Tuesday, 5 August 2008

Independence Initiative

Helen Mary's piece in the Western Mail on our 'Independence Initiative' speaks for itself; I shall not repeat it here.

The accompanying article by Tomos Livingstone contained a suggestion that "some senior figures … (within Plaid) … feel it is something of a distraction." I haven't a clue where he gets that statement from. Nobody in the NEC raised any doubts when we agreed the plan, and not one single member of the party has subsequently told me that they have any such reservations. I'm afraid that this looks rather like an attempt to invent discord where there is none.

The response of the arch Labour-Tory MP Bryant was, as ever, entirely predictable and completely devoid of substance. The simplistic posing of rhetorical questions based on unstated and unfounded assumptions might look like a neat political trick, but it makes no contribution to any serious debate. Nothing new there then.

We do need a serious debate about the economics of Independence; and we need well-researched figures to underpin that debate. The problem with the sweeping statements which our opponents make about the economics is that they never spell out the underlying assumptions and caveats which inevitably surround any estimates.

It's very easy to say that government expenditure in Wales is higher than government revenue raised in Wales; but that isn't the same as saying that it's higher than the tax paid by people living in Wales, which is the more meaningful figure. People who work for large companies in Wales will often find that their income tax is paid in England, by the company's headquarters, along with the corporation tax on profits made in Wales, and the VAT on goods and services bought in Wales.

Putting that aside a moment, we should be challenging those whose opposition to Welsh Independence is apparently based entirely on the assumption that we would be worse off. If it could be proved that this argument is untrue, would they change their minds? Thought not – which tells us that their real objections are not economic at all. Serious debate requires them to be honest about their real objections to Independence.

15 comments:

alanindyfed said...

I feel you are right in thinking that some columnists invent discord where there is none. This betrays where their sympathies lie.

Here is an extract from another recent artcle by Tomos Livingstone:


"In general, the Eisteddfod is an opportunity for Labour to stake its claim as the party for Welsh-speaking Wales – as Mr Jones has suggested – after Plaid Cymru’s former Heritage Minister, Rhodri Glyn Thomas, disappointed many in his own party and further afield by failing to deliver on the coalition promise of a Welsh-language daily newspaper, Y Byd."

As we know, there is only one Party of Wales and other parties do their best to usurp this position.

It is important to set the record straight and not allow the public to be duped in this way.

plaidwrecsam said...

If a journalist can't even find an anonymous "senior figure" to quote, it suggests it's more fantasy than fact.
Bryant won't be half as cocky when he's picking up his P45.
More generally, it's good to see the confidence in Plaid growing and being unafraid to talk about the kind of Wales we want - that old inferiority complex that Bryant plays on has been hindering us for too long.

Draig said...

Yeah. Tomos Livingstone seems to be very busy at the moment. He recently published a piece about Labour's new "beefed up" policy on coal.

Apparently the Rhondda Labour party but a motion to Labour's recent policy forum at Warwick, in support of reviving the coal industry in South Wales.

The Department of Business Enterprise and Regulatory Reform is showing a growing interest in the coal resources of south wales.

If I didn't know any better, I would say that Labour is going to play the coal card in south wales during the next general election, in an attempt to shore up the valleys vote.

What is Plaid Cymru's policy on coal?

earthshaker said...

'we do need a serious debate about the economics of Independence'

your party also need to be seen to take the issue seriously there are business people supportive of the party who are turned off by the parties perceived lack of understanding of the economics involved, look at the blogs today where has any Plaid/Nationalist blogger picked up on Dylan Jones Evans comments today and offered some analysis, the only blogger who has flagged it up is Valleys Mam as usual.

Anonymous said...

It's a good challenge, John, and one all who oppose Welsh independence on the grounds of the alleged budget deficit alone should be prepared to answer. If not, as you suggest, it indicates a smokescreen to their true objections.

But it's also one that pro-independence advocates should meet; if the Welsh budget was shown to have a serious, structual deficit would you and others admit this as as impediment to independence and commit to being frank to the public about the implications for public services etc?

John Dixon said...

Earthshaker,

I think we probably have as good an understanding of the economics involved as anyone. But I entirely accept that we've not succeeded in communicating that effectively, partly because we've not been as forward as we should have been in promoting the Independence agenda. But I think that's now changing.

Anon,

I accept your basic point, but want to quibble a little about the question.

I entirely accept that those of us who advocate Independence do have a responsibility to be as open and honest as we can be about the financial implications. If and when we are asking people to vote on the question, they should know what they are voting for at that time.

The problem is that it may not be quite so black and white as that. Plaid could only put forward a budget for a Plaid government of Wales. We have attempted to do that at times in the past, but the lack of accurate information on some issues makes it quite a difficult task, and leads to a lot of assumptions being necessary.

