Thursday, 7 January 2010

Who pays what to whom

From a comment made on a recent post, it seems that there is still some confusion about the difference between Wales' budget deficit and the amount of money passed to the Assembly each year under the block grant. There are those who seem to think that the whole of the block grant represents some sort of 'subsidy' to Wales, despite the fact that it amounts to less than the total of taxation collected in Wales each year.

In Germany, I believe that the system works the opposite way. All taxes are actually collected by the regional governments, or Länder, and a proportion passed on to the central exchequer to cover federal costs and central government expenditure not covered by the regional governments.

Perhaps we should move to a similar system, with all taxes collected in Wales going directly to the Welsh government, which would then be required to remit an annual sum of money to the UK Exchequer. That would not, of itself, solve the problem of an unfair Barnett formula, nor of necessity generate any extra income for the Welsh government. Nor would it change the fact that Wales has a clear overall budget deficit at present.

It would, though, reframe the debate about financing. Instead of simply debating whether the UK government was giving Wales a fair share of resources, we might start to ask also whether Wales was getting value for money from UK-provided services - or indeed, whether Wales really wanted all the 'services' (Trident, Afghanistan...) for which the UK government was levying a charge.

It would create a sound basis for a more formal federal system of government in the UK – which even some Tories think would be better and more stable than the current position - to say nothing of helping to build a more self-contained and complete Welsh civil service. I won't deny that it would also help to create a clearer basis for more autonomy for Wales at some future date, if that was the choice of the people of Wales (I think people might expect me to argue for that anyway); but it doesn't have to lead in that direction, as it hasn't in Germany.

It would also lay the foundations for moving towards giving the Assembly more fiscal authority, so that it could become responsible for raising as well as spending money. Even some of devolution's fiercest opponents are likely to see at least a little merit in that.


Anonymous said...

Absolutely - the sooner we turn the current iniquitous system on its head the better. Westminster won't like it, of course, because it will reveal the huge cost of bureaucracy in London as well as make people question the Defence budget and other non-devolved issues.
Like you, I suspect it would lead very quickly to more autonomy - bring it on!

Illtyd Luke said...

Quite right. Most opponents of further devolution and of Welsh national aspirations in general cite the report by Oxford Economics into whether their interpretation of "independence" would be economically viable. The report identified an £8-9bn deficit between taxation raised from Wales and all overall expenditure in Wales. This is where people get the "£9bn black hole" from.

The same report did find that taxation in Wales was enough to cover everything that is devolved, which is a positive at least.

John Dixon said...


I thought the Oxford Economics report was quite a good and useful piece of work. The problem is that people have tried to use it for a purpose for which it was never intended. It set out to identify government income and expenditure across the 'regions' of the UK, not to show what might happen under Independence, where a number of the underlying assumptions would have to change. So I'd draw a clear distinction between knocking the work itself (which I don't) and knocking the misuse of it (which I do).

Efrogwr said...

John, a characteristially worthwhile post but for me as a Plaid member the need for it and its tone raises several unsettling questions:

1) Party policy - why is it left to you to float this on your blog when we now have armies of researchers, SPADs, fully salaried elected members? How come you only "believe" that the German system works the way you say (you're right: see and, in German,

I'm not getting at you here, far from it. The point is why doesn't the party, and every activist member, KNOW what the options are and have a clear line? This is our core unique selling point. No wonder, as you note, the public is confused. Our website has no concete ideas about how we get to independence, what it would look like, what it would mean for the jobs of our state employed workers, our soldiers etc. Such a difference to the SNP. We don't seem to have commented on the Scottish independence white paper, or in detail on the Catalan referendum (Jill Evans excepted). Adam Price's website was vacuous and in any case seems to have died a death. The Syniadau blog and the British Nationalists in Wales watch blog seem to have more substance and punch, and they're run on the side by individuals.

