How an Independent Wales will do it better.

Wales is a nation of individual culture, music and language.

Culture, music and language that is presently struggling for lack of financial support.

It is a nation that is concerned about its environment.

Not only its natural environment, but reductions in waste, as shown by its high recycling rates, carbon emission reduction, but also the urban environment.

It often punches above its weight in sport [ best not to mention the rugby ] with champions in cycling, boxing, athletics and more.

Here too it struggles for financial support, especially at grassroots level, whether for enjoyment or fitness.

In almost every area, Wales can be seen to be distinct from the other nations of the UK and elsewhere.

However, this distinctiveness is under threat, with almost every part  underfunded.

Even those run by voluntary organisations, have expenses, ever growing expenses.

And the basics. 

Public Services, Public Welfare. All need financial support.

So when we talk of Wales doing better, or more commonly worse, we invariably mean the economy.

Improvements in Wales, a better Wales inevitably relies on the economy..

So back to the question. 

How will an Independent Wales do it better?

The Union.

The present constitutional arrangement means that Wales mirrors the UK economy. A distorted mirror, but mirrored nonetheless.

With financial and economic policies decided by Westminster and the UK government deciding the size of the Welsh budget, there is no real opportunity for change.

Wales struggles because the UK struggles and the outlook is not good.

The UK economy stagnates. Economic growth of any significance nowhere in sight.

The UK is saddled with increasing debt, a debt that Wales is also expected to take responsibility for.

A debt caused largely by a constant budget deficit. The UK has only had a surplus three times since 1970.

A UK economy dominated significantly more than other European nations by American business.

There are still those that argue that Wales is dependent on the UK. This post will show that on the contrary, it is being tied to the UK that is holding Wales back.

How does an Independent Wales do it better,

Taxation.

The UK government raises less tax revenue than its European contemporaries..

This in large part due to the lower levels of employer national insurance [ or equivalent ] collected.

The UK also has a complicated tax system.

Taxes are meant to raise revenues in order to finance government spending, or recover money previously spent.

Increasingly however, the UK tax system is being used by the government to influence people's behaviour.

Taxes on alcohol to lower alcohol consumption, tobacco, gambling, so called sin taxes.

Also tax incentives to save more, invest more, or save less, invest less according to government policy.

The problem with such an approach is that they are a blunt instrument, often regressive, with the burden falling on the poorest and they are inefficient.

They are a blunt instrument, reliant on collective behaviour and ignoring individual choice.

The sin tax element is regressive, taking a higher proportion of the poorest income.

It is inefficient and short term.

 If it is effective, then the revenue raising is over time diminished, with a requirement for governments to raise taxes or find more sins to tax.

A system of multiple taxes also leads to complexities and more opportunities for avoidance.

UK tax laws run to some 3000 pages. That is 30 times more than criminal law.

It also loses £37 billion per year in tax avoidance, evasion and  mismanagement.

The Institute of Chartered Accountants agrees . Stating that The system is too complex to  work efficiently.

The House of Commons Treasury Committee stated that the UK tax system was overly complicated .The huge and seemingly ever expanding suite of tax relief is an important factor in that complexity.

They discovered that there were over 1100 tax relief regulations in existence.

Each of these cost the Exchequer in lost revenue.

It was found that HMRC had only costed one third of these concessions, but that 105 of them  had cost a total of £195 billion.

Additionally, it was found that there is very little monitoring of these reliefs and therefore it could not be assessed whether the tax relief had had the desired policy effect or indeed any effect.

It is in this tax morass that Wales presently exists.

A tax system that is overly complex. Too complex to work efficiently. Open to abuse and avoidance. Losing multi billions of pounds for the UK Exchequer.

So how will an Independent Wales do it better,

Anyway but this, it seems.

Wales on gaining Independence, can choose its own tax system

A system based on the ideal of simple, fair and efficient

It can take the best practice of tax systems internationally.

Estonia, for example, is regarded as having the best tax system.

Its businesses pay a flat rate corporation tax of 20% and are only taxed on distributed profits, dividends etc.

Retained profits are not taxed. giving an incentive to invest for growth.

And they do.

It is a win/win system, with companies investing in skills, technology and innovation for increased productivity.

A growing business, increased profits, higher dividends and more government tax revenues.

Estonia has increased its tax revenues by 60%, albeit from a low starting base.

Wales can learn, even from those countries with relatively high levels of income tax.

