What we need to build economic recovery in Wales

Wales is facing a day of reckoning when it comes to our finances. With cuts to public services and the UK-wide double dip recession as a backdrop, the replacement of the Barnett Formula must now take on a new urgency. This is no longer a stale constitutional issue, if indeed it ever was. Access to fair treatment by the UK Treasury would provide Wales with resources that could be used to address some of the multiple challenges our nation faces.  Plaid Cymru is developing a new consensus in the Senedd to develop Wales’ economy through investment not austerity.

Eye on the Bay

Look out for a brand new column by Positif Politics Managing Director Darran Hill on ClickonWales on Monday

Plaid Cymru has consistently been in the vanguard of constitutional change in Wales. Commentary and analysis rightly focuses on the ‘coming of age’ moment secured by my predecessor Ieuan Wyn Jones when he achieved the successful referendum on law-making powers.

We should also not forget also the important work of the Holtham Commission. However, the Unionist parties do not have the political will to see immediate results from Holtham’s work. The Commission has set the scene for Wales to be treated fairly, as a matter of justice and equality, to give us the base upon which we could also take responsibility for our own finances and taxation powers. If it wasn’t for Plaid Cymru insisting that the Holtham Commission should be established, today’s intergovernmental talks would be unlikely to be taking place at all. The question of borrowing powers and the Silk Commission would also not be so high up on the agenda.

The Holtham Commission estimated the relative needs of Wales to be at 115 per cent of those of England for 2010-11. On that basis the Commission made a further estimation, that for 2010-11 the shortfall in funding for Wales would be around £400m. The Commission’s estimate has been widely accepted. Crucially, the Commission did this work before the Treasury’s 2011 Public Expenditure Statistical Analyses (PESA) had been released. These up to date statistics show that the situation is now even worse. The level of underfunding looks closer now to £540 million.

The Treasury outturn figures for 2010-11 show that total identifiable public expenditure was £9,829 per head in Wales, compared to £8,588 per head in England. After removing social protection spending (£4,175 per head in Wales) and an estimate of the above-Barnett EU convergence funds for Wales, we end up with devolved spending figures for £5,500 per head in Wales and £5,001 per head in England. This shows that Welsh funding is closer to 111 per cent when compared to England, rather than 112 per cent as Holtham estimated. Assuming Wales’s relative needs have not significantly changed, we can see the true scale of underfunding that needs to be addressed.

Plaid Cymru constantly checks new Treasury statistical releases. We are indebted to party members who have expertise in this area. A special thanks must go to Eurfyl ap Gwilym but our intellectual commitment to Welsh finances goes back to the work of Dr Phil Williams who proved the inefficiency of the Barnett Formula long before it was fashionable to call for its reform. It was the joint efforts of Phil, Eurfyl ap Gwilym, and Dafydd Wigley among others that made the first ever case for a dedicated economic development agency for Wales. Their contribution led to the setting up of the Welsh Development Agency.

This year we are establishing a major Economic Commission. We are renewing our commitment to a successful future Welsh economy, with a significant programme of engagement with business and enterprise in Wales. Over the next few years we will be producing  imaginative and bold ideas aimed at reviving the economy and turning around our fortunes. I’m sure that many of those ideas will genuinely surprise people. Some of our ideas will require some form of intelligent and strategic public investment, which is why ensuring fair funding is such an essential task.

What then is the way forward? The Holtham Commission, which we established as part of the One Wales programme of government, envisioned a Barnett Floor as a short-term fix to prevent further convergence. But it would be an insult to the Commission’s work if today’s Labour Welsh Government caved in and accepted an inadequate or weak floor. If a half-hearted Barnett Floor is agreed without the immediate needs-based uplift that the Holtham Commission called for, we will be locking in Wales’ underfunding for years until full-scale replacement of the outdated Barnett Formula is delivered.

We know from experience that without pressure from Plaid Cymru the parties in London are unlikely deliver. The prospect of an inadequate Barnett Floor, which will formalise fiscal injustice, should be setting off the alarm bells in the Welsh Government’s finance department.

Such an outcome would not be a win for Wales. Plaid Cymru will insist that Wales must not be betrayed by an inadequate or unambitious Barnett Floor. We want to believe that the Welsh Government has fully up to date figures and has revised upwards the estimates made by the Holtham Commission, in line with the new Treasury data. Plaid’s Ministers from the One Wales government will tell anyone that when negotiating with the Treasury you have to know what figures you are dealing with.

If Jane Hutt’s department accepts a Barnett Floor that doesn’t include Holtham’s uplift then her move will result in fiscal catastrophe for Wales. The solution should be a Floor set at Wales’s current relative needs, and a commitment to complete replacement of the Barnett Formula in time for the Comprehensive Review Spending period beginning in 2014.

If Plaid Cymru’s demands are fulfilled, we will be in a position to build some kind of recovery and to take on any new responsibilities that the Silk Commission might recommend. We know that there are far bigger events going on in the Eurozone and that the economic and social outlook for people in many parts of the world is deeply worrying. Wales can mount a response to these events. At the very least we deserve a chance.

Tomorrow: In a commentary on this post Gerald Holtham says the UK government and Treasury are living in shame but are apparently immune to embarrassment