Wales can't be Independent. It would be saddled with billions of pounds of debt. It can't afford it's currency and people would lose their pensions and savings. Banks and building societies would flee from Wales.
All this besides the swarms of locusts, floods and earthquakes that would befall Wales if it were to leave the UK.
These fears are underlined by an illusion. An economic illusion that Wales is dependent on the UK and cannot manage on its own.
Even Plaid Cymru in its recent report compounded these illusions. They pointed to difficulties, that in reality were vastly overstated.
The problems that opponents highlight, are designed to deter, but like all illusions, all is not as they would like us to believe.
The first thing to understand, is that there will be a transition period between declaring Independence and becoming Independent.
This period to reach agreements, iron out technicalities and to put in place Wales own systems.
Experience has indicated this transition to be two years.
An Independent Wales needs a currency.
It could stay with the pound, or align with another currency ( the euro perhaps ), or it can have its own.
Some will argue for the pound, tradition, sentimentality, or perceived security. None of these reasons are credible.
To stay with the pound will mean Wales economy reliant on policy decisions made by the Westminster government. The same source of policy decisions that have held Wales back for so long.
Wales would be unable to set interest rates, or currency exchange rates. It couldn't control it's own monetary policy or borrow as it would wish. Wales would be constrained by the Bank of England and UK Treasury.
Then there's the Euro. The same economic restraints and it would have to have it's own currency prior to joining the Euro.
It's Wales own currency then.
Let's call it the Celt.
The Welsh government declares the Celt the official currency of Wales.
All public body transactions and taxes are conducted in Wales currency. Financial institutions in Wales must agree to conduct transactions in Wales through the Celt. Gradually the Celt is the accepted currency. As taxes are paid in the Celt, so will wages
What if the Wales currency is valued low against the pound?
There is no reason that this should be so.
The value of the currency is determined, not by the UK government, or by the act of Independence, but by the international money markets.
They will take into account the potential of an Independent Wales potential economy, its ability to pay its way and to repay any borrowing.
Compared to the pound Wales currency is in a strong position. It will be the Westminster government with the £2+ trillions of debt.
Prior to the 2014 Scottish referendum the headlines in the unionist press and briefings from Westminster as well as prominent Labour politicians, was that Scotland would be unable to function because of it's share of the UK debt and the huge deficit it would have. Hundreds if billions of pounds of debt.
The Scottish Independent movement and SNP were ill prepared for this onslaught.
It was coupled with an error of judgement by Alex Salmon's in insisting on retaining the pound.
It allowed the UK Treasury to amplify the economic fears and dictate the economic terms.
Wales will learn from these experiences and be clear as to the terms of separation.
Debt
The UK National Debt.
The fear factor.
It was a major factor in the result of the Scottish Independence referendum and misconceptions could be costly for Wales.
Wales has no debt. It is not allowed to borrow in it's own right, so any debt referred to is UK debt.
The first thing to be clear is that Wales, on Independence, has no legal liability for the UK Debt. That remains with the successor state. The UKr.
One thing the argument has shown, is the muddled thinking of the unionists.
On the one hand they argue for the better together, one big collective happy family. On the other they argue that there are four distinct, separate states, each with their own specific share of the UK liabilities.
An Independent Wales has no legal liability for any part of the UK Debt.
The UK has conceded this.
In a Treasury statement prior to the 2014 Scottish referendum, it pledged that the UK as the continuing government, would in all circumstances honour the contractual terms of the debt issued by the UK government.
An entirely separate contract between the continuing state and the Independent Scottish State government would need to be established. The respective shares of debt and terms of repayment would be subject to negotiations.
This precedent now set would similarly apply to Wales.
So. The UK government as the continuing state, has full liability for the UK debt. By common consent they they have no option other than to concede this.
That there is no allocated share of UK liabilities specifically for each of the UK nations and any idea that there is a fixed share of the UK debt has no legal or factual basis.
The UK government concedes that any nation seeking Independence wishes to make a reasonable contribution to liabilities it will be subject to negotiations.