European countries, especially the Scandinavian countries, pay higher personal tax than the UK. However this has invariably led to higher wages and higher levels of disposable incomes.

The taxes have also been used to provide better social welfare provision, better healthcare and better education standards.

The higher levels of education also leads to higher levels of participation in the workplace.

These countries have higher levels of contentment and less objection to the payment of taxes as they directly and positively experience the outcomes of the revenue spending.

Wales, with no impediment, can choose all or part of the best practices of other nations.

It will certainly lead to higher revenues for the Welsh government and more tolerance in paying taxes from the population.

The new tax system Wales adopts will certainly be better than the present one it suffers under.

Banks and Finance.

Wales does not have the significant financial sectors that England and even Scotland have. Nor would it wish to have such a reliance on this sector in its economy.

Wales would do it differently, better.

Wales would have a Central Bank and fiat currency [ its own currency ]

There is also an argument for Wales to have a national bank

A government owned high street bank.

Post Independence, the present financial institutions would still have a presence in Wales, There is still money to be made. However these banks make policies outside of the control of the government,and not in the interest of Welsh consumers. Branch closures are an example.

A study by Professor Colyn Gardner shows that Wales has been badly served by the present banking setup.

He argues that due to their low wage economy and proliferation of micro businesses, they are of little interest to the London [ or Scottish ] based banks.

The effect of the withdrawal of banking services, particularly on low income groups, is significant.

Also, the effect on the Welsh economy.

The Welsh  business sector, dominated by micro businesses, does not expand.

This is a UK wide problem, but more so in Wales.

They do not, as the Americans put it, scale up.

For that they need finance and support and both are in short supply in Wales.[ they also need a different mindset, but that is for later ]

So Professor Gardner argues for a Wales Community Bank, a National Bank. A bank set up by the Welsh government, a comprehensive, nationwide bank, tasked with concentrating on serving the needs of the community and assisting the growth of Small and Medium  Enterprise [ SMEs] in Wales.

A bank that reverted to the old school banking of person to person relationship and the elimination of online , tick box, point system, banking.

A system run by experienced bank managers embedded in the communities.

A bank that is not in pursuit of quick investment opportunities, such as that led to the financial crisis of 2008, but is based on deposits , loans and sound financial advice.

The Welsh government did attempt a community bank, but as it doesn't have the devolved powers. It therefore had to do so in partnership with an existing financial institution.

It failed to establish a partnership.

There is also the Wales Development Bank, that is meant to achieve, at least the business part, that of business growth.

Even with regard to business growth, there is little evidence that the Wales Development Bank has been significantly successful.

It is said to retain the characteristics of the conventional banks, with costly and inflexible lending rules, also tales of bullying behaviour, difficult to approach and negligible advice.

It is also difficult to analyse whether the successes it claims, would not have been achieved without its presence.

So a Wales Community Bank/ National Bank, A service, particularly for middle and lower income groups and essential for the financing of the startup and growth of SMEs.

The problems of establishing such a bank as experienced in the present constitutional arrangement, would not apply with an Independent Wales.

It could, according to Professor Gardner, be established in a matter of months.

Within months large parts of Wales and Wales business would experience transformational improvements in their financial needs.

Business and Commerce. 

Wales presently cannot do trade deals with other countries. That is done by the UK government.

Wales can attract individual companies to Wales, mainly by offering incentives.

Foreign companies expect almost as a matter of course, to have a significant part of its costs paid by the UK government, or in Wales, by the Welsh government.

Even after these inducements, there are many examples of companies taking off for other countries after a short period.

The Welsh government spent £3 million preparing a site for the expectation that Ionos was to build its new challenger to Land Rover at Bridgend.

Ionos however received a better offer in France and off it went.

That money and the millions in other inducements, would be put to better use developing Wales indigenous industry.

Wales' industrial economy is unbalanced.

The Welsh Centre for Public Policy. The Welsh economy has relatively few high value, high productivity services compared to the UK average and depends to a greater degree on lower productivity services,manufacturing, tourism and agriculture. It also has a relatively high proportion of small firms and lower level skills.

A reasonable assessment it would seem.

This assessment is supported by a Government of Wales Economic and Fiscal Report 2024.

This the first report by the Welsh government, unbelievable considering there has been 26 years of Welsh government.

