Opinion
Welsh independence and the Wales budget deficit myth
Llew Gruffudd
Following a recent article on whether Wales is too poor to be independent, this piece looks at the myth that many see as the greatest barrier to independence - Wales' budget deficit.
A deficit that shows that Wales cannot pay its way.
A deficit that shows that Wales is dependent on the Westminster government to fund its public services
A deficit that would require large tax rises or public service cuts when Wales becomes independent
A deficit of £13.7 billion in the 2019 Wales financial assessment. A frightening amount
Except it's a myth. A financial sleight of hand.
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The figure, £13.7 billion came to prominence in a report of Wales finances by the Wales Governance Centre (Cardiff University) based on the Government Expenditure and Revenue, Wales (GERW) figures.
£13.7 billion. The shortfall between Wales expenditure and revenue. They have been used since, by a variety of sources, to beat independence on the head.
Except that deficit doesn’t exist, neither presently, nor in independence.
As the authors of the report concede, accurate financial data for Wales is problematic.
Very little is collected on a Wales specific basis. It is either Wales/England or UK wide. Tax revenues are collected on a UK basis.
When apportioned to Wales, this is carried out mainly by estimates, assumptions or adjustments (the words of the Wales Governance Centre and HMRC).
It used to be called educated guesses in the old days.
The figures in GERW and therefore Wales Governance Centre report are, at best, suspect.
Anomalies
Indeed Professor Richard Murphy, Professor of Accounting Sheffield University, a former Chartered Accountant and director of Tax Research, asserts that 90% of the financial data in GERW has no verifiable audit trail.
HMRC itself concedes that Wales' revenues are understated. That some tax revenues (the amount undefined) mainly corporate taxes and VAT, of businesses producing in Wales, are allocated to the HQs of those businesses outside Wales, rather than to Wales' revenue stream.
On the expenditure side, that is estimated, mainly on a population proportion basis and throws up such anomalies as Wales' annual defence budget of £2 billion, which means that Wales has the largest defence budget of any country in the EU, per capita or as a proportion of GDP, and not a tank in sight.
Professor Doyle of Dublin University, is lauded for his analysis of Wales' deficit in independence, however, he too is guilty of conclusions using dodgy data.
He rearranged the data for independence making sensible adjustments, but as it too is based on the data from GERW, his actual conclusion must be suspect.
Suspect figures
It is reasonable to accept his analysis that the deficit in independence would be considerably less than that assumed at present, but an accurate figure using this data is not possible.
Indeed with the present system of collection and distribution, and convenient accounting (the Wales Governance Centre concedes that its report was compiled outside normal accounting convention), no one really knows what Wales' budget deficit is, or even if there is a deficit.
What we can be confident of, is that it isn't at the level presented.
There is a common statistical principle, that when dealing with suspect figures, always ensure that any outcome makes logical sense.
In the period of Wales' £13.7 billion budget deficit, the UK budget deficit was £39.7 billion.
Which means that Wales, with 4.8% of the UK population, is responsibles for 35% of the UK deficit.
Logical sense?
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