This is confirmed by the Vienna Convention, which insists that no debt agreement can be imposed on a seceding state.
It further argues, that any agreement on debt must be such, that it does not upset the economic equilibrium of the seceding state.
It must not leave that state worse off economically.
So Wales, as a reasonable and responsible Independent nation, will be judged by its willingness to enter negotiations on this matter.
The first thing is that Wales will take no legal ownership of the Debt or any part of it.
Any Wales contribution to the Debt will by way of compensation.
Any payment will be in Wales currency, thereby avoiding foreign debt.
The apportionment of debt on a crude per capita basis will not be acceptable.
Any negotiations must be conducted on the basis of between equals.
So let's assume that Wales, acting responsibly, wishes to contribute to reasonable liabilities.
Lets assume it is willing to pay compensation to the UK for the portion of debt that can be shown that Wales has benefited from and thereby, contribute, by that amount, to debt removal.
As noted elsewhere, the legal principles of compensation, is that the party receiving it doesn't profit from it.
To relate to the Debt, it is generally accepted that the Debt will not be completely repaid. It hasn't done so in it's history. It has been less as a proportion of GDP, but has always remained. Bonds when they mature are repaid, to be then replaced by further issues. And so it goes on. If there is a plan to reduce the Debt and a timescale to do so, the UK must produce it for consideration.
If the Debt is not being repaid, then Wales cannot be expected to compensate for something that is not changed by Wales leaving. The UK would otherwise profit from Wales compensation.
As for the amount of debt and the servicing of it.
The UK Debt presently stands at over £2.4 trillions
However almost £850 billion is owed to the Bank of England through QE ( quantitative easing ) which, as the BoE is wholly owned by the UK government, is in effect the UK government borrowing from itself. The QE will not quickly be reversed due to the extremely disruptive effect it would have on the economy. It is not therefore a government debt, particularly in terms of negotiations.
Similarly £200 billions are National Savings. Wales will clearly be responsible for the National Savings of the citizens of an Independent Wales, but it doesn't otherwise form part of any negotiations.
We are also aided by the principles laid out by the Vienna Convention, a body set up under the auspices of the United Nations.
Although its rulings are not legally binding, The purpose is to set out the principles that are internationally accepted, for sharing debts between nations that have separated.
The relevant principles are.
Negotiations are inherent in the process. There are no automatic rules.
Equity should be integral to the process.
The way the debt is divided should relate, among other things, to the way in which property is divided between the states. But importantly this is not just any property, but property that relates to the debt. Not property like natural assets, but the type of property like state infrastructure that has been created by public expenditure that has involved the creation of the state debt.
Attention should also be given to the ongoing benefits, economic and otherwise, of the creation of such state infrastructure.
So we would need to calculate where the infrastructure investment was concentrated to establish cost benefits. Also the ongoing economic benefits of large scale public funded projects HS2, Cross rail etc and long term benefit of the bailouts of the London based financial sector. To where did those benefits accrue? Will the the successor nation retain those benefits? Are there detrimental effects to Wales to be taken into account?
The Barry report, for example, argues that HS2 will have a detrimental effect on the Wales economy, of £150 millions per year.A figure also conceded by the Office for National Statistics.
Such investment related to state borrowing, is particularly relevant to Wales.
As the report of Cardiff University on Wales government budget found, Wales has on!y received 76% of the UK average investment in research and development and transport and infrastructure. The Barry report for Wales government also noted that Wales has only received 1% of investment in rail, despite having 11% of the rail network.
Such under investment has had long term detrimental affects effects on the Wales economy.
The UK approach to investment in Wales is illustrated by the then Tory Secretary of State for Wales in the 2014 UK government Plan for Wales. His example of investment in Wales was to identify Cross rail as Welsh infrastructure investment because it gave Welsh business easier access to the London financial sector.
( Honestly )
The lack of fair share of investment ( raised by UK borrowing ) and the detrimental effects of projects elsewhere, must be considered in Wales calculations.
