Wednesday, 24 February 2010

More money is not the answer to Wales's problems

Speaking at a fringe session to Plaid Cymru's pre-election conference in Cardiff earlier this week, the economist Gerry Holtham told delegates that Wales is being 'slightly' shortchanged by the 30-year old Barnett formula used by Whitehall to allocate public funding to the various regions of the United Kingdom.

Gerry Holtham it should be noted is the Chair of the Independent Commission on Funding and Finance for Wales set up by the Welsh Assembly Government and has been pondering these funding issues since the autumn of 2008. According to his initial report, whereas Wales currently receives £112 for every £100 spent in England, it should be receiving £114. This adds up to a shortfall of approximately £300 million per annum compared to an equivalent English region. To you and I that may sound like a lot, but to put it into context it is a mere 0.002% 2% of the total Welsh Assembly budget for 2010-2011 of £15.7 billion.

As Plaid Cymru's electoral appeal depends on nurturing a sense of victimhood amongst Welsh voters by suggesting that Wales is somehow being unfairly treated by the bogeymen of "London parties", the fact that the Barnett formula is actually performing "within the tolerances of the system" is probably not the news they wanted to hear. However, that didn't stop Plaid Cymru AMs such as Helen Mary Jones immediately calling foul, claiming "it's about us getting our fair share. It isn't about asking for more". Plaid Cymru is in essence a socialist party (as admitted by Elfyn Llwyd MP during his recent interview with Andrew Neil) therefore the redistribution of 'more of other people's money' will always be the answer to any problem. For example, Plaid Cymru leader Ieuan Wyn Jones has just today called for the UK Treasury to set up a Venture Capital Fund for Wales. However the Druid is not sure that what Wales actually needs right now is more money.

Why not? Well, last week the Institute of Welsh Affairs (of which Gerry Holtham is a member of the management board) published an article on Wales's economic competitiveness arguing that a lack of policy making ability is holding back the private sector. Exhibit A for their claim is the following comparison of spend per capita on economic development by the various regions of the UK:

As you can see, the Welsh Assembly spends more on economic development that any other part of the UK, yet Wales still remains at or near the bottom of many economic indicators such as GVA, unemployment and business failures. As such sustained investment has yielded so little return there is obviously something fundamentally wrong with the development policies currently being implemented by the Labour/Plaid Cymru coalition in Cardiff. But bad policy making is just the start, the article also goes on to say:

Worryingly, the high levels of economic development spending in Wales are not matched by clear lines of public accountability, making any assessment of real progress virtually impossible. At the time of the 2005 quango reforms, the Welsh  Government claimed that the mergers would enhance accountability. In reality, society’s capacity for effective scrutiny has actually been much reduced. Unlike regional development agencies in England and Scotland, the business plans and evaluations of the Welsh Government’s Department for Economy and Transport are not made publicly available.
So not only is the money being poorly spent, the WAG is making it as difficult as possible for you and I to see and evaluate what is being spent where.

There is no question that the Welsh economy is currently in its direst straights since the 1980s but the answer to its economic woes is not more money but a fundamental rethink of the Assembly's economic development strategy coupled with more openness and transparency. 


Dylan said...

"This adds up to a shortfall of approximately £300 million per annum compared to an equivalent English region. To you and I that may sound like a lot, but to put it into context it is a mere 0.002% of the total Welsh Assembly budget for 2010-2011 of £15.7 billion"

You're out by a factor of a thousand. It's 2%.

Perhaps you were thinking of the good old-fashioned billions, when they had 12 zeroes? Sadly due to budget cuts, they only have nine these days.

The Druid of Anglesey said...

Dylan - you're right: as I'm 2000 years old I was thinking of the old-fashioned billions! Thanks for your kind correction, I've changed the blogpost accordingly.