The economy of an Independent Wales                       

Wales wealth. How to get it and how to use it.

The New  Wales economy. How to start.

Wales has had its referendum, next is the transition.

The transition period, two years, was agreed between Scotland and the UK government, prior to their referendum.

This transition is when Wales draws up its necessary initial legislation in areas such as, currency, Central Bank, taxation. Although many others will be a continuation until a later date.

It will also be the time in which any agreements with the remaining UK [ UKr ] will be made.

This is a time for lawyers, civil servants and the politicians.

These posts concentrate on post transition. When Wales becomes Independent.

How does Wales start its economic journey?

Prior to the declaration of Independence.

Prior to the transition or referendum, Wales would have set out its economic plan.

How else would it have won a referendum?

This blog's suggestion is that it would go something like this

From day one.

Wales would enter the Independence era with very little spare cash.

With the uncertain data, it is unclear whether or not Wales would start with a deficit, or what amount it would be..

Let us, for the one and only time, take the pessimistic view and go with the doom mongers and assume a deficit.

Even the authors of the financial statement that highlighted a deficit, concedes that it would be significantly less when Wales is Independent and although they were prepared to guess the initial deficit figure, they are reticent in even guessing that in Independence.

So how do we deal with this unknown figure?

Unknown until Wales produces its own Wales specific data.

Deal with it without raising taxes or cutting services

Services already suffering from the previous regime.

Wales has a plan. A plan that puts the consideration of the welfare of its people first.

Not a consideration of the priorities of financiers, banks, big business or politicians, but its people.

What, otherwise, is the point of Independence.

In this prioritising of the people, tax rises,[ at least not to finance deficits ], or service cuts are not the answer.

The answer is, that in order to fulfil the aim of improving welfare and wellbeing, we make Wales wealthy.

To improve health and social care, social housing, education, income, transport and infrastructure, improving the environment, we make Wales wealthy.

We do so by providing a business friendly environment, investing in skills and technology and innovation and attracting the high tech, high wage industries of the future.

Our plan encourages government spending, in the right areas of maximum public benefit..

Now this sounds like the usual political wish list before an election.[ except for the government spending ]

But this plan is different because it frees the significant natural  and human resources of the nation.

This is a Wales plan.

What’s first and where does it get the finance?

Although there is much potential open to  Wales, high tech green industries. LIfe sciences, semiconductors, space science, cyber security, they are not immediately available.

Wales will need a short term fix to get the economy rolling.

Wales economic plan concentrates, initially, on those parts of the economy that can provide economic impetus in the short term.

Energy and Wales sovereign currency,

Wales is abundant in renewable energy resources.

Studies, which will be detailed in the next post, by Carbon Trust, Marie Energy Wales and the Crown Estates have identified considerable potential for green renewable energy from offshore wind turbines, marine and tidal energy and floating turbines.

These studies point to 14 Gigawatts of installed capacity.

At current wholesale prices, £10 billion worth of energy, every year..

Present electricity production would immediately come under Wales control, with tax and licence revenues for all produced in Wales, including the £2 billion excess energy exported, will now go to the Wales Exchequer.

Typically new energy developments take between 3 to 10 years to energy generation.

Taxes.

Although any new tax system will take some time to show financial benefits, there are areas of  immediate gains,

HMRC has conceded that there are tax revenues of businesses located in Wales, allocated to the HQs of those businesses often located outside Wales.

Mainly corporate taxes and VAT, although unquantified, would amount to billions of pounds. 

Those can be recovered in the short term.

Additionally HMRC loses revenue every year from avoidance, evasion and mismanagement, of which Wales' population share would amount to £1.8 billion.

Wales' new revenue system would move to close those loopholes.

Finance.

 Wales can raise significant improvements in its financial situation from the start, with more substantial gains in the short to medium term.

If only we had the money to invest.

Investment in energy generation and even the setting up of Wales revenue collection, will require money.

The Commission on the Future Constitution of Wales argues that an Independent Wales would need to address any deficit through tax increases and/or public service cuts,

Additionally investment as required, would add to those pressures.

This too is the conventional, if misplaced,approach of governments, particularly the government of the UK. 

But this is New Wales, with a new approach. Not about to place hardship on its citizens

It's not about imposing tax rises or service cuts.

Wales will have sufficient money for its needs without them. Indeed sufficient money to make immediate improvements,

So after berating those who falsely claim a significant Wales budget deficit and devoting many pages showing the contrary argument, it is now that the new Welsh nation should have one. Indeed a large deficit as necessary

So why the change.

Well the deficit under the system before Independence was brought about by a contrived accounting system of the UK government over which Wales had no control.

The deficit in Independence is for investment in Wales' future

It is completely under Wales control. Wales is now an Independent nation, with a sovereign currency and a Central Bank.

It can run a deficit and pay for it because it is now an issuer of currency, it can print money.

To take the example of the UK economy, although commonplace in modern economies, austerity, slow economic growth, poor public services, these are due to political not economic or financial decisions.

They are decided by the economic dogma famously espoused by Margaret Thatcher, that the nation, like the household, must live within its means. That government spending can only happen by raising taxes.

This line has been followed by following governments, with Tony Blair being a particular fan of Thatcher's approach.

Even the present Labour leader Kier Starmer and would be chancellor Rachel Reeves, singing the praises of Thatcher's  approach.

It's a failed approach as illustrated by the parlous state of the UK economy.

It is a popular approach with politicians, for it persuades us that as we cant balance the books, we can't provide the services and we hand them over to the private sector.

It is also convenient, as it is easy for the public to understand. We have to earn the money before we can spend and if we don't have, we tighten our belts. We go without.

We have that problem as citizens, because we are only a user of money. A government with a sovereign currency has no such constraint. It can raise whatever money it wants.

The danger with government injecting money into the economy, is not deficit or debt, but inflation, for that affects everyone directly,

Even here the UK approach has failed.

It has failed due to the lack of connect between government and the Bank of England [ The Central Bank ]

On the one hand the BoE is tasked with controlling inflation, with its tools being monetary measures, mainly interest rates.

The UK government on the other hand is in control of fiscal matters, taxation etc.

The problem with controlling inflation with interest rates, is that it is a drawn out hit and miss method, as the country is experiencing.

The reduction in interest rates is no guarantee that it will entice  to borrow and spend.

Conversely high interest rates have led to a depressed economy.

The weapon of choice in the event of inflation is taxes.

It taxes spending power away in the shortest time and is the most reliable of the financial tools available.

The problem is, that the government regards inflation as someone else's problem  the BoE and although taxation is used, it's been at the wrong time and for the wrong reasons.

Wales.

Those examples are illustrations of how not to run an economy.

Our new Independent Wales will be different

The emphasis of a Welsh government and the Central Bank will need to be, not on balance sheets, but on outcomes,

Not on whether there is a budget deficit or surplus, but whether the policies are leading to the right outcomes.

Whether the money is providing the desired improvements,in public welfare and wellbeing, in improving the business environment and increasing the wealth of the nation, not just those at the top.

Politicians may preen themselves if the government is showing a surplus, but that only means there is an equal loss in the economy.

Less money for individual spending [ the largest contributor to GDP ] less money for private investment.

So Wales will run a deficit.

A deficit to spend on making Wales wealthy.

It can do it because it's a sovereign state with a sovereign currency,

It can raise  money by providing security or just print it. It's really that easy.

Next up.

How to get it. Where to spend it.

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