The Unionists would want Wales punished for it's breakaway. It shouldn't get away cost free.
So what should this cost be.
We have established that any compensation will be confined to the servicing of the Debt. Paying the interest.
The UK Debt is over £2+ trillions.
We deduct from that the QE of £850 billions.
We deduct the National Savings.
This leaves a Debt of £1.3 trillion.
This is actually the amount shown in the UK accounts.
They also ignore QE, although they do show National Savings.
£1.3 trillion then.
The maximum amount Wales could be asked to contribute to, on a crude per capita basis is £52 billions.
The UK government can borrow at 1% so we will use that.
The cost of interest payments on £52 billions is therefore £520 millions.
So that would be the starting point of negotiations.
Not saddled with billions of pounds of debt. Even if Wales were to agree that figure, it would represent a significant reduction from the level of payments which Wales presently makes, of £2.2 billion per year.
However, if the Unionists are disappointed in that figure, there is further disappointment to come.
This figure only relates to current debt. Wales would only be interested in contributing to historic debt. It would not be involved in UK future liabilities.
This amount will need to relate to how Wales benefited.
So, how far to go back? How to average the debt over that period? It would undoubtedly be lower than today. What time limit is to be set on Wales payments. If the UK are not to repay the debt, indefinitely repaying the interest would not be reasonable.
Taking into account all the above, if Wales plays it's cards right, it could come away from negotiations in profit.
We can therefore ignore the debt issue as a significant factor in the move to Independence.
Deficit.
Wales will also be deficit free.
Wales budget deficit. The difference between it's income and expenditure
.
The financial data relating to Wales deficit, is collected and issued by the UK government.
It is conceded that the data contains estimates , assumptions and adjustments.
The illusionists using their own marked cards.
The deficit has defined the debate on Independence, to it detriment. It has done so by allowing the detractors and opponents to dictate the terms of the debate. The deficit is their weapon.
The argument must surely be, that Wales deficit as shown, is not being helped by Westminster, but caused by Westminster.
Would such a deficit exist in an Independent Wales.
Is it just another illusion.
The deficit is currently regarded as being £13.7 billion.
However as this figure includes £1.7 billions of capital investment, the fiscal deficit is actually £12 billion.
Also included are other items that would not be attributed to an Independent Wales.
These include expenditure not directly spent in Wales, but which the UK government says Wales must pay to UK wide spending. Items such as contribution to debt ( which has been dealt with ),_defence, border agency costs International costs and more.
They are areas where Wales had no say in terms of amount or relevance.
All are areas that an Independent Wales would make its own future arrangements,, undoubtedly at significantly lower costs.
The cost of this expenditure is £5.4 billions.
This is the UK giving Wales the money, to give back to the UK, to spend on things outside Wales, but counting as Wales deficit. Clear?
Then there is £1.3 billions of EU transactions. Having left the EU it is no longer counted.
There is also a policy areas that the Wales government has no control over, but which has significant effect on Wales economy.
There is a net pensioner migration to Wales of approximately 3000 per year.
The cost to the Wales economy has been estimated by the Institute of Welsh Affairs, as £2 billions.
With Wales an Independent country, those costs would be borne by the originator country, in the same way as retiring to Spain and other European countries.
If we remove these costs of £8.7 billion, the deficit is reduced to £3.3 billion.
State Pension, although being part of Wales expenditure. is the responsibility of the UK government.
Pensioners living in an Independent Wales, are entitled to the pension in the same way as those living in Spain or France.
The cost of the State Pension in Wales is £5.9 billion pa.
The UK Treasury has calculated that The responsibility for Wales post Independence, would accrue at approximately 5% per year. This means that Wales would be responsible for 5% of the £5.9 billion the first year, 10% the second year and so on, At that rate it will take 20 years for Wales to have full responsibility for its own State Pension.
That's an awful lot of money that the UK government will be responsible for.
The UK government would need to teach a financial agreement for Wales to take over that responsibility within Wales post Independence..
