Guest Blog: The Decline and Fall of Plaid Cymru in Four Acts

During better times in Act 1 and before the
Llanwnda scene in Act 3.

Now that the dust has settled on this weeks local elections, one of the most revealing and largely unreported vignettes from polling day was the re-election of Aeron Jones, a Llais Gwynedd councillor, to Llanwnda despite an energetic campaign led by Plaid Cymru 'royalty' Dafydd Iwan and Dafydd Wigley to unseat him. Llanwnda was just one example of the declining support Plaid is currently experiencing in its Gwynedd heartlands. On a larger scale, at a time when the personal ratings of the leaders of the Conservatives, Labour and Lib Dems are all in negative figures and at an all time low, why wasn't a party like Plaid Cymru able to capitalise on the general dismay with politics-as-usual?

Here in a Guest Post, a seasoned and anonymous veteran of local politics in Gwynedd and beyond charts the decline and fall of Plaid Cymru in Four Acts.

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YMLAEN! YN OL. I LAWR.

Last Thursday 10 million people voted in an election of 15,000 candidates contesting nearly 5,000 wards across England, Wales and Scotland. The eyes of most commentators, as ever, were drawn to London and a reaction from No 10 – or here in Wales, to events in Cardiff. It is understandable that with 70% of the population in Wales living within 60 minutes of the capital this will happen. But the latest unreported episode of a story with real significance for Wales unfolded in Gwynedd: the drama in four parts which depicts the rise and fall of Plaid Cymru is now moving into its final Act.

ACT I: SMALL BEGINNINGS

Act I saw the formation of Plaid broadly in response to poor governance and threats to our Welsh nation-hood and culture – especially our language. Even today the constitution reflects this, promising to secure social justice, equality, a bi-lingual society and nation-hood. Some 90 years later, in part through their actions and voice, the Welsh Language enjoys protection and promotion from an Act of Parliament and Wales has its own Assembly with some significant devolved powers. Many regard this progress as a success (many do not – both as too little and too much, but that is not the point of this piece). 

However, these achievements have presented Plaid with two big questions over its identity. The first is simple: what do they stand for now? Polling on support for Welsh autonomy barely moves into double figures who favour separation from the UK. This removes nationhood as a serious campaign platform for any Party with national ambition. We might compare it perhaps to the status of UKIP campaigning on withdrawal from the EU – irrespective of the rights and wrongs of the issue, the largest amount of voters just don’t care enough. 

The second question is raised by the fact that both of these achievements came through mainstream UK parties. It was a Conservative government, moved by Conservative MP for Bangor and Conwy, Wyn Roberts, who introduced the Welsh Language Act. Labour introduced the Assembly. Once again, this defines Plaid in the role of cheerleader and agitator. It is a sobering truth that having secured an Assembly for Wales (albeit by the narrowest of margins in a national referendum), the closest Plaid have come to power is brief tolerance by a grateful Labour administration that they propped up for four years. 

Which brings us to Act II of this period that Plaid shared power in the Assembly.

ACT II: POWER AND GOVERNMENT

This is a short Act and not a very happy one. Not just for the period of time it represents – just one term out of four so far – but for another reason. A big, awkward, question that won’t go away and can never be hidden from anyone who wants to know the answer.

Can anyone think what was achieved during that time? 

What did having Ieuan Wyn as Anglesey’s representative (for a quarter of a century), the Deputy Leader of the Assembly, and Plaid’s own Party Leader achieve for Mon man? What vision was shown, what benefits gained, what resources were wrestled from the outstretched hands of a populous, needy, South? What evidence is there of strong local leadership and careful investment for the future wellbeing of Anglesey and its residents? An airline. A failing local authority. And the lowest GVA of any county in the UK. 

To be fair, this is to ask a lot of both IWJ and Plaid. But for the LibDems inability to organise themselves, it might have been a rainbow coalition against Labour. After eight years, people were already well aware of their failures. The Daily Post and Western Mail both ran big spreads on the 10 year anniversary of the Assembly, reviewing progress, celebrating achievements and asking people what the Assembly had done for them and for Wales. How had the billions of pounds spent made a difference to them? The answers? Bus passes and free prescriptions. I can only imagine the discussion in the Editors’ offices. The stark and simple truth is that under a Labour led Assembly, Wales has plummeted down international rankings for economic competitiveness. Worse still, under the management of our own Assembly, outcomes in health, education and more are now worse than our nearest neighbour, England. In the Welsh valleys we have managed to cultivate some of the most impoverished places in the UK. 

ACT III: A NEW DAWN

At this point of the play we are ready for the entry of a charismatic figure to herald a new dawn and lead the oppressed out of gloom into sunlit uplands. 

To say that Leanne’s election as leader was a “surprise” is not strictly true. Her cry of “Ymlaen!” and her ability to mobilise young people invigorated the Party membership and boosted its numbers. However politics and the fortune of nations turn on wider support. As a federalist and an avowed Marxist she occupies two of the smaller constituencies from which to build a majority. “Outflanking Labour from the left” is not a credible political strategy and the warm endorsement of the Welsh Communist Party will not feature on the Party’s letterhead. 

