Thursday 9 October 2008

Counting the billions

I have to admit that I'm struggling to keep up with precisely how many billions it is costing us as taxpayers to bail out the banking system. There's the cost of nationalising both Northern Rock and Bradford and Bingley, and there's the £50bn announced yesterday to buy a share of most of the UK's banks.

Then there's the injection of an extra £250bn of liquidity into the banking system, and the promise to guarantee another £250bn of debts if necessary. The 'guarantee' might not be called on, of course – but then again it might. Much of the money will be repayable at some point - provided that it has the desired effect, and succeeds in restoring stability – but that doesn't mean it doesn't have to be paid out first.

The total looks like being somewhere between £400bn and £650bn of our money, which has to be found in the short term. I don't believe that the government has any real choice (although being able to find those sorts of sums at the drop of a hat really makes something of a nonsense of the recent suggestions that Wales couldn't afford independence because of a deficit of a mere £9bn!).

The government may have no choice about finding the money and propping up the system; but they do have a choice about what strings they attach to these vast sums of money. We, as taxpayers, are facing this huge financial commitment because individual and corporate greed has led people to gamble recklessly and make foolish loans. At the very least, we should be imposing a framework of regulation which ensures that this situation can never arise again. And we clearly have a right to insist that the culture of excessive pay and massive bonuses which have been paid to those responsible for this mess comes to an immediate end.


Anonymous said...

being able to find those sorts of sums at the drop of a hat really makes something of a nonsense of the recent suggestions that Wales couldn't afford independence because of a deficit of a mere £9bn

I disagree. A country that runs a large structural deficit (i.e that permanently spends a great deal more than it generates in revenue) would not be able to deploy the sort of programme announced by the government yesterday. Its bonds and gilts are only good for so long as people believe they absolutely cannot be defaulted on.

The question of a budget deficit per se is a red herring; as you have noted on this blogpassim, many countries do this. The real question is what the size of the deficit is as a proportion of GDP. On the basis of Oxford Economics' figures Wales's looks to be very large indeed.

I'm sure there are lots of things that could be do to bring this down, and that would not spell the end of civilisation as we know it. The real questions are; would these be enough and - most pertinently - would they make the quality of life for people in Wales worse than is at the moment? If the answer to the latter is yes, there needs to be some fairly big entries in the "For" column of Welsh independence, beyond rhetorical notions of freedom and self-determination. As the old saying goes, these butter no parsnips.

John Dixon said...


"The real question is what the size of the deficit is as a proportion of GDP"

In essence, I agree with that, except I'd add a 'duration' dimension as well. And I agree that Wales' deficit as a proportion of GDP looks relatively high (although the UK and US deficits at the end of the current year may well make it look relatively less bad, the way things are going!).

Fundamentally, my argument is that the way we should be seeking to address the deficit, in order to create a sustainable long term economy in Wales, has more to do with increasing GDP per head than with either increasing tax rates or cutting expenditure. Getting the economic fundamentals right is surely the keystone to success. I may be guilty of a little over-egging and repetition at times, but I really want to move the debate away from the simplistic questions of 'which taxes are you going to increase' or 'which services are you going to cut' to what I think is the proper area for debate - 'how are you going to increase GDP per head?'.

I think we also need to realise that the deficit doesn't suddenly appear at the point of independence (although, obviously, it can no longer be 'hidden' as part of a state which has some compensating surpluses in other areas). It's there now, and has been for many years. Similarly, getting rid of it is not something that necessarily neeeds to wait for independence - and that means that it isn't just a challenge for Plaid. Even if the people of Wales steadfastly refuse to accept the arguments of myself and others in Plaid, and Wales never becomes independent, shouldn't we still want the economy of Wales to be healthy enough to sustain the nation?

I accept that whichever party formed the government of an independent Wales would become responsible for addressing the situation after independence. By the same token, isn't whichever party forms the government responsible for addressing the situation now?

Anonymous said...

All good and fair points, with which I can do little else but agree.

I find the "Wales can't stand on her own two feet" argument to be such a sterile one because I cannot see (and you phrase it more eloquently than me) how it is in the interest of anyone - centralist, unionist/devolutionist or separatist - to perpetuate such a situation.

I'm very pleased that you are prepared to take on the arguments on this blog. For years, Plaid have to my mind avoided the debate by, in essence, denying or disputing the numbers. That is as infuriating as the poverty of ambition displayed by those who assert that Wales can never balance her own books.

Unknown said...

Whilst you have carried me along on the crest of your argument, I discern an omission, "the general population", this minor player in the grand scheme of things loved every minute of the last 15 years.

I would commend Allan's latest post to you at ......

His last sentence.