With regard to income.
HMRC has conceded that Wales revenues have been understated. This because some taxes, mainly corporate taxes and VAT from businesses located in Wales have been allocated to the headquarters of these businesses often located outside Wales. These taxes have not therefore been calculated in Wales revenue stream where they rightly belong
The exact cost to Wales incomes is unknown, but runs to billions of pounds.
Wales government setting tax rules to ensure maximum benefit from businesses producing in Wales would further increase revenues. The closing of taxation loopholes prevalent in the UK system would further benefit Wales economy.
A Cardiff University study with the Wales government, reported that the raising of Wales revenues of Income Tax and NI, to the UK average level, would raise a further
£5.4 billions..
It can therefore be seen that Wales fiscal spending ( spending on public services ) is secure following Independence. As Wales ability to grow, its economy accelerates, so it allows this spending to increase.
Wales has a positive balance of trade. Wales government figures show that the value of sales by businesses in Wales is estimated at £101.3 billions.
The value of purchases by businesses in Wales is estimated at £67.2 billions
A balance of trade surplus of £34.1 billions.
However taking account of the sales and purchases within Wales, the actual export surplus is reduced to £5 billions. Nevertheless a surplus. Wales exports are increasing but will need to be grown further in Independence.
Wales has a great potential for energy generation. Under the present constitutional arrangement, Wales produces surplus electricity to the value of £1.5 billions.
A Wales free to encourage and invest in energy projects in increasing solar and wind power and the development of marine and tidal energy, hydroelectric and the new technologies including osmotic electricity ( a reaction between saltwater and freshwater ).
The future potential for energy generation in Wales is huge.
Marine Energy Wales has identified the potential of 8 gigawatts of capacity from marine and tidal power.
Carbon Trust has identified a further 2 gigawatts of capacity from offshore wind turbines.
Research for the Crown Estates identified 4 gigawatts of capacity from floating wind turbines off the Welsh coast, with a further 20 gigawatts by 2045.
That is 14 gigawatts in the near future and 20 gigawatts to come.
At today's wholesale electricity market prices this would amount to £16 billion per year and a long term potential of a further £27 billion per year.
There are further potential financial benefits in technology, skills and intellectual property, in an international market worth over £75 billion.
It is interesting that the UK government is seeing the potential of Wales energy generation, promising huge investment in Wales offshore wind power capacity.
Wales will only benefit if it controls such potential.
All the energy potential is green, renewable and.cheap.
Investment in the economy and a new approach to business development will raise productivity and profits. Wales has only received 65 % of the UK average investment in vital areas of the economy.
Productivity in Wales is approximately 80% of the UK average.
Providing the necessary investment to improve these to UK averages, will increase Wales incomes significantly.
Investment in the new green enterprises of the future. Electric transport, semi conductors, artificial intelligence, life services etc.
Wales has an enviable record of innovation and world class medical and scientific research. We can do better helping those innovations grow.
More support for the many small high tech firms throughout Wales.
Wales is a small country with a small population to support and huge potential.
Development of medium sized home based businesses, where Wales are behind other countries. Measures to keep them in Welsh hands when they become successful.
Proper investment in the tourist industry.
Independent Wales will have the economic levers do enable these improvements.
Water too is a valuable resource. It is being traded for the first time as a commodity on the Wall Street Exchange.
Estimates of the value if Wales charged for it's water range from £200 millions to £2 billions per year.
Even at the lower estimate, it's a significant annual income.
Negligible debt and deficit, together with the immediate uplift in the economy and energy surplus, means that Wales will run at a financial surplus.
The outlook in the medium to long term is for an expanding economy.
Investment can be raised by borrowing in the normal way through Wales Central Bank and the selling of government bonds. Government bonds, even newly formed, are always an attractive option for international investors.
If Wales were to borrow at the same percentage of GDP as the more prudent countries, it could have a borrowing capability of £30 billions.
Borrowing for investment in infrastructure and to improve the economy.
