Friday, 22 August 2008

From the ridiculous to the bizarre

At first sight, it struck me as a little odd that Labour would use a virtually unknown councillor to respond to the debate on Independence. In a rather wordy piece, the actual arguments seem to distil down to a very small number of points, when the rhetoric is discarded.

The first argument is that Wales would have a budget deficit of around £5.4 billion per annum. For a number of reasons, I'd dispute the precise amount, but I am prepared to concede that, assuming all other aspects of taxation and spending in Wales remained the same, then there would be a deficit in the annual budget. But so what? The UK runs at a deficit, but that does not make it unviable. Many, many countries run a deficit, some more or less permanently. It doesn't make them unviable; and it wouldn't make Wales any more unviable than the UK.

The second is that Wales would have to take on a share of the national debt from day 1. The proposed basis of calculating Wales's share of the UK national debt, on a percentage of the population, seems reasonable to me, and I'm certain that Plaid have used the same basis in the past. So I agree with his suggestion that Wales would have to take on around £25billion of debt. On the same basis of course, England would be left with around £425billion of debt. How on earth will they manage?

The point, of course, is that a national debt in itself makes no difference to the viability of a country. Almost every developed country carries a substantial national debt at one time or another – why would anyone expect Wales to be any different? Wales and England, like the UK at present, would have substantial national debts - around £8,300 per head of population in each case – which would have to be serviced from revenue in both cases.

The third argument suggests that comparison with Ireland is meaningless because so much of Ireland's GDP is generated by multinational companies. Has he looked at the UK economy recently? Or the economy of any other country? Multinationals are a significant factor in most economies - it's irrelevant from a GDP point of view, and it doesn't make countries unviable.

The fourth argument suggests that Wales would lose civil service jobs as the DVLA and HMRC closed the day after the independence vote. This moves from the silly to the bizarre. It's not in the interests of either Wales or England to simply shut up shop the next day; both countries would be left without the facility to tax cars and issue driving licences, looking just at the DVLA. There would have to be discussions and negotiations. But Wales would need its own civil servants to perform a variety of functions currently performed in London. I suspect that the impact on civil service jobs overall would be positive rather than negative, given that so much of the UK civil service is currently centralized in London.

If these are the best arguments that Labour can put forward against Welsh independence, then perhaps, on reflection, it's not surprising that no more substantial figure in the party was prepared to put his or her head above the parapet.

13 comments:

Anonymous said...

Well said John, It made my blood boil after reading the article in The Western Mail, The more that the Labour Party attack Plaid and Independence with futile arguments bordering on ridiculous the more worried about their jobs they look, Welsh labour will no doubt try to keep up their scaremongering as a way of beating Plaid, But NOBODY believes them anymore. I do hope you send your article to The Western Mail and show All Welsh People how pathetic Labour's argument is.

Anonymous said...

I agree that it was a poorly argued piece, predicated on some rather old-fashioned assumptions.

Ironically, I think Cllr Rees came close to a good point when he mentioned the comparison with Ireland, but then veered off into what you rightly identify was a slightly bizarre discussion about the role of multinationals in wealth creation and retention.

Instead, he should have questioned how valid the comparison with Ireland is given the likelihood - if not absolute certainty - that any future independent Wales will emerge into a very different EU, with much less room to gain the same sorts of benefits of membership of that Union as Ireland did. In short, the sort of EU grant support that did so much for Ireland will not be there for Wales.

Debt, as you rightly say, is a feature of the finances of many an independent state, including members states of the EU and the UK. Nevertheless, it is incumbent upon advocates of independence to explain if not how they will balance the books of an independent Wales, then at least how they imagine the books to look under such circumstances. To suggest - as you and others have done - that it is just too complicated to forecast the finances of an independent Wales is not only unsatisfactory. It leaves a space where the "Wales cannot survive as an independent country" advocates thrive.

Scotland (arguably) has oil (not to mention a healthy financial services sector) , the revenue from which could be used to maintain acceptable levels of public expenditure in the absence of effective subsidy from England.

What do Plaid say an independent Wales will do to maintain spending in the absence of such resource, and with the knowledge that the EU won't be there as it was for Ireland? That is a legitimate question which I don't think your party has begun to try and answer.

alanindyfed said...

In the present political climate any senior Labour politician would not risk being shot down. It seems that they intend to stay together and fall together.

@led said...

What is the current UK deficit?

John Dixon said...

@led,

I think the current projection for the UK budget deficit for the financial year 2008/09 is £43billion, although there is a widespread belief that the Chancellor will find it difficult to keep the figure as low as that.

John Dixon said...

Anon 15:50,

The point you make about Ireland is certainly a much better one that Cllr Rees made. There can be no question that if Wales were to become independent, the nature of the EU, and the availability of funds, at that time would be very different. Since I believe (at the risk of antagonising some of my own colleagues!) that Welsh Independence is probably at least another 15 years away, it's very difficult to predict what the EU will be like at that time, although that doesn't invalidate your point.

