Wednesday 29 December 2021

Power without responsibility


Which parts of the UK are the most prosperous? If you have travelled around Britain or even if you just read the newspapers or watch TV you get a sense of where are the best paying jobs, where are the most expensive houses and where are the fewest people on benefits. This tells you all you need to know about deficits.

There is an endless rather tiresome debate whenever I raise the issue of how much each part of the UK receives from central government versus how much it raises in taxation and other revenues. Those Welsh and Scottish nationalists who think that Wales and Scotland pay more into the Treasury than they get out, must logically believe that the people of Wales and Scotland are on average more prosperous than the UK as a whole. If that were the case then we would expect huge numbers of people migrating from England in order to get higher paid jobs in Merthyr Tydfil and Airdrie. The people who arrive in rubber dinghies would not be making their way to London, but instead to Londonderry, Lanark and Llandudno. Is that really your experience?

There are of course people in Wales, Scotland and Northern Ireland who have better paid jobs than most in London, but anyone who knows anything about the UK will tell you that the wealthiest people with the most expensive houses and the best jobs live in London and the South East. These are the regions who make a surplus or a profit. Everywhere else makes a loss or has a deficit.

The pandemic has completely distorted the UK economy and skewed the figures, but anyone who studies the long-term economic data will realise that Scotland, Wales and Northern Ireland depend on UK central Government funding and have done for years.  To be fair let’s take the figures just prior to the pandemic.

England spent 0.3% more than it raised in taxes or £91 per person

Scotland spent 7%                                                 £2,543 per person

Wales spent 18%                                                  £4,412 per person.

NI spent 19%                                                        £5,118 per person


The figures are much worse now after nearly two years of pandemic, with higher public spending due to furlough and bail outs, plus people being unable to work or losing their jobs. This is why talk of Scottish independence, let alone Welsh is so idle at present. Neither could afford it without devastating the lifestyles of people living there.

This deficit situation in each part of the UK does not mean that those parts which receive more than they contribute are spongers, lazy or stupid. They merely reflect the historical and geographical conditions of post-industrial economics. The parts of the UK which used to have heavy industry at one point contributed more than their fair share, but as these industries declined so too did the standard of living and the tax revenue raised. This is a feature not just in Britain, but in parts of Europe and the USA also.

Some English nationalists use these figures to sneer at the rest of us, but the truth is that most of England likewise receives a subsidy and some parts of England in the North receive more subsidy than Scotland and almost as much as Wales and Northern Ireland. If you live outside London and its commuter belt, you have nothing to be smug about.

Historically every British citizen and each part of the UK has contributed to the pot in some way. Each area has sent soldiers to war and provided work that was necessary at that time. We would not be where we are today without Northern Ireland’s soldiers and shipbuilders, Welsh coal or Scottish steel. We are all getting what is our due because we all helped to make modern Britain. Being citizens of one country makes it normal that money is shared around.

There is in reality no such thing as English money. A French banker working for a Japanese bank in London pays taxes to the Treasury. It is not the English Treasury any more than the Government that spends the money is the Government of England. There has been in international legal terms no such thing as England for centuries. There are no English citizens any more than there are citizens of Normandy. The same goes for the rest of us. Look at your passport if you disagree.

We happen to call the parts of the UK countries, but there is only one sovereign nation state called the UK and the citizens of that state may call themselves what they please, but it doesn’t change the fact that they all have the same citizenship. It is only for this reason that we share between our fellow countrymen, for we would not do so if we were really all foreigners to each other.

Just as we accept that a wealthy farmer in Aberdeenshire pays more in taxes than he receives back in services, so too we accept on the same principle that those parts of the UK that raise more in taxes than other parts help out everyone else. This is it what it means to be citizens of the same country. If you disagree with this, then you might just as well think that rich people shouldn’t pay more in tax than poor people. It is peculiar for people on the Left to argue for redistribution between people, but to wish to cease redistribution between the parts and the people of the UK.

The UK as a whole is anyway living beyond its means. The national debt is over two trillion and the UK deficit has shot up due to the pandemic to 14.5%. None of us has anything to be smug about.

