries such as:

• Advanced manufacturing.
• Aerospace.
• Digital technologies.
• The creative sector.

3. Developing Medium-Sized Businesses ("The Missing Mittelstand")

One of Wales’ biggest economic challenges is the lack of medium-sized, Welsh-owned businesses.^[33] This "Missing Mittelstand" – referring to the strong network of mid-sized firms that drive the German economy – could be strengthened through targeted policies in an independent Wales.