2) Party tactics - I don't know whether to laugh or cry when I read in relation to the idea of having German style equalisation payments -

"It would create a sound basis for a more formal federal system of government in the UK".

The thing is, Plaid isn't supposed to want a soundly based formal federal system. We want INDEPENDENCE. A solid federal system would make independence harder to achieve and would reduce Wales to the status of an East Anglia or a Yorkshire.

All too often, party leaders seem to use media opportunities to try and come across as reasonable, concerned UKistas, trying to make the British state work better. I remember, for example, Simon Thomas on network TV calling for a Chinese style "Democracy Wall" outside the Commons, or Adam Price trying to clean up the British Prime Ministerial system by impeaching Tony Blair. Only today Ioan Bellin has a letter in the Western Mail pleading for the future of the Royal Mint. Eh? The only question for us should be what woud happen to those who work in the Royal Mint/DVLA etc if our aim was achieved. That's what our opponents rightly ask and no doubt there will be mocking letters in the WM from them in the next few days. The questions are not difficult to answer, but we don't, because we don't seem to have done the sums, worked out the policy. I'm back to my first point, then and we are left look shifty and as if we're trying to have it all ways. You, in your penultimate line, find yourself adopting an apologetic "don't frighten the horses" tone. I can understand the need for strong cmapaigning on local issues (Ioan's point, no doubt) and an incremental approach within the system (your point) but shouldn't it be done from a much more vigorous, thought through position and according to our own agenda? It seems we're scared of our own shadows.

If we did work things out, and sold our ideas hard, we could shift the framework, set the agenda and middle ground and the whole debate really would have been "reframed", as it has in Scotland.

Efrogwr, Abertawe

Illtyd Luke said...

Agreed John, hopefully more reports will add to the evidence base so that nationalists can eventually make a stronger case. I am happy to see independence still on the agenda, even if it is not at the forefront at the moment.

John Dixon said...


So many points - hard to know where to start!

Firstly, in my defence, I think that I do have a 'thought-through' position on where I want to see Wales; but throughout the time that I've been a member of Plaid, I've always believed that the process of getting there was going to be incremental. What incremental steps are realistic at what point in time is always open to debate of course; but the easiest steps to take are those which can attract support outside the core nationalist base. I've never seen anything wrong with trying to appeal to that wider support on the specifics as and when appropriate.

I suppose I'm a naturally conciliatory sort of soul, always looking to gain as much consensus as possible for specific policy proposals, and I'm sure that comes through in my style of writing; but please don't assume that it means that I'm any the less robust in my vision of the end-game.

Federalism - absolutely, I know it's not our aim. But it might well be a stage that we have to go through, and it may well be that we end up at thst stage for some time. If we can make common cause with those who see federalism as the end-game, in order to bring about some key changes, why on earth wouldn't we do so?

Turning the tax system on its head is clearly Plaid policy in the context of an independent Wales, but I have to admit that doing it before independence isn't something that we've formally agreed on. The blog seemed as good a way as any of starting a discussion around that prior to putting forward a motion at a conference - wich I'm sure will happen before long.

Efrogwr said...

Thanks for your response. I did not mean to imply that your personal position was not thought out and apologies if that's how my first post came across. What you are saying makes much sense to me. I hope my concerns still make sense to people as well. In repsonse to your further comments:
1) "Incremental" - sure - but I think we need a lot more detail about how we see our goal. At the moment "independence" for us is so vague as to be practially meaningless. As a result, we can't sell our big idea properly, we have no goal against which to measure other parties' policies or to guide our own tactics. The details needs to be thought out much more and set out on the website/discussed in the Welsh Nation etc. We could start with published national income/tax take accounts for Wales/looking at what we can take from the Scottish govt. white paper etc/actually having an accessible policy on what the Welsh armed forces would look like, where we stand on the monarchy, on the future of British state insitutions in Wales etc. etc. I see nothing here to be frightened of and much that could have wider appeal outside the core vote but we also have to have a clear position FOR the core vote, one clear enough to firm up and expand that very core. If we set out ideas, our opponents will attack them. That will force us to make sure the ideas hold water and will mean the terms of debate are on our territory.
2) "Conciliatory" - yes, where possible and where it makes tactical sense; spineless or even unaware of the intellectual hegemony of our opponents - no; playing to the metropolitan Brit-Left gallery - no. Again, not suggesting you are doing this, but I think we need to be a lot more self-aware precisely because the grip of the London elite is so strong.
3) "Federalism" - common cause is fine but let "those who see federalism as the end game" make the case for finance equalisation. So far as I can see only the LibDems and David Melding are for federalism. Let's use our intellectual energy developing our ideas on financing and taxation in an independent Wales and challenge the "federalists" to explain how it would all work under their preferred system, and the Unionists to defend their system.