And so the to the Leader’s first test in battle. Setting the broad paint brush of strategy aside, could the finer brush strokes of local elections on local issues prove this analysis wrong? Would the devil be in the detail? Could personal politics and the handfuls of votes cast in remote, rural polling stations demonstrate a deeper connection and broader appeal to Welsh citizens? Could she reach good, honest, hard working Welsh folk, wanting a bit of help for their families in touch times, hoping for a lift in the local economy? Would she win the support of those proud to be Welsh and proud to vote for the “Party of Wales” in a local election? 

The results suggest otherwise. Plaid it could be argued, held its own. Indeed it remains the majority party in several counties. Net gains/losses might suggest little movement. But in truth, it failed. This was a huge setback. When dissatisfaction was deepest, hopes were highest, the simple truth is that by midnight on May 4th not a single Welsh council is run by Plaid. Anglesey of course had no election and only Labour can claim success and gains. The independents and NOC (“no overall control”) continue to be a big player in Welsh local politics. However, it is in Gwynedd that we see the true reflection of the demise of Plaid.

Back in 1925, Gwynedd was the birthplace of Plaid Cymru. Today some two-thirds of residents are first language Welsh speakers. If not Leanne’s personal politics then surely this is the safe ground from which a movement could be rebuilt?

In truth, this has not been safe ground for Plaid for years. Llais Gwynedd is a story worth telling but better told by others. However, what was dismissed as a narrow, single interest group that sang songs on the steps of Cyngor Gwynedd Council in protest at the closure of rural village primary schools has turned into a stone in the shoe of Plaid Cymru. The harder they stamp, the more it hurts them.

The 2010 general Election in Gwynedd heartlands also revealed the wobble in Plaid’s support base. Hopes for a “magnificent seven” seats in the UK parliament were revealed as baseless and they did well to hang on to the three they had, including the new Arfon seat. With proposed boundary changes we may never know what could happen in Arfon’s boundaries over time, but the general election was dominated by a two prong tactical pinch: voters calculated who was most likely to beat Plaid in Caernarfon and who was most likely to beat Labour in Bangor. Plaid’s majority tumbled. Labour came within touching distance. The Conservative vote grew dramatically, through the middle, a local candidate drawing on dissatisfaction with both and memories of the effective Lord Roberts.

Plaid’s majority on Gwynedd Council – never the strongest and always under threat – is now gone. Its hopes for a majority reduced to the outcome of a by-election in a ward where neither they (nor any other Party) could manage to raise a candidate. This is as damning an indictment of local political governance in Gwynedd as any economic statistic. Seasoned Gwynedd watchers will also know this is not an isolated event. Several more urban wards were decided on less than a few hundred votes cast.

And what of the fight itself? In Llanwnda, a leading Llais figure was targeted by Plaid. They rolled out their local man and an intensive campaign, blessed by the aging, but iconic Dafydd Iwan as Agent and Lord Dafydd Wigley as canvasser-in-chief. To no avail, as the result was an increase in the Llais majority.

In Deiniolen a long serving, senior Plaid Councillor very active in the Gwynedd administration was defeated by a local independent who was “well liked” in the village. The Plaid candidate's list of activity, every Chairmanship and senior position held filled a side of paper. The independent noted that he lived with his parents and enjoyed playing snooker in the evenings.

Bethel ward was perhaps the biggest shock, lost to the diligent work of an active Labour candidate.

ACT IV: AN UNCERTAIN FUTURE

So the “narrative arc” of our drama comes full circle and Act IV has returned us to where the story started. We all care deeply for Wales and things Welsh. I am the first to acknowledge the importance of a Party built on national interest and the preservation of language and culture. These are valid perspectives and vital – in its truest meaning, they are “essential for life” for Wales.

From its humble origins “Y Mudiad Cymreig” (the Welsh Movement) has made huge gains and left a permanent and proud mark on Welsh politics. But the high water mark has been reached and that tide is now running out. With just one Welsh EU seat, less than one-tenth of Welsh Parliamentary seats, one-sixth of local government and Assembly seats, Plaid may always have a proud voice. But it has not proved its ability to govern and by overlooking leaders with the potential to influence and appeal beyond the Party, not just within, it has settled for the Opposition benches. The results confirm this.

This Act is still being written, but it appears the plot line is set. The inconvenient truth is that gains we have in Wales have come from mainstream parties. Not English parties, but Welsh. Voted for by Welsh people.

One way or another, mainstream politics and parties are the future in Wales. We must grapple with their agendas to secure the best deal for Wales.

For all our sakes, the debate must move now towards the damage done by a fourteen year experiment in socialist politics here in Wales. In Anglesey alone the loss of aluminium production and power generation goes beyond metaphors such as “asleep at the wheel”. We still rely on Objective 1 EU funding, seemingly locked into deprivation and dependency.

