Wales is the begging bowl of the UK!

Wales is the begging bowl of the UK. So says a Times journalist.

Wales is being subsidised by the English taxpayer. This from the Guardian.

Wales relies on financial transfers from the wealthy regions of the UK to pay for its public services. That from a Welsh Labour MS

These are commonly held and often quoted views, dominant because supporters of keeping the Union intact,  continue to dominate the economic narrative.

It's to their advantage that Wales is seen to be dependent

It is the view of the Welsh Labour MS that is worrying, for that influences his attitude to both the Union and any possible alternative.

Here's the rub. These commonly held views are mistaken.

Mistaken in economic analysis and of the way in which the financial system in  the UK works.

All Government spending starts in Westminster, where all expenditure is decided

The UK government has an account with the Bank of England, the UK Consolidated Fund

All the UK Income and expenditure is through this fund.

All expenditure is decided by Parliament.

Income comes from.

Tax revenues.

Fines, penalties and licence fees

Balancing payments from loans.

Other government receipts.

Borrowed money from the Loan Fund to make up any shortfall.

Expenditure drawn from the Consolidated Fund 

Allocation to government departments to finance expenditure.

Allocations to devolved governments.

Political and public salaries and pensions

Other public officials. Auditor General, Ombudsmen and judges.

All other expenditure authorised by parliament..

Each government department holds its own account with the Government Banking Service [GBS ], where they receive their allocation of Exchequer Credits. These represent how much each department is to spend.

Exchequer Credits are simply a ledger balance, internal to HM Government. They are not commercial money or central bank reserves.

When the departments are required to make payments, they are made through  the Government Banking Service and approved commercial banks.

Wales has its own Consolidated Fund Account within the Government Banking System [ GBS ]. Just like any other government department, except that its allocation is decided by the Barnett Formula.

The money in these accounts is not taxpayers money from other parts of the UK, nor transfers from wealthy regions, but rather credit from the UK Consolidated Fund to devolved accounts as long as Parliament has authorised it.

The flow of credit in the UK comes from the Bank of England.

The system of UK Public Finance is a little more complicated than ‘ transfers from wealthy to poor regions ‘ and Wales is a very small cog in that system  

The Office for National Statistics claims that only two regions have a budget surplus. London and the South East

It is therefore convenient to state these two regions, London in particular, subsidise the rest of the UK, including Wales.

However this narrative ignores that the generation of wealth in London has come at a cost to other parts of the UK and its own citizens.

London's wealth is built on finance and the technological industry and business HQs that finance has attracted.

The historically high commercial and private property prices together with the wealthy individuals, this finance has attracted.

But rather than subsidising other parts of the UK, this wealth has come at a cost.

The inequalities between London and the regions and nations of the UK is partly based on government policy. 

A declining manufacturing sector and an increasing reliance on  finance, banking and credit..

The broader process of privatisation and public private partnerships, benefit global financial centres like London.

But it was the  financial crash that ironically exacerbated the problem of financial inequality.

Public money  of £140 billion and over £1 trillion of guarantees went into supporting the financial sector during this crisis.[ the International Monetary Fund puts the figures higher ]

A crisis brought on entirely of the financial sectors own doing

The consequences however were felt throughout the UK

Finance and investment to the regions, including Wales, was squeezed. The more used to support the London dominated financial  sector, the less for all else.

Worse was to come as austerity was imposed in a vain attempt to first of all to stem the flow of money and then to attempt to retrieve it.

No financial transfers from the ‘ wealthy ‘ regions now.

Ironically it was the financial centres of London that recovered.economically, but at a further cost.

The London Olympics 2012 

A huge financial gain, overwhelmingly for London, although the costs were born throughout the UK.

The Bank of England quantitative easing [ printing money ] channelled billions of pounds into equity markets and property, benefiting a financial centre and high end property centre like London.

 

And the fact that much of London's wealth is at the cost  of poverty, that is, profits from low paid workers. London is awash with retail, hospitality and tourism, all renowned for low pay, this particularly so in London. Coupling this with high living costs equals high levels of poverty. ,

London also has a high level of wealthy individuals, based there chasing easy money.