This scenario, together with the ability of a Wales Central Bank to intervene, will ensure Wales has no fears with regard to to its currency. Indeed it is likely that the pound will suffer by comparison.
For a time there may be a mix of currency as some will be reluctant to give up the pound. However as business is conducted through the Celt, financial institutions issue it and taxes and payments to public bodies are made in the Wales currency, a single currency economy becomes to norm.
The Wales Central Reserve Bank.
Wales Central Bank. To guide Wales economy and the lender of last resort to the commercial banking sector.
The Wales Central Bank will hold Wales foreign currency reserves. Next to the economy, strong reserves are an indicator of a country's stability.
With the experiences of other countries the costs of setting up the Bank will range from £30 million to £40 millions. It will be approximately two years before it becomes profitable.
The Bank will need to build reserves in order to support the economy. when necessary. Not so much though if Wales has it's own floating currency. To be credible it will establish foreign currency, reserves. the Yen, Euro, USD, Sterling or Chinese Yuan. These are regarded as the worlds major currencies, although others will be suitable. As a neighbouring currency, it would be sensible that the Pound be one.
Comparison with other similar sized countries indicates that reserves would be in the order of £15 billions. Some indicators say that that reserves should cover the amount of imports for three months or debt repayments and current account deficit for a year.
£15 billions would fulfil those criteria
So where does Wales get these reserves.
First of all by the exchange of foreign currency in circulation in Wales
( pounds, euros etc ), for the new domestic currency which will now be used in Wales.
Secondly Wales exporters will be paid in foreign currency. They will exchange it for the Welsh Celt, to pay wages, taxes and domestic suppliers..
Also, Wales Central Bank can purchase foreign currency by the issue of bonds.
The precise amount and mix of these reserves will evolve over time, but it can be seen that the establishment of these reserves and Wales economic credibility is not the problem some would have us believe.
Planning for Independence.
The planning of the financial system must start long before Independence itself.
A draft bill to establish Wales Reserve Bank.
Planning, design and production of Wales notes and coins.
Design, implement and test a Wales bank payment system.
Public information plan.
Plan for the regulation of financial institutions..
Plaid Cymru, in particular, as the self proclaimed Independence political party. Should now be planning these in detail.
Without such planning, Independence may well see Wales I'll prepared.
What about wages, savings, investment and mortgages. Will banks and building societies flee an Independent Wales.
With regard to the banks and building societies. Why should they?
There is the same amount of business to be done. Profits to be made.
As subsidiaries of parent companies, they will have no more problems than previously. Unlike Scotland, Wales has no major bank headquarters, with the threat to relocate. Financial institutions are familiar with cross border transactions and currencies.
As for building societies. Houses will still be built, mortgages to arrange. People will still save. Wales housing market, arguably more stable than in England, with less variation in extremes of house prices.
Wages will have the same value, just a different currency.
Investment and savings currently held in sterling will be dependent on currency rates. However, as illustrated, there is no reason they will be devalued if converted to the Welsh currency.
It is important that pensions remain stable, unaffected by exchange rate fluctuations of any kind. This can be done in the same way as proposed i n Scotland, with a government Pension Guarantee.
That is not to say that opponents of Wales Independence will not attempt to use these points as a fear factor.
They will conveniently ignore the hardships caused to Welsh people under the present system and through policies that are made for interests outside Wales.
Austerity measures have reduced the real value of wages.
Financial policies to protect the banking sector still has a detrimental effect on the value of investments.
Current Bank of England measures to support the Westminster government policies, have reduced the value of savings due to negligible interest rates.
The Bank of England is presently warning that it's low interest policy will have an adverse effect on future pensions.
Mortgages, although presently at favourable rates ( if you can get one ). Will fluctuate significantly through the period of the mortgage.
There is more to fear from the policies of the Westminster government and Bank of England, than any change of currency on the finances of people or business in Wales.
There is more of course.
There is the setting up of the structure of government. The legal system and revenue collection.
Many of these are already partly or fully in place through the present government departments..
But that's for another time.