Plaid does not have an answer and as a result, is rapidly losing its relevance and meaning to those who should care the most.

And “most” is what is counted in politics.

An electoral enigma.

A little summary of Welsh Labour's position on various electoral issues:

AGAINST: reducing number of Welsh MPs from 40 to 30 in order to achieve a consistent MP to voter ratio of around 1:76,000 voters.

FOR: reducing number of Ynys Môn Councillors from 40 to 30 in order to achieve a consistent Councillor to voter ratio of around 1:1,750 voters.

AGAINST: any top-down changes to Wales's electoral system without the "agreement of Welsh people".

FOR: top-down changes to Ynys Môn's local government electoral system from single member wards to exclusively multi-member wards without the agreement of Ynys Môn residents.

More on those Welsh GCSE results

Over the weekend I discovered that BBC Wales had also acquired the data for the average spend per pupil for each Local Authority — which, following on from my last post, means it is possible to see what effect increased or decreased education spending had on actual GCSE results in each Welsh county (the updated rankings with average spend is here). The results are very interesting:

GCSE results compared to Average spend per pupil
(click to enlarge)

As the above chart shows, outside the clump in the centre, there appears to be very little correlation between increased spending and better GCSE results. The county which achieved the highest average GCSE results (Vale of Glamorgan) actually spent the least (£5,001 per pupil), whereas one of the highest spending counties (Blaenau Gwent) achieved some of the poorest general results. Clearly there is a great deal of difference between the general prosperity of those two particular counties, which led me to plot the results versus the average percentage uptake of free school meals in each county:

GCSE results compared to uptake of Free School Dinners
(click to enlarge)

This chart shows a very clear negative correlation between the 2010 GCSE results and the uptake of Free School Meals. As Free School Meals are offered to children from low income families, it is therefore no surprise that these GCSE results also correlate to the total out of work claimant rate in each county too:

GCSE results compared to total out-of-work benefit claimants
(Click to enlarge)

Of course it has long been accepted that academic performance is a function of relative prosperity therefore these results are not surprising, but it is informative to test the actual Welsh GCSE results in this way. If you are so inclined you can see how the Welsh GCSE results correlate to several other factors here.

So what does this mean?

• A lack of correlation between spend and academic performance seems to suggest that as long as education spending is above a certain threshold, additional spending will not necessarily yield better results.
• The clear negative correlation between prosperity and results indicates that unless something is done to break this link, it could lead to a downward spiral of ever poorer educational attainment linked to ever decreasing prosperity levels (education levels being one of the major functions of economic performance).

So what can be done? As I suggested in my previous post, clearly radical changes are needed to our education system in Wales if we are to break the link between prosperity and school performance. As not all children are academically minded, my personal preference would be to stream pupils earlier into either academic or vocational schools as per the German model. It is pointless to enforce an academic one-size-fits-all approach when clearly not all children have an equal aptitude for academic subjects — in fact this turns the more vocationally-minded children off school altogether, meaning they can't wait to leave school at 16 rather than move on to doing vocational courses.

Education is of critical importance to Wales if we want to turn around our economic prospects. Will this new Assembly show any boldness in its policy making? I for one will not be holding my breath.

Remembering Brynle

Brynle Williams

I was greatly saddened to hear this morning that Brynle Williams, the Conservative regional AM for North Wales and leader of the 2000 fuel protests, had passed away. As a farmer and pony breeder he was the Assembly's greatest advocate for Welsh farmers and a regular visitor to Ynys Môn.

I last spoke to him on the phone about a month ago when, despite being in his hospital bed, he immediately remembered having attended this meeting. He had sounded strong, said he was on the mend, and kindly promised to attend my campaign launch once a date had been decided.

Gruff, unpolished and full of genuine passion for his and our part of Wales, he couldn't have been more different from the new breed of career politicians who pass directly from University to political researcher posts and then into Westminster or the Assembly. He will be missed by many.

Why I will be voting 'Yes' on March 3rd.

As it is St David's Day, today its a pretty good opportunity to explain how I will be voting at the Extra Powers for Wales referendum this Thursday, March 3rd, and why.

I will be voting 'yes' for four main reasons:

