The crude debate on devolution and public spending

Geraint Talfan Davies examines three caricatures of ‘regional profligacy’ in the UK

In the last week we have had three classic examples of a failure to understand or, at best, a failure to describe accurately the public expenditure issue in relation to Scotland, Wales and Northern Ireland. It points up yet again how crude the debate on devolution and public spending can become.

First we had an ill-informed and hectoring Jeremy Paxman being thankfully skewered by an obdurate Eurfyl ap Gwilym’s total command of the subject. This came on the same day as the publication of a so-called ‘State of the Nation’ forecast by the Centre for Economic and Business Research, which emphasised the dependency of the devolved nations and some English regions on public spending. A third example was Simon Jenkins’ column in the Guardian (30.4.10) under the striking headline, ‘The chaos in Greece shows just why the Celts need grilling on the BBC’.

Paxman’s over-simplifications were by the far the worst since the impact of ill-founded assumptions in his briefing was exacerbated by a silly, tabloid line of questioning. However, any schadenfreude we might have experienced watching Newsnight needs to be put aside when considering the other two examples.

The Centre for Economic and Business Research’s data and forecasts are indeed chilling. It claims that while public spending in 2008-09 stood at 43.9 per cent of UK GDP, by 2010-11 it is likely to rise to 48.4 per cent. Worse, that this jump is even higher in what it calls the ‘high spending regions’, with Wales set to leap from 62.8 per cent to 69.1 per cent. It also claims that in the 13-year period from 1998-99 to 2011-12, the rise in public spending will be higher in Wales than any other part of the UK, an increase of 18.4 per cent against 14.3 per cent in Northern Ireland, 11.6 per cent in Scotland and 10.9 per cent in England.

Unexpectedly, the highest increase in England is in the West Midlands, at 16.6 per cent, followed by London at 16 per cent and the North East at 15.3 per cent. According to the CEBR figures the only part of the UK to show a decrease over this period will be the south west of England, with a decrease of -2.5 per cent.

As with Simon Jenkins’s Guardian article, I do not cavil at what is in these forecasts but rather at what is left out. CEBR does not explain that, in the case of Scotland, Wales and Northern Ireland, their statistics relate not only to expenditure in the control of the devolved administrations but also to social security payments – such as unemployment benefit – which rise automatically in response to changes in the economy. If these were excluded, expenditure in Wales would almost certainly have risen more slowly than in England, because of the workings of the Barnett formula. The probably driver of CEBR’s forecast rise in Wales is the increase in unemployment.

The other implication of CEBR’s league table is that London is almost uniquely virtuous in having only 35 per cent of its GDP ascribed to public spending. Yet, as Eurfyl ap Gwilym hammered home a dozen times in the Paxman interview, public expenditure in London is indexed at 115 against the UK average, three more points than Wales on 112. This has been explained by the work of the Holtham Commission which calculated that London gets 5-10 per cent more than it should on a needs basis, even after allowing more than 10 per cent extra for higher costs.

Moreover, London’s share of revenue is flattered by including in it corporation tax that is allocated on the basis of the location of a firm’s headquarters rather than the actual location of the economic activity. Thus, the rampant consolidation of business ownership into London HQs automatically exaggerates London’s largesse as the prime ‘donor region’.

CEBR may rightly claim that it has simply stated the bald figures and it cannot be blamed for any misinterpretations. However, research organisations know the climate of debate into which their data is being pitched. Surely they have a duty to enter the caveats that may minimise crude oversimplifications.

Simon Jenkins’ article is an altogether tougher nut. He can often seem to be the professional contrarian, but he is also a committed localist and has written some of the most passionate and insightful critiques of centralisation. He also has a home in Aberdovey. Indeed, his article starts from the proposition that excluding the SNP and Plaid Cymru from the three main televised election debates represents an unfairness that is ‘grotesque’. As he also said:

‘There is only one way to describe a general election orchestrated in London but witnessed from the periphery of the UK, and that is completely different. With devolved governments responsible variously for health, education, development and transport, and with nationalists sharing power in all three, the London triumvirate is meaningless. The exclusion of the SNP and Plaid Cymru and, in Northern Ireland the DUP and Sinn Fein is, in their regions, similar to excluding Labour. It is like a banana republic banning ‘extremist’ groups by which it feels threatened.’

But there was a sting in the tail. This is where his argument becomes rather more subtle. Exclusion from these debates allows “recipient regions of a union to become politically detached from the donor regions” – something he sees happening at a different level in Greece, Portugal, Spain and Ireland in relation to the European Union. “Why should the Greeks collect taxes when the Germans and Dutch will do it for them? Why should the Welsh and Scots cut jobs, when London will pay?”, he asks.

He worries that as a result of increased leverage in a hung Parliament, the devolved administrations will become “even more profligate”. Political autonomy will grow ever more out of touch with fiscal responsibility.

While feeling the force of the point, I would be fairly certain that, in another place, Jenkins the localist would have gone on to argue for greater fiscal autonomy for the devolved administrations so that they can carry the can for raising money as well as spending it. But he does not do so explicitly here. Neither does he draw sufficient distinction between the position of an independent state like Greece and the position of devolved administrations within a political and, more importantly, fiscal union.

Arguing simply that “the Welsh take £3,000 more per head from the UK exchequer than they donated to it” not only ignores the whole argument for fiscal transfers according to need in a civilised society, but also the wider economic impact that he describes so vividly in all his other attacks on an over-centralised UK.

Geraint Talfan Davies is Chair of the IWA.

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