Subsidies to Wales have made devolution a begging bowl rather than a point of pride

Did you raise a toast yesterday to the staff of Gwynedd Council in North Wales? They were enjoying their very own special Bank Holiday to celebrate the day of the patron saint of Wales, St David.

Gwynedd council proudly declared in January that it would “grant” this extra holiday. All very well and good, except that the taxpayers of London and the South East footed much of the bill. This is true for whole swathes of the Welsh economy, surviving thanks to English subsidies.

The day after the Brexit referendum of 2016, in which Wales voted Leave, the then First Minister of Wales Carwyn Jones set out the key economic policy of successive Welsh governments.

At the time, Jones pronounced that the withdrawal from the EU “must not cost Wales a single penny”.

Some might think it humiliating to announce in public that your economy is dependent on subsidies from elsewhere. Not Jones. 

The numbers really are quite staggering. According to the Welsh government’s own figures, in the 2019 financial year the public sector deficit of Wales was a staggering 19.4 per cent of GDP.

If the same percentage had been obtained across the UK as a whole, in 2019 the fiscal deficit for the UK would have been £425bn – larger than it was during the pandemic year of 2020.

Tidal waves of money have flowed across the border for many years, courtesy of the taxpayers of London and the East.

But Wales remains poor. The cash has mainly been used to prop the economy up rather than to transform it.

Estimates of income and productivity at very local levels are not easy to construct. The recent levelling up white paper has a whole section devoted to the need to improve them, along with plenty of ideas on how to do it.

In the meantime, a good proxy is the relative unemployment rates in different local authorities. The national average obviously varies over time, depending on the state of the national economy. But at any point in time, we can compare these rates to get a sense of the economic conditions.

 In October 2020, the latest date for which estimates are available, examples in England of local authorities with low unemployment rates are Cotswold, Guildford, Winchester, and South Lakeland. Examples of high rates are Burnley, Newham, South Tyneside, and Walsall. Only two out of the 22 local authorities in Wales figure in the lowest 20 per cent of rates across England, Scotland, and Wales. One of these, Monmouth, sits right next to England in close proximity to the booming city of Bristol.

The dependence of the Welsh public sector on English money makes a mockery of the current arrangement on devolution.

The government should announce that subsidies will be withdrawn over a period of, say, three years so that by then the public sector deficit in Wales is the same as in the UK as a whole.

Genuine devolution requires both give and take. Currently, Wales just takes. They should have powers to raise more taxes to sustain their expenditure, while subsidies are cut to make them a fruitful part of the union.

Cutting subsidies is desirable. It gives the Welsh an incentive to be more productive so they can afford public services. It would also help restore pride that they are paying themselves rather than holding out the begging bowl in perpetuity.

As published in City AM Wednesday 2nd March 2022
Image: maxpixel
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