1. No matter which party (or parties) are in power in Westminster, UK-wide one-size-fits-all legislation will by definition not be equally optimum for all parts of the United Kingdom. Accordingly the Welsh Assembly is the ideal vehicle for developing and implementing differentiated policies which are specific to the needs of Wales alone. The referendum on March 3rd merely allows for the Assembly to be able to pass laws in the areas it already has competence quicker.
2. I fully subscribe to the principle that laws which exclusively apply to one region should be decided exclusively within that region. During the previous Labour administration in Westminster we all became accustomed to the sight of legislation which exclusively affected England (and in some cases England and Wales) only being passed due to the support of Scottish Labour MPs representing constituencies which would be entirely unaffected by said legislation. Known as the West Lothian Question, it remains a constitutional abomination. Although the situation whereby Measures passed in the Assembly are scrutinised by MPs and Peers in Westminster is not a direct parallel to the West Lothian Question, the principle of those unaffected by the law in question being removed entirely from the lawmaking process is sound.
3. A yes vote on Thursday will merely put Wales on almost equal footing with the other devolved governments in Scotland and Northern Ireland, which already do not need to have their laws scrutinised by Westminster. As a proud Welshman I personally have never seen any good reason why Wales should be treated any differently from Scotland or Northern Ireland.
4. I instinctively believe in Localism. Political decisions which affect us all, should be taken as closely as possible to us -- not by some overlarge central top-down bureaucracy. This, for example, is why I am so keen to preserve the integrity of Anglesey County Council and not see it submerged within a Greater Gwynedd.

As a final footnote: I personally don't believe that the current Plaid Cymru and Labour coalition in Cardiff Bay has done a particularly good job. Indeed in crucial areas -- Education and Economic Development being just two -- they have failed abysmally and let Wales down. However none of this undermines the case for the Welsh Assembly itself -- it merely underlines the lack of competence and vision of the current crop of AMs from the ruling parties. I fully believe that the nation of Wales' future economic and social success rests entirely upon the Welsh Assembly developing unique and radical policies which differentiate Wales positively from the rest of the UK as both a place to live, work and invest.

Welcome back Wales!

Shane Williams en route to try number 53.
Photo source: BBC

Great to see Wales finally get back into winning ways after an eight game drought against New Zealand (three games), South Africa (two games), Australia, Fiji (draw) and England. Equally good to see Shane Williams cross the tryline twice -- bringing his tally to a whopping 53 tries in the Wales jersey.

One Wales? or Three Wales?

How we are linked by human connections
as mapped by analysing phone-calls
Source: The Economist

Wales is not one country, but three different ones when looked at through the prism of human relationships, according to a fascinating article in this weeks Economist magazine.

Researchers from the Massachusetts Institute of Technology (MIT) have analysed 12 billion of phone calls within the UK in 2005 to find which regional clusters communicate with each other most and to see how they corresponds to the official administrative borders. The study's hypothesis in a nutshell is that the more and longer people in two locations talk on the phone, the more likely there are human connections binding those those places together into a cluster.

The results show that Scotland is the most cohesive region in the UK, with more than 75% of all calls originating in Scotland calling other parts of Scotland.

It is the results for Wales which are most fascinating to me -- showing that there are three distinct regions within Wales with only limited human interaction between North, South and large portions of mid Wales. North Wales in particular is much more linked in terms of human interaction with Liverpool, Manchester and the North West of England, with between 65-75% of all phonecalls originating in this area being to other places in North Wales and the North West.

What does this tell us?

GVA per head variation between regions. Following
Wales the North West is the next poorest.
Click to enlarge

• It shows that North Wales's economy is inextricably linked to that of Liverpool, Manchester and North West England. This fact is reinforced when you look at the relative GVA per head figures between regions. After Wales (with Anglesey at the bottom) the next poorest region is the North West (with nearby Wirral at the bottom). For North Wales to grow, it is essential for the North West to also grow, therefore there should be much more communication and collaboration between WAG and the North West in terms of economic development.
• In terms of tourism, it shows that the natural market to attract visitors is from the cities of Liverpool, Manchester and the North West. As there are already plentiful human relationships between us, strategically promoting Anglesey as a destination to these regions should be like pushing against an open door.

The good and the bad news...

I am so used to bearing bad news through this blog that it makes a welcome change to be able to be able to report some good news for a change -- particularly with regards to jobs and the Welsh economy. According to the latest quarterly Manpower Employment Outlook Survey, Welsh employers are finally looking to start hiring again after almost two years of negative intentions:

Employment Outlook for Wales
Click to enlarge

Not only that -- and this makes a big change -- Welsh employers are more confident about hiring than any other region in the UK bar the South West:

Regional comparison of Employment Outlooks in the UK
Click to enlarge

With the employers in the North West also buoyant about hiring let us hope that this trend also benefits Anglesey and North Wales.

However, predictably, any good news is bound to be leavened with bad news. And yesterday's announcement of the PISA (Programme for International Student Assessment) Test results -- which compares 10,000 15-year-old students worldwide in reading, maths and science -- were seriously bad news for Wales. The results for Wales were the lowest in the United Kingdom and clearly shows that a considerable gap has opened up between the attainment of Welsh students and those from other regions in the UK, particularly in Scotland and Northern Ireland:

PISA Test Results - all ranks out of 67 countries

It is difficult to reconcile these results with the annual procession of ever better GCSE and A-level passes. For a small country on the periphery of the United Kingdom, education is the most important weapon in our armoury to continue creating better, well paying jobs in the future -- however these PISA results show that there are grave problems with the current Welsh education system. This is a subject to which I intend to return.

