Welsh fiscal balance: Difference between revisions
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In 2016, Wales spent £14.7 billion more than it gathered in local revenue, which decreased to £13.7 billion for the 2018–19 fiscal year, due to reduction in public spending. Public spending peaked in 2011–12.<ref>{{cite news |last1=Dickins |first1=Sarah |title=Tax and public spending gap narrows in Wales |url=https://www.bbc.com/news/uk-wales-49127308 |accessdate=23 April 2020 |work=BBC News |date=29 July 2019}}</ref><ref name="public finance">{{cite web |last1=Rutter |first1=Calum |title=Welsh spending cuts cause deficit reduction, says study |url=https://www.publicfinance.co.uk/news/2019/08/welsh-spending-cuts-cause-deficit-reduction-says-study |website=[[Public Finance (magazine)|Public Finance]] |accessdate=23 April 2020 |date=2 August 2019}}</ref> For the 2018–19 fiscal year, the fiscal deficit is about 19.4 percent of Wales's estimated GDP, compared to 2 percent for the United Kingdom as a whole.<ref name="Cardiff">{{cite news |title=Shortfall in public finances in Wales due to lower revenues, report finds |url=https://www.cardiff.ac.uk/news/view/1523654-shortfall-in-public-finances-in-wales-due-to-lower-revenues,-report-finds |accessdate=23 April 2020 |work=Cardiff University |date=2 July 2019 |language=en}}</ref> |
In 2016, Wales spent £14.7 billion more than it gathered in local revenue, which decreased to £13.7 billion for the 2018–19 fiscal year, due to reduction in public spending. Public spending peaked in 2011–12.<ref>{{cite news |last1=Dickins |first1=Sarah |title=Tax and public spending gap narrows in Wales |url=https://www.bbc.com/news/uk-wales-49127308 |accessdate=23 April 2020 |work=BBC News |date=29 July 2019}}</ref><ref name="public finance">{{cite web |last1=Rutter |first1=Calum |title=Welsh spending cuts cause deficit reduction, says study |url=https://www.publicfinance.co.uk/news/2019/08/welsh-spending-cuts-cause-deficit-reduction-says-study |website=[[Public Finance (magazine)|Public Finance]] |accessdate=23 April 2020 |date=2 August 2019}}</ref> For the 2018–19 fiscal year, the fiscal deficit is about 19.4 percent of Wales's estimated GDP, compared to 2 percent for the United Kingdom as a whole.<ref name="Cardiff">{{cite news |title=Shortfall in public finances in Wales due to lower revenues, report finds |url=https://www.cardiff.ac.uk/news/view/1523654-shortfall-in-public-finances-in-wales-due-to-lower-revenues,-report-finds |accessdate=23 April 2020 |work=Cardiff University |date=2 July 2019 |language=en}}</ref> |
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==Identifiable and non-identifiable expenditure== |
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[[HM Treasury]]’s (2018) ''Country and Regional Analysis'' (CRA) aims to identify where resources were spent - depending on where those who benefitted are located, and is publishes on an 'Expenditure on Services' (TES) basis, formed by two types of spending: |
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#identifiable expenditure: spending identified as benefitting Wales |
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#non-identifiable expenditure: and expenditure outside the UK that is deemed to be incurred on behalf of the UK as a whole, for example, |
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public debt interest payments and defence spending. <ref name="Wales’ Fiscal Future"/> |
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{{Bar box |
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|title = Breakdown of non-identifiable and expenditure outside the UK apportioned to Wales, |
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2017-18 <ref>[https://www.cardiff.ac.uk/__data/assets/pdf_file/0004/1767424/Wales_Fiscal_Future_FINAL.pdf Source: ONS (2019) Country and Regional Public Sector Finances]</ref> |
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|titlebar= In £millions |
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{{bar pixel|Public Sector Debt Interest (£2,123m)|red|212|3}} |
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{{bar pixel|Defence (£1,821m)|green|182|1}} |
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{{bar pixel|International Services (£505m)|blue|50|5}} |
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{{bar pixel|Public and common services (£250m)|orange|25|0}} |
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{{bar pixel|Social protection (£228m)|teal|22|8}} |
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{{bar pixel|Recreation, culture and religion (£201m)|black|20|1}} |
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|caption = |
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}} |
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{{clear}} |
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==Implications== |
==Implications== |
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Revision as of 19:26, 19 February 2021
The Welsh fiscal deficit is the amount by which the public expenditure in Wales exceeds the tax revenue collected in that country. For the 2017–18 fiscal year, the deficit was estimated at around £13.7 billion, which was 19.4 percent of GDP and the equivalent of £4,300 per capita. Some take issue that the figure is misrepresentative of of the actual deficit (or surplus) that would result if Wales was a completely seperate sovereign entity.[1][2]
Deficit
Nine of the twelve UK countries and statistical regions[3] carry a deficit; the exceptions are London, South East England and East of England. At £4,300, Wales's fiscal deficit per capita is the highest of the regions except for Northern Ireland fiscal deficit, which is nearly £5,000 per capita.[4][5] Tax revenue per capita in Wales is 76 percent of the UK average, but spending is 108 percent, leading to shortfall. Wales spends more on social security than other parts of the UK; capital expenditure on infrastructure such as transport (which is not devolved to Wales) is significantly less.[6]