Other parties may well have different priorities, and thus their budgets for an Independent Wales would look very different. The budgetary implications, in my view, depend less on the fact of Independence than on the programme of the independent government.

Take just one example, for the sake of argument. Should the budget for an Independent Wales include a contribution towards the nuclear 'deterrent' maintained by the UK government? My answer would be a very clear 'no'; Labour-Tory politicians might well give a different answer. Yet this is potentially a large sum of money; one which could make the difference between deficit and surplus.

There are a whole series of questions such as this which would need to be answered by all the parties, and the size and nature of any budget deficit or surplus will depend heavily on the answers given.

Dylan Jones-Evans said...

John - I am glad that you raise this issue as it is important to have a debate on fiscal autonomy for Wales, although it is not the only issue that would bar any move towards independence.

If you have any doubts about the data, then I would recommend you get a copy of the report from Oxford Economics, who produced the original report on fiscal balance that was reported in the Western Mail.

They are a fully independent body that has no political axe to grind at all.

I have discussed the results of the deficit with them.

Interestingly, given your comments, they stated that the tax paid on both a residence and a workplace basis is estimated.

For corporation tax, the estimates are based on value-added from the ABI - these stats are compiled on the basis of the location of each establishment rather than the overall enterprise.

John Dixon said...

Dylan,

Thanks for the contribution. I don't claim to be an economist (I did do some hard sums in school, but I don't think that counts), and I welcome input from someone who is.

The Oxford Economics report is a very useful contribution to the debate, as far as it goes. Any work of this nature is inevitably going to be based on assumptions to some extent, but I'd accept that there is no reason to treat the assumptions made in this study as being particularly biased either for or against the idea of fiscal independence. (The assumptions which I felt were most open to debate in their report were actually those relating to the way in which they assessed spending, particularly where it came to the "non-identifiable" services, such as defence.)

The report gives us a handle of sorts on the level of income available to an independent Wales assuming the current tax regime (although, of course, an independent government could always vary tax levels – in either direction).

But, and I'm sure that you'll correct me if I'm wrong, when the study talks about whether a nation/region makes a net contribution to, or withdrawal from, the total UK pot, doesn't it really take as a given the current levels and priorities for UK spend? It's a good analysis of regional input on the income side of the balance sheet; but any assessment of the fiscal implications of Independence surely has to take account of the potentially different priorities and expenditure levels of any independent administration. It has to look at spending as well as income, in short.

I highlighted in a previous comment the question of defence expenditure for instance. It has long been a Plaid argument that we would fix defence expenditure as a proportion of GDP at a level more in line with that of comparable nation states, rather than with that of former imperial powers which retain pretensions of a world role. That's one obvious example; but there are others. On the basis of the study, that reduction in defence expenditure on its own would not be enough to close the identified gap, but it would unquestionably make a dent in it.

Hence my assertion that the detail of the spending programme (and any proposed variations in tax levels) of any would-be independent government is actually more important than the mere fact of independence when it comes to assessing the fiscal impact.

The debate needs to move on from 'whether' a nation of 3 million can be independent; I think there's little doubt about that. The question is whether we should exercise the option or not, and the economic implications must be a part of that debate. And when we debate what the economic implications would be, we in Plaid certainly need to try and spell out as clearly as we can what assumptions we are making about taxes and expenditure. In attempting to refute our case, however, the other parties also need to tell us their assumptions, don't they? It is surely invalid, and shows a very limited imagination, for them to simply start from an assumption that an independent Wales would replicate UK spending patterns.

Dylan Jones-Evans said...

John - you seem to have lost a whole list of comments on this issue, including mine.

John Dixon said...

Dylan,

Apologies. There is some sort of wierd fault at Blogger which 'hides' the last four comments on this thread. I've found a work-around, though, and managed to restore your pearls!

ianjamesjohnson said...

Some interesting points on here - and I hope I can add to them!

The first of the criterion for the whole independence debate is surely a difference (or perceived difference) between neighbouring locations, based on distinct ethnic and cultural groupings. Wales has already shown itself to be distinct from its nearest neighbours in sporting, cultural and political terms, carving out its own identity.

First findings from this year's school census show that pupils in Welsh schools primarily identify themselves as Welsh in 55% of cases, and British in a little under 30% (6% were English btw). I'm not sure of the methodology used in the census, but self-identification as being Welsh rather than British suggests that there is differentiation from a young age, inside our current political system.

As we all seem to agree that Wales is distinct in many ways, the argument is where you draw the lines. While many will have a political view based on their own identity, the economy and funding are used to contextualise arguments for varying levels of autonomy.