Crowded house: the Welsh economy

The Welsh Economy

The Economist this week reports on two very interesting academic studies on the effects of increased government spending which could have a profound impact on our understanding of the Welsh economy.

The first study, by Harvard Business School academics, investigates whether higher government spending can "crowd out" private consumption and investment -- i.e. the phenomenon were government uses up financial and other resources (including personnel) that would otherwise be used by private enterprise. As an 'economy' is basically an aggregate of the actions of literally hundreds of millions of different people and organisations making diverse informed decisions on how to spend their money, the biggest problem faced by economists is to isolate just the factors they want to study -- in this case what influence increased government spending has on the private sector -- however the Harvard Business School academics hit on a very ingenious solution:

"When American politicians become chairmen of congressional committees, they are able to direct federal spending to their home states. To take one example, Richard Shelby, a Republican from Alabama, became chairman of the Senate intelligence committee in 1997. Before that Alabama averaged $6m less in annual federal earmarks, or specific funding, than other states. After his appointment the state received $90m more than the average.

Chairmanships are based on seniority. They require another senator or congressman to lose their seat. Appointments have little relationship with economic activity in the state concerned, and extra spending will occur at all stages of the [business] cycle. It is a truly independent variable.

The academics examined 232 appointments across 42 years. They found the average state receives a 40-50% boost in earmarks in the year following a chairman’s appointment, an increase that persisted for the rest of his tenure. Private firms reacted by reducing capital expenditure (by 8-15%) and research and development (by 7-12%); employment and sales growth also suffered. This test appears fairly robust, as it covered a wide variety of states and was also reversed when the chairman stood down."

Furthermore the second study highlighted by The Economist and conducted by academics associated with the OECD discovered through statistical analysis of a panel of 145 countries between 1960 to 2007, that a 1% rise in government consumption as a share of GDP eventually reduced private-sector consumption by 1.9%.

If these findings are correct, what does this tell us about the Welsh economy were public spending as a share of GDP has, according to the latest figures, reached 69.1% -- second only in its reliance on the public sector to Northern Ireland?

Public spending as a share of GDP (source: CEBR)

I have previously written how, despite the Welsh Assembly spending more per capita than any other UK region on economic development, Wales still remains at or near the bottom of most indicators of economic health such as GVA, unemployment and business failures. The Institute of Welsh Affairs, which commissioned the research (and which counts the sainted Gerry Holtham on its management board), opined that the causes for this underperformance were general cack-handedness and a lack of accountability and transparency. However, bearing in mind the results of the above studies, is it not more likely that the growth of the Welsh private sector is in fact being artificially stunted due to the crowding-out effects of an overlarge public sector? It surely cannot be healthy for Wales that the government spends £7 out of every £10 spent in this country.

Furthermore, in the past both Rhodri Morgan and Ieuan Wyn Jones have given speeches saying that the problem is not that the Welsh public sector is too large, but that the private sector is too small. But surely this is putting the cart before the horse -- under normal circumstances a country can only afford a public sector which can be sustainably paid for by its private sector. If the findings of the above studies are correct then they will have profound implications on our understanding of why the Welsh private sector is so stunted.

(Finally, before I am accused of hypocrisy for having called for Welsh Assembly support for the port of Holyhead just days ago, please note there is a big difference between targeted and limited government support and a structurally over-large public sector.)

Open letter to the Daily Post's Letters Editor

Dear Editor of the Daily Post Letters Page,


Please stop printing endless letters from people with no obvious economic credentials, telling us that the coalition's 'cuts' are are too fast and too deep. I am quite capable of reading The Guardian's reporting on the coalition's macroeconomic policies at first hand -- without having to re-read them several days later when recycled by a councillor from Ceredigion or some guy from Licswm, Flintshire.


Yours faithfully,
A. Druid

Meet Ed Miliband's 'New Generation' for Wales...

...they're the same as the Old Generation:

Peter Hain, despite not being voted for by his colleagues, returns as Shadow Secretary of State for Rwanda Wales. Neil Kinnock obviously wasn't speaking metaphorically when he said he's got his party back...

Why more accountability is necessary in setting Public Sector budgets

The revelations about the pay-off made to the outgoing head of the Wales Audit Office are simply staggering:

"According to information disclosed under the Freedom of Information Act, Anthony Snow was paid £107,580 in compensation when he left his job in September 2009 and the WAO will also have to pay more than £618,000 of his pension contributions until he turns 60."

This comes to a total of more than £750,000 -- yet farcially Mr Snow found himself another well-remunerated public sector job as COO of the Financial Reporting Council quango just six weeks later. Lets put these numbers into context: in this example just one Welsh public servant has received a pay-off amounting to almost half of the putative £2million cuts to the S4C which are currently causing such a fuss. And lets not forget that this is not an isolated incident: remember the hundreds of Welsh NHS executives who had their £50K plus salaries protected for ten years (!) following the reorganisation of the service which cut local health boards down from 32 to just seven?

