Hiding the fiscal facts

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Nation.Cymru carried a piece yesterday about the response by Transport Secretary Chris Grayling to a claim by Plaid that Wales isn’t getting its fair share of infrastructure spending. 

The claim that Wales doesn’t get its fair share is a long-standing one, and I suspect that it’s true although it isn’t quite as black-and-white an issue as its sometimes presented.  It appears to many of us in the west and north of the country that the allocation of capital spending within Wales is as unfair as the allocation of capital spending between Wales and England; there seems to be the same concentration on the south east, in and around the capital city.  But merely looking at share of capital expenditure in relation to percentage of population is an over-simplistic way of doing the calculation.  As an example, we know that the cost of building a mile of road will depend significantly on where that mile of road is built – it will cost more in the centre of Cardiff than in the middle of Powys, for instance.  But the difference in ‘cost per head’ of population living in the area will not be in the same ratio as the difference in absolute cost; and neither will the calculated economic benefit.  In addition, the timescale for many infrastructure projects is lengthy; what looks like an unfair share in one year can potentially end up looking very different over many years.  Fairness is an elusive concept when it comes to sharing out infrastructure investment.

But there was another point in the Minister’s response which caught my attention.  He said “I do not think that the Welsh can ever claim that their money is siphoned off to pay for the rest of the country, given the amount of support from taxpayers elsewhere in the UK that goes into Wales...”.  This is, of course, the standard unionist line about taxpayers in England subsidising Wales out of the goodness of their hearts.  It is, though, as over-simplistic as the idea that fairness in infrastructure investment is as easy to work out as spend per head.  The problem is that we simply do not have figures which are accurate and comprehensive enough to determine whether there is a fiscal transfer between England and Wales let alone the size of that transfer; such figures as we do have are inevitably based on estimates and often arbitrary assumptions about the way expenditure should be split.

The GERW figures published two years ago were a useful attempt to analyse income and expenditure for Wales as part of the UK, despite the fact that they were misused by some who attempted to present them as being in some way relevant to the concept of an independent Wales.  There are, though, always going to be problems with such figures.  To take one example, any analysis of expenditure in or on behalf of Wales will assume that Wales needs to pay a percentage of the costs of central administration of government activities.  This is not unreasonable in itself; clearly where the UK Government provides services from which Wales benefits then, under the current constitutional arrangements, it is entirely sensible to apportion part of that cost to Wales.  But it’s worth asking what then happens to that money – assuming that it’s spent once and gone isn’t the whole story.  The reality is that that expenditure largely goes on salaries, and the people receiving those salaries mostly live in England.  The personal tax those individuals pay on their income and on their expenditure (VAT, fuel duty etc.) is then all counted as English revenue based on residence.  Given that probably around 30-35% of all private income (on average) ends up going straight back to the Treasury in tax, every £million spent ‘on behalf of Wales’ but not actually in Wales only costs the Treasury a net figure of around £650,000 - £700,000.  And that’s without the multiplier effect as the people providing the goods and services purchased by those individuals then pay their taxes and buy goods and services themselves…

Now, within a unitary state, none of that really matters.  It’s just a question of book-keeping because there is ultimately one Exchequer and one big cheque book.  But it does matter when people start talking about ‘siphoning off’ and ‘subsidies’, because the truth is hopelessly obscured.  There’s another aspect to what Grayling said as well – every time unionists like him talk about subsidising Wales they effectively undermine their own case for the union, which is that we pool and share.  Still, I suppose that I shouldn’t complain too much about that.