This month, a ground-breaking new report revealed that the fiscal deficit of an independent Wales would be over 80% lower than the figure previously quoted by the UK Government.
The report – written by Professor John Doyle of Dublin’s City University – has been heralded as a “game-changer” within the Welsh independence debate, and this week, we will analyse the findings of this report.
In an article published last month, we showed that opponents of Welsh independence have frequently cited Wales’ fiscal deficit as an obstacle to independence.
The figure frequently trotted out by Westminster is a Welsh deficit of £13.5 billion reported in 2019 but even the Office for National Statistics acknowledges that these are “experimental figures”.
This figure is supposed to represent the gap between taxation raised in Wales and public expenditure in and on Wales. In other words, it is Westminster’s claim that Wales would be £13.5 billion worse off were it independent.
However, this claim has now effectively been deconstructed in Professor Doyle’s report.
Firstly, Professor Doyle shows how the oft-repeated £13.5 billion figure is calculated. He argues that the figure is based on three essential components: taxation raised by the UK Government in Wales, public expenditure in Wales, and an allocation to Wales on a per capita basis of central UK expenditure (including defence, national debt repayments, central government, and British embassies abroad).
While determining tax revenues based on the number of people resident in Wales and the number of corporations based exclusively in Wales may be relatively straightforward, VAT, Capital Gains Tax and corporation taxes paid by companies who are active across the UK, is far more difficult to determine, as these taxes are paid by their head offices, who are often based in England.
An example of this might be water and offshore and wind energy. While the resources might be extracted from Wales, the companies who pay tax on the profits generated from them, are likely to be based outside of Wales.
Other issues that call into question the accuracy of the £13.5 bn figure includes “identifiable expenditure” (such as public spending on health and education services) and “non identifiable expenditure” (which includes defence spending on projects such as Trident, a far smaller proportion of which Wales would take on post-independence, if it chose to do so).
Professor Doyle argues that the £13.5 bn figure does not take account of adjustments reflected in a post-independent Welsh, such as a reduced foreign aid budget and defence spending.
He also argues that the UK Government would still be liable to pay the pensions of those who have paid into the UK coffers while Wales was a member of the Union, as the UK Government does so in respect of retirees outside the UK.
The scope of Professor Doyle’s report is too large to explore in further depth here however, he concludes that an independent Wales’ fiscal deficit would be closer to €2.6 bn (£2.26 bn), a staggering drop of over 80% compared to the £13.5 bn reported by UK Government.
A deficit – while an inconvenience – is common amongst most major world economies and is not a barrier to independence.
While we are grappling with a crippling cost-of-living crisis and rising poverty levels, it is time to explore whether we can do better as an independent country.
The question is not, can we afford to be independent, but can we afford not to be?
This is an article written by Maria Pritchard of Yes Milford Haven and published in the Pembrokeshire Herald newspaper on 14.10.2022