And yet, despite all this, we are asked to believe by Labour and Plaid Cymru in the Assembly that the Welsh public sector is so unimprovably productive that any budget cuts at all will affect front line services. I'm afraid as just these two examples show, the lack of any competitive or downwards pressure on public sector budgets just leads to an otherworldly profligacy -- especially with regards to top-end public sector salaries. We need look no further than David Bowles' £1,000-a-day pay deal at Anglesey Council to know that this is true.

Only by applying some direct accountability for results in the setting of public sector yearly budget rises can these kind of excesses be avoided in the future. This is one of the reasons why I am a supporter of the coalition proposal to elect police commissioners, as one of the main planks of this policy also includes the need for any rises to the police precept element of council tax to be approved in a local referendum. The Police will be free to explain why they think they need more tax money, and the public will be free to accept the rise or not. In fact I would be happy to see this policy extended to include council tax rises as a whole, whereby local authorities would have to make their case in a local referendum. Based on the council's record and future plans, local residents can then decide what level of settlement they feel is fitting.

Imagine how much more engaged Ynys Môn residents would be with local politics and with the actions of councillors if we had the opportunity to hold Anglesey Council to account in this way. Imagine how much better services the council would need to provide in order to justify a rise in their budgets...

At last some radical economic thinking from an Assembly Member..!

The Druid has long argued (most recently here) that the most effective way of promoting economic growth in Anglesey and in Wales as a whole would be to strategically reduce the rate of corporation tax levied here. I am delighted therefore to read an interview in today's Western Mail with the Welsh Conservative AM, David Melding, where he advocates exactly the same policy:

“What I would suggest is that if Wales really wants to be enterprising and attract investors who want to stay here ... the best thing we could do is lower the level of corporation tax, the tax that companies have to pay, but perhaps look at something quite radical like the top rate of income tax and lowering that, so that people who are higher earners – and there aren’t many in Wales – come to Wales and start up businesses, and because they do that they are able to retain more of the wealth they are generating.

“I really think that is the only way to tackle the long-term economic poverty that we have in Wales, compared to many other regions in Britain. We’ve really got to have a tax policy in Wales that’s a bit different to that in the south east of England or London.”

For too long successive governments have tried to counterbalance the concentration of private businesses in the South East of England (where they have access to the largest market, complementary service companies, and easy international links, etc) through the apparatus of the state. Regional Development Agencies, staffed by hundreds of bureaucrats, have sought to tempt businesses to set up in their localities through the blunt instruments of offering non-repayable grants or tax holidays. This strategy has been flawed from the outset for two reasons:

1. The Agencies have attempted to "pick winners", i.e. select which firms they believe should succeed and then showered them with grants. First of all, as any honest stockbroker will tell you, picking winners is a very, very difficult game. Secondly, this process has been 'self selecting' insomuch that only those companies which are aware of the opportunities have applied for assistance -- in many cases multiple times once they have figured out how to play the system.
2. These regional agencies have not been able to bring about any meaningful change in the business environment in their regions, meaning that when the grants run out or the tax holiday ends, the original reason why those companies set up in that region in the first place is removed. Then, like the experience with many multinationals in South Wales, they then shift their manufacturing to lower cost countries. 

My point is that in order to generate sustainable economic growth in Wales, it is necessary to create a business environment which has an in-built competitive advantage over other regions, and were that advantage is available to all companies -- not just the ones favoured by a few bureaucrats. A reduced rate of Corporation Tax in Wales would deliver this and I am delighted to see that David Melding AM seems to get it. However, that said, so far the Welsh Assembly has completely failed to create a competitive advantage for Welsh businesses. The only economic lever which the Assembly has full control over is the setting of Business Rates (a devolved matter) and yet as I pointed out the other day, Business Rates in Wales are the highest in the United Kingdom.

We need more radical thinking in the Welsh Assembly along the lines which David Melding is suggesting.

Overrated: New Welsh Business Rates relief scheme still less generous than in England and Scotland

Yesterday the Welsh Assembly Government let it be known that from 1 October 2010 until 30 September 2011, it would temporarily increase relief for Business Rates in Wales. According to the press release:

"Most business premises with a rateable value up to £6,000 will not pay any business rates and most of those with a rateable value between £6,001 and £12,000 will receive rate relief that will be reduced on a tapered basis. This means that business premises with a rateable value of £8,000 will get around 66% rate relief; whilst those with a rateable value of £10,000 will get around 33% relief."

Of course for small businesses in Wales this is very welcome news indeed - however in order to fully assess its value we need to understand how the previous relief scheme stacked up against other regions in the UK (as due to the devolved structure of the UK, England, Scotland and Wales all now have different Business Rates relief schemes).