So the money that the ‘ wealthy ‘ London puts into the UK pot, can better be seen as its  repayment to the UK generally for the costs associated with preventing the demise of much of London's financial base and   subsidising London growth, rather than a transfer to the ‘ poorer ‘ parts.

If there remains those still convinced of the old argument, be prepared for more austerity. for the wealthy regions are set to become less wealthy

.

Productivity in London is falling, at 0.2% it is even below the UK average of 0.3%. It is significantly behind its international competitors.

The costs of locating in London is limiting the money companies have to invest in innovation, research and development, This essential to productivity growth.

The historical position of London as a premier financial centre is being eroded and challenged by international competitors,  reducing the  accompanying investment.

Also the pressure to improve wage levels is cutting the profits gained by a low wage economy.

So, if the argument that Wales relies on money transfers is not accepted. Where does Wales get its money to finance its essential services.

It gets it from Wales of course.

Approximately £30 billion is raised in Wales from tax revenues.

Approximately for no one really knows.

Little data is collected on a Wales only basis and as the Wales Governance Centre, who uses the quoted figure,  states ‘ analysis is fraught with difficulties ‘ and often estimates are used.

Taxes are collected by HMRC on a UK wide basis and they concede that disaggregation for Wales is carried out using ‘ estimates, assumptions and adjustments ‘.

However, £30 billion is the figure being commonly quoted.

But there are further questions over this estimate.

HMRC concedes that tax revenues allocated to Wales revenue stream is an underestimate.

That there  are  taxes, mainly VAT and corporate taxes, that are allocated to the HQs often outside Wales,  of companies in Wales.

It would seem that the only accurate way to evaluate Wales real income is if it raised its own taxes and with its own regulations, so that profits made in Wales are taxed in Wales.

The amount of underestimation is almost impossible to discover.

As a guide however, the difference between the corporation tax allocated to Wales and Wales' population share of UK corporation tax, would see an increase to Wales income of £3.6 billion.

A similar calculation for VAT would see a further £1.7 billion improvement.

This would see an adjusted income of approximately £35 billion.

Although of course this figure may not be accurate, it is as valid as other estimates/

Wales income can legitimately be said to be approximately  £35 billion.

Wales spends £18 billion on its public services. That's the amount of the block grant.

The remaining £17 billion goes into the UK pot. Just like the ‘ wealthy ‘ regions

Next up the UK transfers £14 billion for so called social protection, state pension and benefit payments.

But that's not the UK giving Wales money. That's Wales distributing money on UK behalf.

State pension and benefit payments are the responsibility of the UK government. They are not devolved areas and the Welsh government has no say in these matters ,nor do they derive any benefit.

UK pensioners living in Spain, for example, are entitled to State Pension,  but it is not said that the UK government gives Spain money for this purpose. Nor is it argued that these pensioners are a burden on the English taxpayer.

Then there is the ‘ non - identifiable items ‘, those areas of spending not directly in Wales. The money That Westminster says that Wales must contribute to UK wide spending.

This amounts to £7,3 billion

Defence is included in this section. Wales has to pay £2 billion per year for defence.  This sees Wales as the biggest military spender of any country in the EU per capita and as a proportion of GDP. The Republic of Ireland spends less than half, with almost twice the population.

Wales pays £2.5 billion to the UK debt. Wales has no debt, it's not allowed to borrow. It has no control over UK borrowing or any say into how it is spent. It just pays £2.5 billion a year to service it. 

This is the theme of the remainder of non identifiable spending and is a political choice

A realistic figure for Wales to spend in these areas, would be less than half the £7.3 billion for so-called non identifiable items..

It is tempting to embellish this piece with the advantages that a sovereign Wales would bring.

Full control and financial advantage from Wales significant natural resources, especially renewable coastal energy. 

A new tax and benefit system , taken from international best practice.

The economic gains from proper investment, especially in skills, technology, innovation, research and technology.

Wales on Federal Bank to support Wales economy

However the purpose is to address the myth that Wales is financially dependent on the UK.

Income, adjusted to reality £35 billion.

Expenditure adjusted to reality, public services £18 billion, pension and benefits £14 billion, UK wide costs £3.5 billion.

Expenditure £35.5 billion.

What is the need for the begging bowl ?