The markets are willing to lend to us at reasonable rate solely because we are a United Kingdom. We would all be worse off including England if we split apart. England has no track record of paying back debt. The UK does. The UK has both soft and hard power and an international reputation that depends entirely on our remaining united. It is not obvious that England on its own would inherit any of this.

The ability to borrow, just as the Bank of England has the ability to create money depends entirely on these actions being credible and markets believing in the fundamental strength of the UK economy. For Scottish and Welsh nationalists to argue that they could create a central bank that did just the same is to suppose that Chad could become the richest country in the world if only the Bank of Chad resorted to printing money and issuing debt. If the UK can’t be trusted to hold itself together it is unlikely any of it would be trusted to print money and issue debt at an acceptable interest rate.  

But the fiscal situation in the UK does have consequences for nationalists everywhere.

Scotland raises a similar amount per person as England in taxation. The reason we have a deficit is because of much higher public spending in Scotland. Scottish nationalists fundamentally have to accept that independence means a decrease in public spending and more taxes. To suppose that isn’t the case is to suppose that Scotland is on average as wealthy as London and the South East. But anyone who has travelled around Scotland knows this isn’t true. There is nowhere like Dundee or Greenock in the South East of England.

The concept of Welsh independence just does not add up economically, which is why most Welsh people reject it. To suppose that Wales would be better off outside the UK is to suppose that Rhyl would become Richmond by erecting an international border across the Severn Bridge. But why would that make Rhyl richer? I can’t think of any answer to that? Nor can a Welsh nationalist, except that the Bank of Wales would print money. QE works when markets trust and accept it, otherwise you get hyperinflation and eventually an economy based on barter.

Northern Ireland’s deficit typically amounts to £10 billion a year or a third of its budget. Leaving the UK and one assumes joining the Republic of Ireland would involve Irish taxes instead of British taxes funding this deficit. The exact scale of the deficit would depend on the divorce terms, but it is not credible to suppose that Northern Ireland would suddenly become profitable by joining the Republic. But it’s one thing for 65 million UK taxpayers to help Northern Ireland, it’s a quite different matter for 5 million Irish taxpayers. The Republic of Ireland would also have to take on the cost of security and dealing with any trouble that might arise from those Northern Irish people who were dissatisfied with their new citizenship, which might be nearly half of them. It’s hard therefore to see how Irish unification could be achieved without wrecking the Northern Ireland economy, which is oriented primarily towards the UK and the Republic of Ireland economy too.  

There are people in all four parts of the UK who long to leave it, but none of them can explain how ditching the other parts would leave them better off. Even English nationalists have to suppose that the process of secession would do no harm to the economic credibility of London and the South East and that it would not damage market confidence. This is unlikely at best. English nationalism anyway is no threat to the UK as England is the only part where there is no serious political party advocating either secession or joining with someone else.

The UK will remain intact until and unless the economic situation changes. Unless the SNP reduces Scotland’s deficit, we can take their threats of independence as being empty or perhaps a lever to get more money from the Treasury. This is still more the case with Wales. I don’t think that Northern Ireland’s position can change without violence, for which reason the Republic of Ireland would do well not to stir and not to meddle.

But it is untenable for the devolved parts of the UK to think that they can rely on British money to stay at home, while England works. There must be a consequence in budgetary terms if Drakeford or Sturgeon or Givan follow a different path to that set out by the Prime Minister, if that path requires funding.

If, for example, Sturgeon is right about omicron and that it requires that there are no New Year Celebrations in Scotland and various businesses are either closed or their activities curtailed, she has to take responsibility for this decision and the money to pay for it must come from her budget.

If she is wrong however and Covid cases and deaths turn out to be no worse in England than in Scotland, then those Scots who were prevented from going to football matches or celebrating New Year as they wished to, must remember this next chance they have to vote. We cannot be in a situation where Sturgeon is able to lock down the economy, but someone else picks up the bill. That is not devolution, but rather power without responsibility or cost.