The report itself is rather disappointing, as the first thing it concedes is that there is very little data collected on a Wales specific basis and that the report leans heavily on estimates derived from UK data.

The main points of the report is that the Welsh government acknowledges that Wales is performing poorly.  

The main reason is that the UK is performing badly.

Raising too little in taxes, poor productivity and a large and growing debt.

Even against this bleak scenario, Wales fares worse, with lower than UK average wages and productivity.

The report put the reason for some of this as the small size of Wales urban centres, with no city exceeding 500000 population

This, they say, prevents economies of scale and exchange of skills

However, there would seem to be little substance in this argument given the size of Wales.

Each town and city may be relatively small but each are in close proximity with each thereby forming larger conglomerates .

The other reason the report alludes to, is the lack of investment in the Welsh economy, although the Welsh government takes little responsibility for this.

This economic and financial report seems to fo;;ow the age-old political lines of placing the responsibility for Wales woes with the UK government and by its projections those woes are likely to carry on.

So how will an Independent Wales do it better?

The Wales economy is unbalanced.

It has too few high value medium sized businesses

SMES are the heart of the economy, 

They are often the most innovative, flexible and easiest to grow.

Too often when a Welsh small enterprise wishes to expand, it can only do so by selling it on.

Contrast this with  the German equivalent, the Mittelstand.

The Mittelstand [ the German SME ] represents 60% of the German economy. But it is a much bigger group, accounting for two-thirds of German exports. Usually these companies are family owned with the expectation that they will be handed down. By their nature they are independent and integrated into the community. The workers have a high sense of involvement and loyalty and the owners a social responsibility. They would see sale to a company from outside the country as short termism and unethical.

These Mittelstand companies succeed by planning long term, even at the cost of short term profitability, investing in innovation and excellence.

These companies also benefit from substantial state assistance when necessary with some banks in Germany required by legislation to support SMEs. [ this is also the case in Switzerland and elsewhere ]

In the UK, five of the largest banks account for 90% of deposits.

They only want to deal with big business, do big deals, and have big bonuses

.

Germany has 2000 banks, community based, dealing with community business.

Contrast this with  for example.

Wales creative industries.

A £1.5 billion turnover sector. International potential.

Finance and support provided by Creative Wales, a Welsh government economic development agency to support the creative industry in Wales.

Committed, in their words, to helping the creative industries thrive,

Help and support

Support for studios in Wales impacted by non domestic rate revaluation.

Funds no longer available.

Games scale up to take to the next level.

Funds no longer available.

Music revenue fund to support the music industry in Wales.

Funds no longer available.

A recent report shows Wales second from bottom in European cultural funding..

National Theatre Wales only survives due to intervention, including finance by a Wales celebrity.

So there’s a good place to start.

Multi billions from energy.

Additional revenues from the improved tax system

Wales as a sovereign state with the Central Bank able to raise significant finance for investment.

Finance available for support, encouragement of SMEs in Wales.

Make SMEs central to Wales industrial economy.

Ensure that support and sufficient finance is available to grow small businesses to medium and so on.

Concentrate funding in enhancing indigenous Wales companies, or at the least, those wholly based with HQs in Wales.

Those companies with high value long term potential. Offering high paid skilled jobs.

We must be conscious of our ambitions and how we invest..

The majority of SMEs in Wales are in the construction sector, followed by retail, wholesale, hotels, food and transport and although these sectors all need investment to improve it is usually high costs, taxes, rents that are their main impediment., they are not the high value growth sectors that Wales need to flourish.

 

Much of that lies in ensuring that science, technology and medical research hubs set up around Welsh universities are enabled to move on to development and production in Wales and are protected, by legislation if necessary as in Germany and France, from foreign takeover.

Energy.

Energy is the largest single industry, where Wales can do it better.

Wales has great renewable energy potential.Described by a major UK engineering publication Probably the greatest concentration of renewable energy resources than anywhere on the planet.

Recent studies, most notably by Crown Estates, have established offshore renewable energy potential of more than Wales uses from all sources, oil, gas and electricity..

Resources that at today's wholesale market price are worth over £10 billion per year.

However, that doesn’t come to Wales. Under the present constitutional arrangements. The Crown Estate Office decides where and how many licences to grant. There may be none in Wales. They then take the licence fee. The chosen generator then produces the electricity and takes the profits and the UK government takes the tax revenues. Wales, well there's not a lot left for Wales.

An Independent Wales will change all that.

