Are Wales public services really financed by money from England?

Llew Gruffudd

A credible future plan for an independent Wales is vital.

But understanding the situation of Wales in the present is equally important, for that's where Wales is too poor, Wales is too dependent, starts.

If the Welsh people believe that Wales has a huge financial budget deficit, how can they go it alone?

If the Welsh people are told that Wales is dependent on England/UK, how can it become independent?

So the road to independence is about regaining the narrative initiative and debunking the myths.

So as my small contribution, let's debunk another.

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The Myths

In a recent question to a senior Welsh government Minister, regarding why Welsh Labour was so supportive of the union. His response was - The union is the only option, as it is the financial transfers from the wealthy regions of England that pay for Wales public services.

He failed to add that it is because Wales is tied to the union that it is the only option.

There is also an argument from the pro union lobby, that Wales public services and state pension are subsidised by English workers.

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So is it the case? Does Wales rely on the handout from England?

Second things first.

The UK financial system doesn’t work by identifying who subsidises what.

All UK income, from whatever source, taxes fees, fines, income from UK investments, are paid into the Consolidated Fund.

From that fund comes all spending agreed by the UK Parliament.

The only question therefore for those concerned about English workers rights, is do they pay into the fund to subsidise Wales?

Their contribution to the fund, being Income Tax and National Insurance contributions.

Total UK income from all sources is currently £1.3 trillion.

The total UK tax income is £960 billion.

Of this, income tax accounts for £268 billion

National Insurance accounts for £172 billion.

The tax group of most UK workers, under £50000 per year, only contributes 40% of this. Most tax is paid by higher earners.

The English workers tax group therefore contributes:

Income tax £107 billion

NI £68 billion

The tax from these groups also includes the taxes from Scottish, Northern Ireland and Welsh workers, tax from pensioners occupational or private pensions and tax on income from investments within this group.

So the English workers' contribution to the fund reduces further and realistically being approximately 10% of the UK tax intake, it's a very big stretch to argue that English workers pay for Wales' public services or state pension.

So it has to be the wealthy English regions. Doesn’t it?

Who are these wealthy regions and how do they get the wealth to pay for Wales public services (and N Ireland, Scotland and the remaining English regions).

Well, according to the official data, it is only London and the S.East of England that have a budget surplus. Mainly London.

London, the UK financial centre.

It's the financial sector that is the basis for London's wealth.

Approximately 85% of London's working population are in the service sector, dominated in wealth generation by financial services.

The financial centre doesn’t have to be in London. In this digital age and with digital money, it could be located anywhere.

It could be Middlesborough and according to this cross subsidisation theory, Middlesbrough would be subsidising the rest of the UK. (Before you comment, I don’t know why I chose Middlesborough).

It could be Cardiff and then the moans about Wales being subsidised by England, would disappear.

But it's London. London where the seat of government is located. Where the Bank of England is located and where therefore, the financial services are located.

Very cosy.

And that's why the financial sector is influential in the UK economy and where London gets its wealth. Not because it's more productive, not because its people work harder, but location.

Are Wales public services really financed by money from England?

Location and its love in, with those with financial power and influence - the UK government and the Bank of England

The government's economic and financial policies favour the financial centre of London.

Government borrowing favours the financial sector of London.

The Bank of England's Quantitative Easing favours the financial sector of London

The UK's relatively lax financial regulation also makes the financial sector of London attractive to international finance. Favouring London as a financial centre.

Another contributing factor to London's wealth creation, is that a large percentage of London businesses underpay their workers.

London has the highest average of workers paid below the minimum wage, than anywhere in the UK.

London gets rich by exploiting its workers.

Olympics

The Olympic games. The London Olympics, London gained multi millions of pounds from staging the games, yet it was paid for with contributions from throughout the UK, with little financial benefit to those contributors.

Indeed, Wales had money from its block grant directed to financing the games.

This no doubt helped London recover from the financial crisis more quickly at the expense of the rest of the UK.

As also did the multi billions of public money pumped to support the financial sector, through the financial crisis of 2008, £350 billion aid and a £1 trillion in guarantees.

A crisis brought about by the greed, incompetence and dishonesty of the very same financial sector.

Supported at the expense of the rest of the UK, including Wales.

No other sector had such support and many businesses were allowed to collapse.

Then there are the very wealthy incomers, famously Russian oligarchs, who had stripped their own country of financial assets and found a safe haven for it in the London financial system, investing in The London infrastructure at the same time.

So it could easily be argued against those who subscribe to the subsidy theory, that it is merely London repaying the rest of the UK.

It could also be argued that under this theory, Wales public services are paid for by Russian oligarchs, or Middle East sheikhs.

But it isn’t and they don't.

So. Who really pays for Wales public services?

Well, Wales does.

Even the dodgy data used to calculate Wales finances reveals that Wales raises about £32 billion in revenues.

It is certainly higher as HMRC admits that due to the system of allocating taxes, Wales tax revenues are understated. (it is however an undefined amount).

Wales public services cost £20 billion.

So no, Wales public service expenditure is covered by Wales revenue income.

Then there is the contentious issue of the State Pension in Wales.

This is clearly the responsibility of the UK government as all contributions were paid to the UK Treasury and not to Wales.

Even so, the State Pension in Wales, approximately £6 billion, is still covered by Wales revenues.

Then there are welfare payments to Welsh recipients, approximately the same amount as State Pension. Still covered by Wales revenue.

However, as Wales cannot presently raise significant extra tax revenue, or grow its wealth,
under the present system,that's its income used up.

So. What then?. What are the remaining costs?

Non Identifiable costs

Now isn't that a strange term , considering all the effort that goes into doing just that. Identifying what Wales must pay to those areas not directly affecting Wales.

Defence
It isn't England paying for Wales' defence really. It's just an accountancy exercise.

The UK government, when drawing up its plans, doesn’t add a bit extra to defend Wales.

Wales doesn’t need Trident, or an expensive aircraft carrier patrolling off the Middle East.

Wales has no say in the allocation of these budget items.

Presently, Wales is expected to pay £2.2 billion towards defence.

That is higher than any country in the EU, per capita and as a percentage of GDP.

Wales gets no tax revenues nor economic growth from that spending.

Wales would get better value having the protection of NATO at less than half the price and a free introductory period.

International payments
Wales presently budgets for £500 million as a contribution to International aid and expenses.

As the UK pays £15 billion to International aid. It wouldn't be too much of a strain to divert a little to Wales.

UK National Debt
Now that's a subject on its own and will be dealt with in a future piece, but for the moment.

£2.7 billion per year is what Wales is expected to pay to service the UK debt.

That from a nation with no debt of its own, it isn't allowed to borrow.

Wales has no influence on UK borrowing policy, or what it is used for.

Other non identifiables

Media, mainly the BBC is one, although the licence payer now finances that.

Payment to the EU was also a cost in Wales' balance sheet. That no longer exists.

The total of these non-identifiable items is said to total about £6.5 billion by UK government
calculation.

But they do have a tendency to exaggerate.

And isn't it funny, when it is argued that Wales is reliant on England financially. It is never that England pays for Wales defence, or international aid, or the national debt.

Perhaps it's because it doesn't have the same dependency factor, the same emotive impact, on the Welsh people as England pays for Wales Public Services or State Pension.

Which it's been shown is another myth.