Monday 13 February 2012

Redistribution and subsidy

Some interesting figures published today by the Centre for Economics and Business Research on the mismatch between taxation and spending across the ‘regions’ of the UK.  The Centre has looked at the revenue raised in each ‘region’ and the money spent there to come to a series of conclusions about the extent to which poorer regions receive a ‘subsidy’ from the richer ones.
The most obvious headline from a nationalist perspective is the conclusion that Scotland receives no net subsidy from the rest of the UK.  No doubt the SNP will be delighted with that conclusion; I certainly would be in their position.  It’s further evidence that there is no hard economic argument against Scottish Independence.
There are caveats, of course.  As I’ve noted before when discussing this sort of statistical analysis, the most important element is understanding what the underlying assumptions are; changing those could have a significant effect on the figures.  In this case, one key assumption, from a Scottish viewpoint, is about the proportion of oil revenues which would accrue to Scotland.  The authors have used the split suggested by Aberdeen University, which gives Scotland 83% of the total.  I think that’s an entirely reasonable basis for calculation – but it’s clear that many of those arguing that an independent Scotland would be near-bankrupt are using a very different basis.
The other big caveats are that these are figures at a point in time – reflecting a single year – and that they assume that expenditure patterns for an independent Scotland would follow a similar pattern to those of the UK.  Again, that’s an assumption which is open to challenge.  Still, it’s good news overall for Scotland.
The figures for Wales make for much more gloomy reading, however.  They emphasise yet again how poorly our economy is performing.  Whilst the North East of England is not far behind Wales, only Northern Ireland is in a worse position.  We have a lot of ground to make up.
What the figures also show is the extent to which the UK’s economy is skewed towards London and the South East, with the north and west of England uniformly failing to cover expenditure from taxes raised.  I don’t like the word ‘subsidies’ in the way it’s used here to describe the way in which expenditure is redistributed to enable public services to be maintained outside the south and east of England, but it’s not an entirely unfair word.
The real question is how we stop redistributing the proceeds of uneven GDP and start redistributing the GDP more evenly.  It’s not handouts or subsidies that we need; it’s a sound economy of our own.


Owen said...

The report says that tax raised in Wales was 30.3% of GDP in 2010/11 - that's around £13.8bn (based on a Welsh GVA of ~£45.5bn in that period). That's much, much lower than the Holtham Commission estimates - at least £4-5bn.

Although I don't doubt the recession has had a negative impact on tax revenues - if anything with VAT hikes and inflation tax revenues would surely be at least the same if not higher than when the Holtham Commission was published?

I'm not blinkered enough to deny a deficit exists, but I don't think we'll ever have an accurate figure until we know exactly how much tax is raised in Wales and a clearer indicator of how an independent Scotland or Wales would spend it.

For instance proportionally "Wales" spends as much on defence (£1.7bn) as it does on rural affairs, transport, business & enterprise, the environment, housing and regeneration combined.

John Dixon said...


I antirely agree with your comment about the unlikelihood of getting an accurate figure, as well as your reservation about the differences in spending patterns of a 'region' on the one hand and an 'independent state' on the other. All figures are a useful input into the debate, and the fact that different groups produce different results serves only to underline the point that I have made repeatedly about having clarity over the assumptions used.

I do believe, though, that the national cause in Wales has been damaged by denial in the past; attempting to deny that Wales is currently in deficit, and has been for a long time is simply not a credible response. Far better to try and make a reasonable estimate of what the gap is (and I'd plump for around £6bn per annum; some say more, others say less) and talk about how we're going to address that issue.

The weakness of the argument against independence is not that there isn't a deficit; it's that those opposing independence can only ever point to the deficit whilst offering no solution to it. Whether Wales does or does not select independence, we still have the problem - and all parties need to address that rather than depend on it in place of any other argument.

Britnot said...

Dont know if anyone saw the post on the Betsan Powys page showing an article from the New York Times showing Wales with a lower GDP than Greece! Admittedly the article was badly written and full of inaccuracies, the author assumed the Senedd has "limited taxation and Borrowing powers".

But we can use these truly awful figures to further our cause. These figures are a direct result of the mismanagement of our economy by Westminster, no one else can be blamed given they have control over the levers of power. The question is can we convince the people of Wales that the only way we can reverse this long term trend of economic decline is through a government for Wales and by Wales?

It does not take a brain of Britain to realise that Westminster ensures that we are given enough "pocket money" to keep us poor. We have to keep pressing the Unionists to illustrate the "advantages of this unequal Union" and keep attacking them on that basis.

Spirit of BME said...

The last para in Britnot post is very true; however, there is “no mismanagement of the economy” as stated in his second para, as under the political architecture this poverty in Wales is hard wired into the system.
The Tories – those in all parties in Wales, who defend the monarchist regime, put forward the case that we are too stupid as a nation to run our own government and we should be grateful to England for looking after us.
I am not sure, but under new legislation selling an idea that the Welsh are dumb and inadequate could be a Hate Crime.

Anonymous said...

There is alot to look into here but it should be borne in mind that the CEBR isn't a neutral organisation, and has a certain neoliberal agenda when it comes to economics. In terms of getting an accurate figure they would not be appropriate. But in mapping out general trends we can't deny Wales has a massive theorised deficit. The people of Wales deserve answers as to the true cost of this gap, primarily lower wages.

Boncath said...

It aint rocket science to say that the Welsh expenditure requirement for defence ( however you interpret that word) is no where near £1.7 billion.
It makes a nonsense of the whole deficit argument

John Dixon said...

Anon - fully accept that this ain't a neutral organisation, but given the lack of definitive figures, any figures produced are a useful input.

Boncath - I don't think it makes a nonsense of the whole deficit argument, but it's a significant factor in trying to assess the actual size of the deficit.

Democritus said...

"The weakness of the argument against independence is not that there isn't a deficit; it's that those opposing independence can only ever point to the deficit whilst offering no solution to it."

Opponents of independence don't need to. There is already a solution - fiscal transfers from England in the name of common solidarity between British citizens, underpinned by the post 1945 welfare state.

All opponents of independence are doing is pointing out an obvious, bit rarely acklowledged, flaw in the idea that Wales would be better off divorced from England.

John Dixon said...


I agree that there are fiscal transfers (although others would call them subsidies or handouts; it depends on perspective). But it's only a 'solution' to Wales' comparative underperformance for as long as:

(a) the rest of the UK is content to continue such transfers (and there are increasing signs of disquiet), and

(b) we in Wales are content to accept the idea that we should depend on such transfers.

To me, it's more of a temporary repair than a 'solution'.

"All opponents of independence are doing is pointing out an obvious, bit rarely acknowledged, flaw in the idea that Wales would be better off divorced from England"

I don't think that that is 'all' they are doing at all! By not offering any solution to the underperformance, they are effectively accepting that it's a permanent feature, and then relying on their own failure to address that permanent feature to argue that we have to continue to be dependent.

I agree that if Wales were to become independent tomorrow, we would find difficulty in maintaining current levels of public services without either raising taxes or borrowing on a large scale. But then I don't expect us to become independent tomorrow.

Even if Wales never chooses to become independent - and I accept that as a possibility - why wouldn't we want to do more to 'pay our way'? Why, in short, wouldn't even the most hostile opponent of independence want to see Wales' economy improve to the point that we would become viable if we should choose? And that's what I'm not hearing by those who depend on the fiscal transfer approach.