Those resources will then belong to Wales and when Wales takes ownership so will the £10 billion per annum.

But there's more to it than that.

Wales will be self-sufficient in energy. Providing its people and businesses with a stable and secure energy supply.

Energy will increase Wales financial resources, providing finance for investment in other areas of the economy.

It will also be an economic driver. Providing cheaper energy within Wales.

Lower costs for households meaning more disposable income.

Consumer spending, the biggest driver of the economy.

Lower costs to business, higher profits, more  tax revenues.

Lower costs to public services, more money diverted to frontline services.

Energy owned and controlled by the Wales government will enable Wales to do much, much better.

A publicly owned Energy Company, such as in Norway, tasked not only with maximising Wales energy sector, within environmental guidelines,but researching alternative energies. Hydrogen being an example. Hydrogen produced using clean renewable electricity.

Technology industries of the future.  

Making glass bottles may make a tidy profit for its Turkish owners, but will make little improvement to the Welsh economy.

Nor will it prevent the exodus of ambitious Welsh youngsters.

To do that they must be presented with exciting technologies and attractive careers.

Wales is not faring well in that area.

Space Science, as an example.

A sector that according to The Wales Economy Minister is worth £400 billion pa worldwide, by 2030.

The UK ambition is to achieve 10% of that market.

And the Wales Space Science market target. Well that's just to get Wales population share, £2 billion per year.

That’s not a plan. There is no plan

The Minister talks up the research and hubs and that’s where they will remain as there is no plan for the next level.

SpaceForge for example, an innovative space science company, involved in reusable and returnable space satellites carrying out experiments in the unique conditions of space. Based in Wales.

They were over a year without working premises and were then housed in one previously used for making burger vans.

Hardly a bespoke start for such a company.

The Minister talks up Wales' part in the aero industry, it punches above its weight having 10% of the UK jobs.

A position almost entirely due to Airbus being located in Wales.

He doesn’t dwell on Wales punching below its weight in space science, having only 1% of the UK jobs,

He then talks of Wales ‘ having room for growth ‘. It's just political speak.

The UK has 1700 space technology industries employing 52000 people. However, 40% of these are employed by BSkyB, and many more by a few other large companies such as TAS, Airbus etc. This leads to the remainder of the 1700 companies being very small scale.

Wales has less than 450 people working in space science sector.,

With regard to funding, Space Forge in evidence to the UK Government, echoed what many in the industry considered,

Funding by the government is spread too thinly and on a small scale.

It is concentrated at the lower end of the development scale to such an extent that it encourages the micro business just to develop its Intellectual Property [ patents, ideas and trade secrets ] to the extent it becomes commercially valuable. It then sells it on to be developed. Usually by foreign buyers.

For most SMEs the funding levels are too small and complicated to make applying worthwhile..

Tellingly, Space Forge concludes The present method of public funding does not and will not lead to the development of scaling up to commercialize a technology, while being headquartered or carrying out the majority of its operations in the UK.

Space Forge has now gained significant funding from outside Wales.   European Space Agency, NATO Space Fund and US sources.

How will an Independent Wales do it better?

Ambition is the first step

A North Wales site was shortlisted for the UK space centre.

It was allocated elsewhere.

That can, in an Independent Wales, be reinstated as the Wales Space Centre.

Space science is important, essential for experimental purposes. But also for defence applications, climate change analysis and weather event forecasting.

The £400 billion international market will be available for an Independent Wales to bid toward, without having to rely on UK ambition and effectiveness, but only if it gets its own space science house in order.

Welsh companies developing this technology will have the same enhanced access to government grants and loans from the newly formed Wales community/national bank, as other businesses, but it needs more.

As those most closely involved argue, it needs government finance through all stages of development.

The initial government investment gives the confidence for further commercial involvement.

A Welsh Space Agency with the required space finance available, together with the powers to protect the developing technological companies from outside pressures.

Countries such as Germany and France have strongly enforced legislation preventing companies from outside taking majority control of designated industries.

It's about proper planning of a Wales space science sector and supplying adequate levels of finance.

Next up Part 2.

The experience of 

Cyber security.

Artificial Intelligence

Life sciences

Electric vehicles 

Semiconductors

In Independent Wales and how we can do it better.

And later

Part 3 

If you have the stamina.

Agriculture

Tourism and hospitality

Public services as an economy generator.

In Independent Wales and how we can do it better

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