Monday, October 20, 2008

Budget Deficits and National Debt

This morning's Public Sector Finances report informs that the UK is currently £645.3 billion in debt in September 2008 (i.e. before the latest round of partial nationalisations).

That's pretty much £10,755 per person in the UK (based on a round 60m population).

If Wales were to start from scratch financially tomorrow, then based on the Oxford Economics Foundation report published in July on our own debt (itself based on the UK's own profligate spending on war etc.) , it would take us almost 70 years of independence to build up that £645.3 bn level of debt.


Dai Rhys said...

The figure you quote (which does, incidentally include Northern Rock) is total debt.

The UK's current budget deficit is £6billion - £3 billion less than the projected current deficit for Wales, despite the UK being 20 times bigger.

Or to put it another way, if the UK had the same kind of deficit as that projected Wales it would be £60 billion per annum - and would take a mere 10 years to run up the deficit it currently has.

Would you like Wales to be as indebted as the UK is within only 10 years? I wouldn't.

Dai Rhys said...

I should also add that Wales would likely begin independence with a per capita share of the UK's debt, i.e £28 billion, plus whatever the latest round of nationalisations have cost (at least a further £2 billion).

Kicking off with a £30 billion debt (80% of GDP) and a £9 billion annual deficit don't sound that great to me. It sounds like most of the Welsh budget would go on debt servicing.

Ian James Johnson said...

Hi Dai, thanks once again for your comments.

The figure you're quoting as the 'current budget deficit' is a very variable figure. In July, there was a £6.6bn surplus in the budget, so it would be very dangerous to take it out of context and extrapolate data from it.

The Chancellor's estimate of this year's borrowing requirements in the 2008 Budget was £42.5bn. Taking into account changes in financial policy and the economic climate, the Institute for Fiscal Studies are estimating a deficit of £64bn this year.

The point is that, however you want to dress it up, the UK is in significant debt. Just because someone else might be in greater debt, under whatever criterion, doesn't make it any more palatable.

Debating the finances of an independent Wales right now is relatively academic, but, in reality, no-one would seriously anticipate a blank slate. Nor, though, would I accept a simple per capita figure as there would be an immense amount of horse-trading on different issues.

The OEF figures are based on present UK spending plans and I would be surprised if they reflected the priorities of any future Welsh government, although, of course, that would depend on the party/parties elected to power - as, indeed, does future UK spending. If you accept that these are not the figures with which an independent Wales would be working, then, again, any extrapolations hold little currency.

My question, though, would be why your assessment doesn't take a step back and wonder why Wales is in such poor economic shape. After all, why should Wales be so much worse off than many areas of the UK? Is it the other way around from your perspective - is our relative poverty a result of being attached to someone else, rather than being able to make our own decisions and play to our own strengths?