Politicians in Wales largely choose between the current assymetric devolution system with its accompanying financial opacity in terms of spending and revenues (the Labour position?); a federal Britain whether with a four parliament system or a regionalised England and a transparent financial system (the Lib Dems?) and an independent Wales where the income and expenditure will be within Wales alone (Plaid?).

The first two automatically assume a financial transfer system between richer and poorer areas to ensure that a certain standard is maintained, and is part of the 'price' of the Union, in effect London and the south-east subsidising Wales and other less well-off regions. Independence would mean standing on one's own two feet and having an economy that can withstand whatever rigours the world market throws at us.

These three positions can be seen in the reactions of Chris Bryant, Peter Black and Helen Mary Jones in the past few days, where the former two cry crocodile tears about 'who will pay for us?', implicitly accepting that Wales cannot pay its way and requires a consistent level of handout from the prosperous south-east of England.

An independent Wales requires something different, though - a strong economy.

This isn't something written into the current devolution settlement, where the purse strings are held ruthlessly in London.

The discussion in Wales remains concentrated around how we cut the cake of the block grant - because we can't make the grant any bigger. By concentrating on this, give or take arguments about Barnett and Objective One/Convergence funding, Plaid have played within the rules set down by Gordon Brown in his devolution settlement.

If we want to stop playing this game, which is what is implied by recent columns by Adam Price and Helen Mary Jones, then we need to re-focus and re-prioritise our economic approach, gearing us towards wealth creation and successful homegrown business(=greater tax take, less social benefit spending etc.).

This is not to ignore the huge social needs that must be answered in too many parts of Wales, but recognising that effective use of handouts from others is one thing, but that the economic arguments in favour of independence can never be won without a greater focus on our economy - a challenge that can be ignored by those arguing either for the status quo, status quo plus (a post-GoWA referendum Wales) or a federal Britain.

ianjamesjohnson said...

Regarding expenditure patterns, the OEF report estimates a £4.2bn spend in Wales on non-identifiable government expenditure (as opposed to the 'identifiable' government expenditure published in PESA). This is characterised as largely defence spending, with other centralised functions also being included.

I'm not suggesting for a moment that Wales would 'recoup' that £4.2bn as some of those defence and centralised functions would have to be replicated in Wales (although, then, of course, we would have the tax take having transferred the jobs), but it would potentially make a big hole in the £9.1 - £9.4bn deficit estimated by OEF.

John Dixon said...

Ian,

Thanks for the comments. Although some died-in-the-wool opponents of independence continue to wail about 'who will pay for us', I believe that the debate has moved on. I think there's a growing acceptance that Wales 'can' be independent; the question is about whether we should choose to exercise the option.

We have to re-make the Welsh economy, as you say, not just assume that Wales is poor and always will be. And a number of newly independent states have adequately demonstrated that it can be done, if the will is there.

Depending on the centralised UK state to correct the relative poverty of Wales hasn't happened to date, and there is no basis for expecting it to happen in the future. The answer is in our own hands.

Illtyd Luke said...

Something else that could make a difference to this £9bn deficit is the coal-bed methane gas that exists in the South Wales coal field.

Licenses to extract this gas have already been purchased by an Australian company (at unknown cost). There are 3 areas where gas can be extracted. If an industry was formed in the Valleys from this we are talking about the possibility of thousands of jobs (real jobs not predicted St. Athan ones based on a dodgy PFI deal) which equals thousands of tax receipts. All within the current 'status quo'.

However if we did want to think beyond the 'status quo' that Ian Johnson identifies, it might be the time to start thinking about whether an independent Wales of whatever stripe would want to nationalise these gas reserves a la Venezuela, and use the resultant funds to finance social welfare spending. Whether this is feasible under the EU's liberalised market rules, I am unsure. Norway has consolidated it's oil wealth in a future fund. Could an independent Wales do the same? We are potentially talking about Wales' version of Scotland's oil card here.

Again, there are 3 areas which can be legally exploited, and the value of gas in just 1 of these areas is £5 billion under current market rates, according to my research. The market value of coal-bed methane will also only go up in the future because it is a fossil fuel.

There are of course severe and legitimate environmental concerns about any developments along this line, but if we are exploiting fossil fuels from South Wales again, it'd be nice to see the profits taxed and redistributed in Wales, rather than disappearing as happened with the coal industry.

John Dixon said...

Illtyd,

Adam Prie has recently talked about establishing a "Sovereign Wealth Fund" for this sort of purpose. I agree with him that we should at least investigate the possibility.

I'm not currently convinced though that we should be expanding the use of hydrocarbons - at least, not until Carbon Capture and Storage is a proven technology.