We will feel the draught of English policy

As the coalition government in Westminster rolls out its policy announcements – NHS reform, a graduate tax, the Big Society – there is a feeling in Wales that devolution will protect us from small government radicalism in England even if we are not shielded from the full force of budgetary retrenchment. This will almost certainly turn out to be a complacent assumption.

One of the worrying tendencies in political debate in Wales is the tendency to confine ourselves to discussing policy in relation only to devolved functions and to avert our eyes from what is going on in England. This is the reverse of the Westminster/Whitehall phenomenon, which sees policy being made without any regard for what is happening in the UK outside England’s borders. UK/English government, representing 85 per cent of the UK population, operates under no constraint, sometimes not even the courtesy of the good neighbour – witness Nick Clegg on the timing of elections and referendums.

But the issue of the timing of various polls – important though it is – may pale into insignificance compared to the impact of other policies.

Consider David Cameron’s Big Society. However sceptical one might be about the practicality of substituting volunteers for government on a large scale, it would hardly be appropriate for us in Wales – where the ‘third sector’ is written into the constitution of the National Assembly – to scoff at the principle of strengthening the voluntary sector. To the extent that it works in England, it is likely to engender greater pressures from the Welsh voluntary sector for a similar ‘liberation’ in Wales.

In England the intention is to finance this Big Society initiative by the application of dormant funds held by the big banks. When we start to see this money being disbursed in England people are going to ask how those funds are going to be disbursed in Wales. The sector in Wales, just like everyone else, is heavily dependent – some would say too dependent – on funding from the Welsh Government. Could the dormant funds be a new source of funding that would create some greater independence?

Presumably, we will also be asking whether these dormant funds are going to allocated around the UK on a population basis – as with the Barnett formula – or according to some assessment of need.

Then there is the graduate tax. Here is an area of policy where, despite being formally devolved, Wales’s freedom of action is severely constrained by what happens in England. For some time many have argued that the present way of funding students in Wales cannot long survive a further policy change in England – either the raising of student fees or the introduction of a graduate tax. The introduction of a graduate tax will surely raise a host of other questions.

Would a graduate tax be levied across the UK or only in England, or perhaps only in England and Wales? How would the proceeds of a graduate tax be shared between different government administrations  – again, on Barnett lines, or on respective shares of student numbers? Would the application of a graduate tax across England and Wales mean that, effectively, student funding policy had been repatriated to Westminster?

But if a graduate tax were not to apply in Wales, would the beneficiaries be only Welsh domiciled students or any UK students studying at a Welsh institution? It’s difficult to see the Treasury accepting such an easy way of dodging the tax. The higher education sector in Wales is so intertwined with the sector in England that it is difficult to see policy-makers in Wales – not to mention the universities themselves – living with such a severe policy differentiation, where the law of unintended consequences could operate with such potential severity.

And then there is the elephantine case of NHS reform. There is a little doubt that Andrew Lansley’s plans for the NHS in England are sweeping and fundamental. Unless they are fundamentally altered during their passage through Parliament – and their lack of an electoral mandate will empower opponents in all parties – they will involve an unprecedented degree of involvement for the private sector and, ostensibly, a loosening of central control.

Of course, this is not a road down which any prospective Welsh Government – Labour, Labour-Plaid, Labour-Lib Dem or even a Rainbow coalition – will want to travel. But if it were to work and stick in England it would be a rash person who would predict that there would not be, over time, some ideological spill-over into Wales.

Even without such spill-over, there is likely to be one consequence that will eclipse the effects of all other policies put together. That will be the potential end of nationally negotiated wage agreements. In England the intention is to allow the setting of local wage rates within the health service. The practice will almost certainly spread to local government. If this occurs Wales will not be able to stand aside.

Those on the right see the change as a way of putting public sector trade unions in their place, but they also argue that it may be a way for disadvantaged regions to engineer their own devaluation, and thus make themselves more attractive for investors. If Wales or the North East of England cannot devalue a currency or set their own rates of corporation tax, then, it is argued, lowering wage rates is the only route to greater competitiveness.

As economic theory this has plausibility, and who is to say that it would not work in the long run. But, as Keynes said, in the long run we are all dead. In the short term, it is likely that it will only widen further the GDP gap between Wales and the UK and, given the centralisation of banking and investment in the UK, it would be a brave policy-maker who would foresee a beneficial effect within two or even three electoral terms.

This may the biggest policy issue facing Wales, but it has yet to be subject to the intense political debate that it deserves.