All businesses make a contribution to local government services through what is known as 'Non Domestic Rates' (a.k.a. 'Business Rates') based on a valuation of their property by the Valuation Office Agency (VOA). The rates payable are calculated by multiplying the valuation of the property by a 'multiplier' determined each year by either the Welsh Assembly Government in Wales, the Communities and Local Government Department in England, and the Scottish Executive in Scotland. Accordingly, if a property used by a business in Wales has a rateable value of £20,000 for example, its business rates bill would be calculated by multiplying £20,000 by the Wales multiplier (40.9 pence in the pounds for 2010/11) giving the business a bill of £8,180 for 2010. However, in order to help small businesses in particular, each of the regions operate a relief scheme whereby eligible businesses are given discounts on their bill according to the rateable value of their property. Below is a summary and comparison I have made of the various business rates relief schemes as currently operated in England, Scotland and Wales:

Click to enlarge

As you can see, the business rates relief scheme in Wales has been far less generous towards smaller businesses than comparable schemes in England and, particularly, Scotland where since April this year all businesses with a rateable value of less than £10,000 have been lifted out of paying completely. To illustrate how much more comparable Welsh businesses have to pay than their English or Scottish counterparts, I have calculated the business rates payable for businesses in each of the three regions at five different bands:

As you can see, businesses in Wales with a rateable value of around £10,000 or less pay considerably more than comparable businesses in England, whilst the same businesses in Scotland pay nothing!

However, as I noted at the beginning of this post, the Welsh Assembly Government has now introduced an increased relief scheme for Wales which will lift all businesses with a rateable value less than £6,000 out of paying business rates at all - great, right? Well, up to a point, yes - but the fact is that the WAG scheme is identical in all particulars to the one announced (pdf) in England in July this year. And because WAG  has anyway set a slightly higher multiplier for Welsh businesses (40.9p compared to 40.7p in England and Scotland), Welsh businesses still have to pay more than their English and Scottish counterparts - as the following calculations based on the temporary relief scheme show:

Its worth noting that businesses in Scotland continue to pay less even when compared to the new temporary schemes introduced in England and Wales!

So, in conclusion, it would be curmudgeonly of me not to welcome the new levels of business relief in Wales - they are sorely needed. However it is essential that we recognise that small businesses in Wales are still at a competitive disadvantage compared to small businesses anywhere else in the UK. 

Small businesses are the backbone of the Welsh economy - they employ more people and contribute to their localities by complementing and supporting other local businesses. With an overlarge Public Sector in Wales it is essential that we do everything we can to grow our homegrown small businesses - however, as the above comparisons show, in the one area where the Welsh Assembly Government has complete freedom to create a competitive advantage for our small businesses, it has comprehensively failed. And our AM, Ieuan Wyn Jones, as Minister for Economy and Transport, has to take a large part of the responsibility for that.

Towards regional rates of Corporation Tax

Jonathan Edwards, the Plaid Cymru MP, has called on the Westminster Government to match in Wales the 'special measures' which have been promised to Northern Ireland, such as lower corporation tax and enterprises zones to help stimulate growth and jobs there. Looking at the various statistics it is clear that Wales and Northern Ireland have very similar levels of unemployment, regional GVA and high public sector employment - though it could be argued that because the neighbouring Republic of Ireland's rate of corporation tax is just 12.5%, Northern Ireland is on an especially sticky wicket when it comes to trying to attract inward investment.

Anyway, what I find dissatisfying in this whole affair is the piecemeal nature of the promise of action in Northern Ireland but not elsewhere - despite similar levels of need. It seems to me that the N.I. special measures are dependent on special pleading - Northern Ireland's politicians have obviously managed to make their case to the Coalition far more effectively than our own Welsh politicians who appear to be more interested in in-fighting (think of the situation in own beloved Anglesey, but writ large).

Anyway, it therefore occurs to me that the fairest and most equitable solution would be to introduce variable levels of corporation tax (and possibly business rate relief, etc.) in the UK based on relative regional GVA indices. I understand that Gerry Holtham has proposed something similar, but here's my own modest proposal.

Gross Value Added (GVA) measures the contribution to the economy of each individual producer, industry or region in the UK and is an important measure in the estimation of the nation's total Gross Domestic Product (GDP). However, GVA has also become the preferred measure of the Government in assessing the overall economic well-being of an area. As such it is the ideal yardstick to use in comparing the relative need of different UK regions for variable rates of corporation tax. I would propose the following system:

• The system would be based on headline GVA per head indices for NUTS2 regions (a subdivision of the UK used by the Office for National Statistics whereby the the UK is divided into 37 subregions) 
• In regions where the GVA per head index is at 90 or above: no change to corporation tax.
• In regions where the GVA per head index is between 80-89: a reduction in the corporation tax by one percentage point.
• In regions where the GVA per head index is between 70-79: a reduction in the corporation tax by two percentage points.
• And so on...

