Friday 9 September 2016

Whose debt is it anyway?

I’ve posted on the GERW figures previously, and particularly on the fact that what they show relates only to the position of Wales as a part of the UK, and tells us little about the position in which Wales would find itself as an independent state.  The overall figures necessarily include estimates for some items of expenditure where the actual cost to Wales cannot be separately identified.
One of those is the cost of servicing the national debt.  As part of the UK, Wales is assumed to bear a part of that cost, and the simplest and easiest assumption to make is that the proportion notionally allocated to Wales should be based on the population of Wales as a proportion of the population of the UK, so an assumption is made that around 5% of the cost is attributable to Wales.
That isn’t the only way of doing it, however.  We could assume that it should be done on the basis of share of GDP; given that Wales lags behind the UK average in terms of GDP that would reduce the share attributable to Wales.  We could do it on the basis of share of directly attributable public expenditure – given that identifiable spend per head in Wales is higher, that would increase the share attributable to Wales.
But all of those methods relate to assessing the position of Wales within the UK.  What would be the position of Wales at independence in relation to the national debt of the UK?  Most nationalists – eminently reasonable people – have tended to assume that Wales would take a share, probably on the basis of population.  But again, that isn’t the only option.
If we look at history, we could ask ourselves one simple question – of all of the countries which have over the last 250 years gained independence from the UK or the British Empire, how many of them took on any part of the national debt of the colonial power?  The Thirteen Colonies of the US?  Australia?  India?  Ireland?  I don’t believe that there is a single example of any country gaining its independence which has agreed to take a share of the national debt of the colonial power over and above any debt built up by any pre-existing local administration prior to independence.  And I’m pretty sure that the same applies to the former possessions of Spain, Portugal, France etc., as well as those of the UK.  Indeed, at the time of the Scottish independence referendum, the UK Treasury itself made it clear that it was ultimately responsible for the whole of the UK’s debt.
What actually happens will be the result of negotiation at the time; but perhaps our starting point should be rather lower than many are assuming – only debt actually incurred by the Welsh Government itself.  It would make a significant difference to the economics of independence.  And before anyone claims that that is tantamount to avoiding our obligations, let’s just remind ourselves – who is it that prevents the Welsh Government from borrowing as it sees fit, and therefore constrains the economic development in Wales which would be required to repay debt?

11 comments:

Anonymous said...

'..... who is it that prevents the Welsh Government from borrowing as it sees fit, and therefore constrains the economic development in Wales which would be required to repay debt?'

It's precisely the people who will have to pay the debt back in the event of any default. Very much standard practice!

John Dixon said...

It's the taxpayers, all of us, who have to pay back debt ultimately. The question is about which taxpayes under which administration. I think that the Welsh Government (and therefore the Welsh taxpayers) should be responsible for repaying debt incurred by the Welsh Government. What part of that gives you a problem?

Anonymous said...

No problem with that, absolutely none at all. Just as long as those responsible for such investments can be held to account, through usual democratic and legal means.

John Dixon said...

Few things would please me more...

Anonymous said...

Wrong. Bank of England is in the process of monetising huge amounts of uk govt debt. Taxpayers never repay the debt.

Cymru Rydd said...

Good points John. It should form a central plank of the independence argument for Wales, based as you say on historical precedence. When, or when is this argument going to be forwarded for Wales? I really despair of Plaid Cymru's cowardice on this matter. We constantly hear from unionists about this £15 billion gap between taxes raised in Wales and money spent here. What are our nationalist AM's/PM's doing to counter this argument. 3 simple things they could do right now:

1) Conduct an audit to show exactly where many companies in Wales pay their taxes( no prizes for guessing where a great of our money ends up).
2) Estimate the exact worth of Wales being able to make full use of our natural resources and charge an equitable rate for these resources( water, wind, wave power).
3) Flag up the Independence Dividend. I.e, How many new services, organisations and jobs would be created on the back of a new found national confidence. And how many Welsh people would be encouraged to return to Wales to be part of such a new national future. I would like to think that a new agency "Come Home to Cymru" could be part of such a drive.

Any news on the YES Cymru front? I seem to recall you were part of the launch, but it's been very quiet of late........

John Dixon said...

Anon 17:16,

I'm not sure exactly which part of the post/comments you were responding to, but:

"Taxpayers never repay the debt". Actually, that's not exactly true, although I'll accept that the statement that they do was an over-simplification. Sometimes it gets repaid and the debt reduces; sometimes it gets 'repaid' by reborrowing elsewhere, and sometimes it gets 'repaid' by monetary expansion or inflation. But the point you make is a good reminder of why the national debt is not at all like household debt in the way that the ideologues demanding debt reduction claim; governments have more alternatives open to them than households.

Anonymous said...

Cymru Rydd 22:15,

Charging 'an equitable rate for these resources' is fanciful. We can only charge what someone else is willing to pay. And invariably it is nowhere near as much as we'd hoped.

Recalculate (just as the Scottish are having to do). You might get a shock.


John Dixon said...

Anon 10:22

I wouldn't agree that "Charging 'an equitable rate for these resources' is fanciful." I'm entirely convinced that there is scope for leveraging our natural resources in a way which brings more benefit to the people here in Wales than we currently get. Having said that, if you'd simply said that we'd probably get rather less than we might wish or hope, then I'd have to agree. I read a piece by Martin Shipton in the Western Mail a few months ago where he demolished the notion that Wales could pay for independence by charging more for water. He was right - but his starting supposition (that nationalists believe that charging more for water is enough to pay for independence) was an unrealistic straw man. Demolishing arguments which no-one is making is easy. The facile (and correct) argument that charging more for water isn't enough ignores the underlying point that one of (and I stress 'one of') the things that independence can give us is the opportunity to gain more direct benefit from our own natural resources. Water is one; renewable energy is another.

Anonymous said...

Talk of selling 'water' is equally fanciful. No-one will ever want to buy it because it costs way too much to move around. It's just too damn heavy. Okay, a neighbouring county perhaps, in times of severe drought, but across another country, on a semi permanent basis, no way (Malaysia/Singapore being the exception)!

We need business and businesses and we need entrepreneurs to keep creating businesses. And we need a highly educated, skilled workforce. No, not steel makers, welders, builders or famers. Scientists, engineers, technologists and the like. Properly skilled people.

At the moment our efforts are completely mis-directed!

John Dixon said...

I think you're unnecessarily dismissive about the idea of selling water. Any commodity which is plentiful in some places and scarce in others can be sold; and as for moving it around, there have been proposals in the past for a 'water grid' across much of the UK to move water to where it's needed. And as the climate changes, those places which have a surfeit of the stuff might well find others envying their riches and being willing to pay rather more for it. What's fanciful is not the principle of selling it, but the idea that the amount raised would, in itself, be sufficient to make a huge difference to Wales' economic situation. That's why I tried to broaden the issue out a bit; Wales has natural resources from which we are not currently getting the maximum benefit. Changing that is one of the things we can do to improve our situation. But it's far from being the only thing we need to do. Leveraging our resources better and creating new businesses aren't mutually exclusive.