I think it's also true that Ireland - and the fact that it has an independent government may well have been at least a factor in this - made much better use of European funds, ploughing them into infrastructure projects. There seems to have been rather more vision about what they wanted from the funding, rather than simply a desire to spend it.

Actually, I agree with you that those of us who argue for independence should try and give at least an indication of how we think the books would look. We should certainly do that as accurately as possible if and when we get to the point where the people of Wales are being asked to vote for or against independence, and I think we should be doing it at intervals in the interim. Indeed, Plaid has done so in the past, although the work is now outdated, and I agree it needs updating.

Of course, we can only prepare figures for how an independent Wales might look under a Plaid government; the figures might be very different under an independent government of a different colour; as I have suggested previously, the programme of the government is at least as important in this regard as the mere fact of independence.

Cibwr said...

I have always thought that the tax take from Wales is somewhat exaggerated – downwards. After all are not the receipts from corporation tax based on where the company is based, i.e. its registered head office rather than where they generate their income? Thus I suspect a good proportion of wealth generated in Wales is accounted for as taxation registered in London and thus lowering the nominal tax base in Wales. If I am wrong please correct me.

Certainly Wales is in a weak position with regards to being financially viable, but that is a reflection of how badly we do within the UK. Given time, and a good government of Wales that can change.

Draig said...

New post on my blog relating to the independence argument here;

www.thebigwelshgasproject.blogspot.com

Hope you don't mind the plug John!

John Dixon said...

Cibwr,

As Dylan pointed out in a comment on a previous post, the work done by Oxford Economics (the study which estimated a £5.4billion deficit) did make a reasonable attempt to allocate corporation tax to Wales. It remains an estimate, but it's probably as soundly based as any other estimate; at the very least it's a reasonable starting point for discussion.

However, the same study effectively assumed that Wales' military expenditure would be of the same order as that of the UK - an assumption which I would certainly challenge. There are also issues around other 'non-attributed' spending as well.

Arguing against independence on the basis that Wales is economically unviable is an enterprise doomed to failure, as so many newly independent countries have proved.

Draig said...

I think for a start, we could actually save money by removing ourselves from a state which still harbour's "Great Power" ambitions, mainly by tagging along after America like some kind of little doggie.

UK defense spending has risen to around £32 billion a year - a major factor being our interventions in Iraq and Afghanistan.

On a population basis that makes for a Welsh contribution of £1.6 billion to the military budget.

Given that an Independent Welsh state is unlikely to harbour pretensions above it's true position in the global scheme of things, I think we can safely cut that sum substantially.

Even a budget of £600 million seems a lot, and that would save us a billion pounds to allocate towards more worthwhile causes.

Maybe that's something our Labour councillor might like to consider -no doubt as an "Internationalist" he supported a Welsh contribution of £370 million towards the wars in Iraq and Afghanistan.

Anonymous said...

On the DVLA issue surely there would be job losses.

I dont know how many people work in the DVLA, but say it's 5000. So 5000 people working there to tax the cars of 60m people, then it's not gonna take 5000 people to tax the cars of 3m people.

Surely the vast majority of the jobs would be relocated to England to tax the cars of the 50m people there.

I would also thought it would be in Englands advantage. I'm sure somewhere like Liverpool or Newcastle would love around 4000 jobs!!

Why would an English government pay 4000 people in Wales to tax Englands cars? Would we do the same if the situation were reversed?

John Dixon said...

Anon,

You are in danger of following Cllr Rees' mistake of taking only a one-sided look at the issue of civil service / government agency jobs. Certainly, there are staff in such roles in Wales whose services are provided to the whole of the UK, and the DVLA is an obvious example. It is, however, perfectly possible that an agreement would be reached to continue to provide those servics from Wales.

"Would we do the same if the situation were reversed?"

Actually, the situation is reversed. A large proportion of taxes from Wales are collected by civil servants in England, and most civil service departments for non-devolved functions have their headquarters in England.

If England and Wales were two independent countries, their respective governments would have to discuss and negotiate, during a transitional period, how to deal with this sort of situation. One option would clearly be for one government to pay the other for services received; another would be to set up separate and parallel organisations to perform the functions in the two countries.

It is by no means as simple as saying that agencies based in Wales simply close and Wales faces a net loss of jobs, because in that scenario, there would be a large number of compensating jobs for the functions currently performed in England. I don't think anyone has precise figures, but overall, it is perfectly possible that an independent Wales would see a net gain of jobs within the government sector, rather than the net loss which you are assuming.

John Dixon said...

Draig,

Yes, military spending is one obvious area where the pattern of spend of an independent Wales would be very different from that of a post-imperial power which retains its pretensions fo a world role.