MH said...

I fully agree with what you've said, John. Not least because it would require companies to produce national/regional accounts for things such as corporation tax.

It was by not taking into account where profits were made (as opposed to where the accounting office was located) that Oxford Economics came up with such a high figure. Their original report was commissioned by the leaders of local authorities in SE England precisely to show that they were hard done by, and subsequent reports used the same methodology. Most other estimates put Wales' deficit at somewhere around £3bn.

The good news is that Gerry Holtham's Commission is addressing the issue in their Stage 2 report. So we should get a much clearer picture ... and hopefully some authoritative proposals for solving the problem.

Ryan said...

I think it's pretty irresponsible to list the services of the British state simply as Afghanistan and Trident when you have more fundamental services such as immigration, the criminal justice system, the EU and many more. A more autonomous Wales will need plans and eventually solutions to the administrative and logistical challenge of providing these services.

And I belive that your presimption that an Independent Wales won't get involved in foreign conflicts is wrong.

John Dixon said...


"to list the services of the British state simply as Afghanistan and Trident"

It was never intended to be a comprehensive list, nor was it presented as such. I merely suggested two matters in particular which were likely to be questioned in the context which I was setting out.

"I believe that your presumption that an Independent Wales won't get involved in foreign conflicts is wrong"

I'm not sure where you read that presumption into anything that I've said. I wouldn't pretend to speak for an independent Wales, only for what my own party might or might not do it it were to be running an independent Wales. A common mistake which people make is to assume that an independent Wales would necessarily be run by Plaid. Would that it were so...

I do not presume that an independent Wales, even under Plaid, would never get involved in international conflicts, and I don't believe that I've ever said anything that would lead to such a conclusion. I do believe, however, that my party would never lead Wales into any sort of nuclear conflict, nor into any illegal wars, and there is little doubt in my mind that Afghanistan fits into the second category.

My idealistic streak wishes that it were otherwise, but as things stand, the international community does need to be able to police the world, and I would support the use of Welsh troops under the UN flag where the international community decided that action was necessary under the UN charter. That's part of accepting the responsibilities, as well as assuming the rights, of international citizenship.

John Dixon said...


I don't disagree with your suggestion that we should be doing more to put more flesh on the bones of our long term goal. Indeed, it has been my intention in a number of the posts I've put onto this blog since I started it to do that, or at least to contribute towards the debate around that.

We do sometimes face something of a dilemma though, and I won't argue that we always get it right. If we spend too much time talking about the long term, we get accused of ignoring today's problems faced by today's people; and if we spend little time talking about the long term, we get accused of fudging or hiding our long term aims.

Presenting both a long term vision of the Wales we want, and short term policies for the here and now which we can actually implement if elected isn't always an easy balance to maintain. We need to do both; I try to do both; butsomeone will be unhappy wherever we draw that particular line. Other parties don't have the same problem - they simply don't have any long term vision to present.

I hope that anyone reading this blog over a period would be in no doubt about where I stand on the long term; I hope thay would also conclude that I have a clear opinion (even if they disagree with it!) on more immediate issues.