"GAME-changing” research has found the fiscal gap in the early days of an independent Wales would be a fraction of what has previously been assumed from UK Government figures – which Plaid Cymru believe will significantly advance the argument for self-determination.
Figures from the Office for National Statistics (ONS) are often quoted as suggesting the deficit an independent Wales would incur on day one would be £13.5 billion.
But groundbreaking research by Professor John Doyle of Dublin City University has concluded the fiscal gap – the difference between raised revenue and government expenditure – would actually be £2.6bn.
This is based on the 2019 estimate of total Welsh economic output at £77.5bn and would be equivalent to just under 3.4% of GDP.
Doyle – who has previously worked on the fiscal outlook for Northern Ireland if Ireland were to reunify – was commissioned by Plaid Cymru to conduct the research, which leader Adam Price has said “debunks” the argument that Wales is too poor to thrive as an independent nation.
The £13.5bn figure – frequently quoted as representing the UK Government’s annual subvention to Wales – comes from the ONS and is based on taxation paid by people and companies who are resident in Wales, a public expenditure spent in Wales, and “crucially” a per capita contribution allocated to Wales of all central UK expenditure.
But from analysing the main components of the fiscal gap – including pensions, UK national debt repayments, and defence spending, together with under-estimates of Wales’s share of tax revenues – Doyle has found the elements of these that would likely transfer to an independent Wales would amount to around £2.6bn.
Doyle, whose work has contributed toward Plaid Cymru’s submission to the Commission on the Constitutional Future of Wales, said: “It is not for me as an Irish academic to advise the people of Wales on their future constitutional choices, but the figure of £13.5bn, frequently quoted as representing the UK Government’s annual subvention to Wales, is a UK accounting exercise, and not a calculation of the fiscal gap that would exist in the early days of an independent Wales.
“The way in which the fiscal gap for Wales is calculated by the UK’s Office for National Statistics is sufficiently clear for political analysis to determine which aspects of this subvention will be relevant for an independent Wales.
“My analysis has determined that the figure will be approximately £2.6bn, significantly lower than the figure of £13.5bn, frequently quoted in the media.”
Plaid Cymru has argued the research has major implications for the debate on the feasibility and timing of Welsh independence, with Price arguing the main stumbling block people feel there will be to self-determination is the question of whether Wales can afford it.
Price says research shows the “wild estimates” about the likely fiscal gap an independent Wales would incur bear “no relation to reality”.
He said: “This research further debunks the argument that Wales is too small and too poor to thrive as an independent nation.
“Not only does Professor Doyle’s work further build the body of evidence that supports the case for an independent Wales, but it is also a game-changer in the debate surrounding its viability.
“Time and again, we have heard wild estimates about the likely fiscal gap that would exist if we were to become independent that bears no relation to reality.
“This shows once and for all that ‘fantasy economics’ is peddled by those against independence.
“Independence will also present Wales with the opportunity to improve our economy through policies designed to create a more diversified economic base, with more locally-owned SMEs, improving productivity and innovation in the private and public sectors, maximising economic benefit through local procurement policies, and investing in the infrastructure of the future.”
Earlier this year, the Government Expenditure and Revenue Scotland (GERS) figures concluded that Scotland’s deficit stood at £23.7bn for 2021/2022.
But crucially, this only represents Scotland’s fiscal situation in the context of the UK, and it does not predict what the situation would be if Scotland were to adopt different economic policy positions to the UK.
And this research suggests if Scotland was to commission research to work out what its actual fiscal gap would be at the start of independence, it could turn out to be quite different to the regularly-quoted GERS figure.
On his research, Doyle added: “The conclusion of my paper is that Wales’s fiscal gap is not sufficiently large to close off the possibility of a viable, independent Wales.
“The fiscal gap could be closed by relatively modest economic growth, together with a different tax policy.
“These are the areas where the public debate on the public finances of an independent Wales should focus.”