In 2016, Wales spent £14.7 billion more than it gathered in local revenue, which decreased to £13.7 billion for the 2018–19 fiscal year, due to reduction in public spending. Public spending peaked in 2011–12.[7][5] For the 2018–19 fiscal year, the fiscal deficit is about 19.4 percent of Wales's estimated GDP, compared to 2 percent for the United Kingdom as a whole.[6]
Implications
Wales spends 11 percent more per person than England. Welsh economist Ed Gareth Poole notes that fiscal transfers between wealthier and poorer parts of a sovereign state are not unusual.[6] Wales's government deficit was consistently higher than that of Greece during the Greek government-debt crisis[8][9] but, unlike Greece, the gap was covered by transfer payments from the rest of the UK. Such transfer payments, according to the economist Robert A. Mundell, are essential to a functional currency union.[10]
Criticism of figure
The figure has been criticized as misrepresentative of the true financial position that an independent Wales would experience, for example:
The Welsh economist John Ball suggests that an independent Welsh government could plug the budget shortfall by instituting land value tax (possibly raising £6 billion per year), tourist tax and "exploring some ways in which taxation revenue could be improved in a sovereign state". In his opinion, VAT revenues from businesses not owned by Welsh residents are underestimated in the current revenue data, meaning that the shortfall may not be as high as it appears.[11][12]
Ball also suggests that Wales' £3bn defense cost is excessive and that at 3% of GDP is more than any other country. He also notes that incoming pensioners from England cost £2bn and a further “accounting adjustment” of another £3bn. [13] The vast number of external business ownership in Wales makes it difficult to estimate the amount of VAT actually collected in Wales and which is allocated to the business headquarters in England. An independent Welsh government would decide how much to spend on matters such as defense, and could have its own currency.[14]
By UK law, Wales must pay for items that do not directly benefit Wales, where there is no 'Barnet consequential' e.g. over £5 billion for HS2 "which will damage the Welsh economy by £200m pa", according to the UK and Welsh Government's transport adviser Prof. Mark Barry.[15] Wales also pays more for military costs than most similarly sized countries, e.g. Wales pays twice the amount Ireland spends on the military.[15] The UK government spends £1.75bn per year on the military in Wales which is almost as much as Wales spend on education every year (£1.8 billion in 2018/19).[16][3]
Among other areas where Wales, presently, can not charge are water and power. Severn Trent abstracts 133 billion litres of water for English customers and United Utilities can take 110 billion litres of water a year from Lake Vyrnwy and the River Dee to serve its customers in Merseyside, for profit. In 2018, Wales generated 30.2 TWh of electricity, around twice what it consumed (14.9 TWh), with the surplus being exported to England and other countries. Post-independence, a tax or levy on energy exports from Wales could be imposed, possibly worth around £890 million on the wholesale market according to Wales Fiscal Analysis (Wales Governance Centre) in March 2020.[17]
References
- ^ "Why framing the union as a progressive force is pure dogma". Nation Cymru. Nation Cymru. 17 January 2021. Retrieved 16 February 2021.
- ^ "Allow Welsh Government to borrow more, says Mark Drakeford". BBC. BBC. 16 May 2018. Retrieved 17 February 2021.
- ^ a b Ifan et all, Guto. "Government Expenditure and Revenue Wales 2019" (PDF). Government Expenditure and Revenue Wales. Government Expenditure and Revenue Wales. Retrieved 17 February 2021.
- ^ Birnie, Esmond (18 February 2020). "Scrutinising Northern Ireland's sizeable fiscal deficit is interesting". Belfast Telegraph. Retrieved 23 April 2020.
- ^ a b Rutter, Calum (2 August 2019). "Welsh spending cuts cause deficit reduction, says study". Public Finance. Retrieved 23 April 2020.
- ^ a b c "Shortfall in public finances in Wales due to lower revenues, report finds". Cardiff University. 2 July 2019. Retrieved 23 April 2020.
- ^ Dickins, Sarah (29 July 2019). "Tax and public spending gap narrows in Wales". BBC News. Retrieved 23 April 2020.
- ^ Kindreich, Adam (20 July 2017). "The Greek Financial Crisis (2009–2016)". Financial Scandals, Scoundrels & Crises. Exhibit 2. Retrieved 23 April 2020.
{{cite web}}: CS1 maint: location (link) - ^ Government Expenditure and Revenue Wales 2019 (PDF) (Report). Wales Fiscal Analysis (Cardiff University). 2019. p. 9.
- ^ Thomas, Landon (27 January 2012). "The Welsh Economy Slips, but London Cushions the Fall". The New York Times. Retrieved 23 April 2020.
- ^ Ball, John (25 January 2019). "Is Wales really too poor to be independent?". Institute of Welsh Affairs. Retrieved 23 April 2020.
- ^ Ball, Dr John (5 July 2019). "Does Wales have the tax base to make independence viable?". birminghampost. Retrieved 23 April 2020.
- ^ Ball, Dr John (5 July 2019). "Does Wales have the tax base to make independence viable?". birminghampost. Retrieved 23 April 2020.
- ^ Ifan et all, Guto. "Wales' Fiscal Future: Closing the fiscal gap as an independent country". Wales Fiscal Analysis Wales Governance Centre. Wales Fiscal Analysis Wales Governance Centre.
{{cite web}}:|access-date=requires|url=(help); Missing or empty|url=(help) - ^ a b Barry, Mark (7 January 2020). "Wales and HS2..." SWalesMetroProf (blog). Retrieved 4 February 2021.
We do know for example, that Wales is allocated expenditure for items that do not directly benefit Wales
- ^ "UK defence invests more than £1-billion in Wales". GOV.UK. UK Government. Retrieved 17 February 2021.
{{cite web}}: Unknown parameter|Quote=ignored (|quote=suggested) (help) - ^ Government Expenditure and Revenue Wales 2019 (PDF) (Report). Wales Fiscal Analysis (Wales Governance Centre; Cardiff University). 2019. p. 52.