It used to be armies and castles that kept Wales down. Now it’s dodgy accountancy.

County and Regional Account

In 2019 appeared a new report that put Wales firmly on the back foot.

A report based on data  by the ONS [ Office for National Statistics ] showed that Wales was spending more than it raised in revenues to the tune of £13.7 billion.

A £13.7 billion budget deficit..

Wales, poor,  dependent,  unable  to pay the bills without substantial help from the Westminster government

But is the portrayal of Wales  by this report accurate or fair?

This report was first brought out in 2017, that’s 17 years into devolution and without  explanation as to why.

In 2019 it was still regarded as experimental, yet  didn’t prevent it being widely used.

It is not a basis for policy making. The ONS makes this clear. 

So what is the point? The ONS using questionable data, using, in their words, estimates, assumptions and adjustments.

Data used then by other sources, generally without questioning.

An ONS underresourced, overworked and with its data accuracy questioned under review.

A review that advised them to prioritise their work.

With the UK Treasury and Bank of England complaining about the quality of ONS data

And yet this annual event continues, based on the same questionable data, with the same estimates, assumptions and adjustments. 

Why when simpler, policy changes could have altered the whole UK economic landscape?.

If the London Stock Exchange was relocated to Cardiff, then Wales would be a net contributor to the UK economy.

Or if the Bank of England was located in Birmingham, large parts of the financial sector would congregate there. Birmingham too would then become a net contributor

What the figures tell us is no great surprise, it is the consequence of a centralised financial and political system.

 Policies are not going  to change, nor the system of financial transfers. Wales, together with  other nations and regions of the UK, will continue to have perpetual financial budget deficits

It’s the system.

That is except for London [ and the S.East ] 

London 

London’s wealth however comes , not from  superior  productivity, but by its place in history and government policy.

Historically the royal palaces are located in London  as are the national museums and galleries.

These form the basis of London's tourist trade, a sector that generates 20% of London’s income.

But these institutions don’t belong to London, they belong to the UK. The costs related to them are met by the UK taxpayer.

Whether it is chemicals from Liverpool, energy from Wales and Scotland, or steel from the North of England, it is not London's wealth just because it is bought and sold in the financial markets based there.

Finance.

Similarly, London has historically been the financial centre of the UK.

Government policy and the direction of the economy favours London and strengthens its dominant position.

The UK’s shift from  manufacturing to the present dominance of the financial sector.

The UK centralised system of revenue collection and decision making.

UK government and central bank policies favour the financial sector. 

QE [ Quantitative Easing ] an example. QE is meant to free up money for enterprise investment, instead it was predominantly used by wealthy individuals and organisations for the purchase of assets, shares and high end property. Predominantly in London.

It has the City of London with its own rules and  police force.

It is also the world’s biggest money laundering centre, with direct access to the world's leading tax havens

The Finance Innovation Lab, an independent monitoring organisation set up by the WWF and Institute of Chartered Accountants of England and Wales, has estimated that £325 billion of dirty money is laundered through the City of London, rising to £788 billion if including the British tax havens of Cayman Islands, British Virgin Islands. Channel Islands, Isle of Man etc.

The City of London provides 20% of London’s income.

Much of London's wealth is not created by London, but by the dominance of American banks and financial services, Middle Eastern royalty, or Russian oligarchs, who have made London their base due to the favourable financial advantages it offers. 

The alternative balance sheet.

According to the present ONS balance sheet, Wales has an  expenditure of £57 billion.

It raises a revenue income of £37.6 billion

So according to the accountants Wales has a budget deficit of £20 billion.

Except

 

Wales income is missing tax revenues of businesses in Wales that have been allocated to the HQs elsewhere.

This is mainly Corporate tax and VAT from cross border multi nationals, supermarkets, banks, or businesses where it is easier for the ONS to identify ownership elsewhere..

Both the ONS and HMRC concede this shortfall but fail to quantify it.

Yet it has been estimated as as much as £3 billion per year.

That would take the revenue  to £40.6 billion.

The report ignores policy, the much heralded ‘ levelling up’. Multi billions to be spent on the Northern Powerhouse.

Much of the funding is to come from savings on the now defunct section of HS2. This being the case. as it was argued that HS2 was a joint England/ Wales project, then it follows that the savings and funding should be shared.

Wales wages are below the UK average by approximately 10%. This is due to lack of investment in skills training and technology. Also the historic tendency to attract lower paid jobs.

 Policies under ‘ levelling up ‘ to address these issues and raise Wales wages to the UK average would, according to those at Cardiff University add £5.6 billion per annum to Wales revenues.

That will take Wales revenue income to £46.2 billion.

Similarly, Wales productivity is below the UK average, This is due to the historically low levels of investment in innovation, research and development.

With our new found funding and policies, reversing this trend and raising productivity to the UK average would, according to a  Nat West survey, add £1.7 billion to the Welsh economy.

That takes Wales revenues to £47.9 billion.

So with proper tax assessment and its share of funding, Wales real income has risen to £47.9 billion.

That against spending of £57 billion.

However, only 80% of that spending relates directly to Wales according to the ONS, 

That is a figure of £45.6 billion, the remaining 20% being ‘ non-identifiable ‘ that is supposedly Wales' share of UK wide spending.

So even under the present constitution, it is policy and Wales' fair share of funding that holds Wales back, rather than a balance sheet.

Although there remains the contentious and arguable ‘ non-identifiable ‘ issues, even under the present restrictive, economic regime, it shows that Wales can pay its way.

Income £47.9 billion.

Expenditure £45.6 billion.

But that’s not all.

The UK financial system is quite simple.

Each nation contributes to the national kitty and each nation takes out to pay the bills.

Is the real problem that Wales' contribution is not properly recognised, either because of the system of accounting, or by design?.

Water from Wales. A natural Welsh resource and without which the enterprises and commerce of the cities of Birmingham, Manchester and Liverpool would cease.

Yet the wealth of these enterprises, which rely on water from Wales, pay no regard to this contribution from Wales to the UK economy.

Severn Trent water  made half a billion pounds profit last year, yet again there is no acknowledgement that it was Wales natural resources that made such financial contributions possible.

Similarly with energy. Wales generates surplus energy. That too is fed into the UK energy system to contribute to the UK economy again without any acknowledgement that it originates from Wales. 

The Crown Estates have almost £1 billion of assets in Wales.  The revenues from these assets go straight to the UK financial pot, yet they are on Welsh land and off the Welsh coast.

It seems that while London can lay claim to wealth created in London, from whatever source, Wales cannot do the same.

Milford Haven port  handles 20% of the UK energy.

The DVLA generates revenues of £7.8 billion Based in Wales.

Royal Mint revenues of £1.9 billion. Based in Wales.

Intellectual Property Office, Companies House, Food Standards Agency and Office for National Statistics.

All contributing to the UK economy, all based in Wales and none acknowledged as a Wales contribution. 

This post is not comprehensive nor does it attempt to quantify these contributions, it is not mimicking the ONS balance sheet.

It is merely an attempt to  indicate that without tax increases [ except for those from Westminster ] or cuts in services [ except for those imposed by Westminster ] and without the economic and legislative tools that Independence would bring, Wales is paying its way.

It’s just that these accountants don’t want you to look at things that way.

The moral of this story. Beware the dodgy data used for dodgy  purposes. They are not designed to work for Wales..