Who subsidises who?

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I referred yesterday to the impact of flows of people to and from Wales on the size of Wales’ fiscal gap.  It’s a point which is worth exploring further.  Movements of people are complex – not all movements at 65+ for instance are from England to Wales; the best we can say is that there is a net flow amongst that demographic.  Similarly, not all movement of young people goes the other way; again, the best we can do is talk about net movement.

But for the sake of simplicity, and to illustrate a point, let us take ‘Dan’ as a notional example.  Dan was born in Wales, received all his education in Wales, and graduated from a Welsh university.  Failing to find a suitable job in Wales, he took himself off to London, where he enjoyed a reasonable career, working his way up the greasy pole to a middle management rôle before retiring at 65.  He then moved back to Wales, and spent the next 20 years living here, although he was in declining health towards the end of his life and needed a lot of hospital treatment.  He died in a care home in the land of his birth.

Using the GERW methodology (and this is not a criticism; I don’t have a better one to use, and it helps to understand Wales' situation), the cost of Dan’s education was paid for entirely out of the Welsh current account, as was the child benefit paid to his parents.  And when he returned to Wales, his state pension, together with all his health costs in his declining years, were also all paid for out of the Welsh account.  From a purely Welsh perspective, Dan was, overall, something of a net burden on the taxpayer.

However, during his working years, all Dan’s income tax and national insurance, as well as the stamp duty when he bought his various homes and the VAT and fuel duty he paid when he spent his earnings, all went into the English current account.  From a purely English perspective, Dan was very much a net contributor to the state’s revenues.

In a very real sense, in this example, Wales gave England a massive subsidy to pay to train Dan and make him work-ready, and then to look after him when he was no longer productive.  English GDP gained at the direct expense of Wales.  Yet, when a notional fiscal transfer was made from England to Wales to cover the Welsh fiscal gap, many people chose to call that transfer a subsidy to Wales as a result of the largesse of English taxpayers.  It’s a perverse way of talking about what looks to me more like a payment for services rendered.

Of course I’ve over-simplified, and even if the whole of the fiscal gap created in this particular way were to be eliminated, there is reason to believe that there would still be a large gap facing Wales.  But what the example illustrates is the cost to Wales of not having the jobs and salaries which would enable those who choose to do so to stay here and contribute to Wales.  Even if we had those jobs, some would still choose to go elsewhere, and some from elsewhere would still choose to come here.  But surely a reasonable aim of policy would be for the net movement to be at or close to zero?

All the parties in the Assembly elections are talking about creating more jobs, and more highly-paid jobs, in Wales, and it’s impossible to argue with that.  Empirical evidence over recent decades, however, would suggest that it’s a great deal easier to talk about it than to do it.  The question for nationalists is whether we believe that this can ever be achieved under current arrangements or whether independence is in fact, not an impossibility until this problem is resolved but rather a key part of resolving the problem.