Such a system would produce the following results (note this is just a selection of NUTS2 regions, not the entire list). For the sake of clarity, using NUTS2 regional subdivisions, Wales would be divided into two regions:

• West Wales and The Valleys (Anglesey, Gwynedd, Conwy and Denbighshire, South West Wales, Central Valleys, Gwent Valleys, Bridgend and Neath Port Talbot, Swansea)
• East Wales (Monmouthshire and Newport, Cardiff and Vale of Glamorgan, Flintshire and Wrexham, Powys)

This might not be entirely satisfactory but I would consider a scheme based on the hundreds of NUTS3 regions would be too unwieldy to manage and operate effectively.

In terms of the cost of introducing such a system, it would be tempting to offset the costs of reducing corporation tax in some regions by raising it in other more 'profitable' regions. I would resist this temptation in order to ensure that the country as a whole is competitive internationally. I do not have the entire resources of the Treasury at my disposal so cannot attempt to cost this proposal accurately, but one would hope that lower regional rates of corporation tax would incentivise many companies to relocate from the South East to other areas providing much needed unemployment and other benefits. Hopefully a large portion of the cost therefore of reducing the corporation tax could be recouped through lower social security and other current government expenditures in those regions.

The advantages of such a system would be to ensure that all regions are treated equitably (and without the distorting effect of special pleading) and according to their need. Should the GVA of the various regions rise, then the rates of corporation tax will also rise accordingly and vice versa. I would be very interested in your views on such a system.

A full list of the GVA per head indices for all NUTS2 regions are below for your perusal:

GVA Per Head Indices UK

Clear as mud...

  
Here's the draft preamble and question for the referendum on further powers as published by the Wales Office yesterday:

At present, the National Assembly for Wales (the Assembly) has powers to make laws for Wales on some subjects within devolved areas. Devolved areas include health, education, social services, local government and environment. The Assembly can gain further powers to make laws in devolved areas with the agreement of the Parliament of the United Kingdom (Parliament) on a subject by subject basis.

If most people vote Yes in this referendum, the Assembly will gain powers to pass laws on all subjects in the devolved areas.

If most people vote No, then the present arrangements, which transfer that law-making power bit by bit, with the agreement of Parliament each time, will continue.

Do you agree that the Assembly should now have powers to pass laws on all subjects in the devolved areas without needing the agreement of Parliament first? 

Am I just imagining it, or is it pretty much as clear as mud? Either way its hardly likely to set Wales on fire...
    

Quick thoughts on the Emergency Budget

    
I'm back - missed me?

Just a quick post about yesterday's Emergency Budget. For me one measure in particular stands out and that is the allowance to exempt new businesses which start up outside of the South East of England, East of England and London areas from paying the first £5,000 of Class 1 employer NICs due in the first twelve months of employment - this will apply for each of the first 10 employees hired in the first year of business.

As this blog has long argued, for Wales to attract greater inward investment and grow its private sector it needs to provide a more favourable economic environment than England. As we are on the periphery of the UK with fairly poor transport links, companies need to be extra incentivised to set up so far from the economic and population centres of the UK and Europe. Currently, all regions of the UK have exactly the same rates of corporation and income tax, which are set centrally by Westminster. The only taxes which the Welsh Assembly Government has the power to adjust in order to differentiate the region from other parts of the UK are Council Tax and Business Rates. However despite Wales needing to provide that 'extra economic incentive' for businesses to set up in the Principality, the fact is that until recently Business Rates were actually higher in Wales than any other region of the UK. Since March they have been brought inline with Rates in England, but are still higher than Business Rates in Scotland where businesses enjoy an additional rate relief.

This provision by the Government to apply a  regionally differentiated National Insurance policy is truly groundbreaking and could be, as Dylan Jones-Evans says, the beginning of a Regional Tax Policy.

Personally I would like to see much more of this with the Assembly Government given much more powers to adjust the levels of both income and corporation tax in Wales so that we are able to compete with neighbouring regions in terms of tax - and thus make Wales a more attractive place for businesses. However, that said, Wales's problem is that it's Public Sector is simply too large to be sustained by the tax income from Wales alone at current rates. In reality, were WAG to be given more tax raising powers - at the cost of losing a portion or all of the current Barnett formula subsidy - tax rates would need to go up NOT down just to sustain Wales's current Public Sector, thus making Wales a far less attractive place to do business. This is one aspect of Plaid Cymru's policies which have always puzzled me - if they truly believe in eventual Welsh independence then surely it would be better for them to pursue a policy of gradually reducing the size of the State in Wales - i.e. creating a lean and mean public sector fully able of being supported by the tax take in Wales alone - so as to make any eventual devolution feasible without huge tax hikes. Instead Plaid seem content to grow the size of the Public Sector in Wales whilst at the same time complaining about the £300m shortfall in funding via the Barnett Formula - both policies which will ensure Wales is tied to England for a long time to come.
  
Anyway, no doubt we will be hearing a cacophony of complaints from Labour and Plaid WAG Ministers about the "unfairness" and "recklessness" of this budget. A good time therefore to remind ourselves why we are in so much debt. And, no, its not all down to bailing out the banks. Here are the amounts the Labour government borrowed every year since 2002:

• 2002 - £19bn

• 2003 - £34bn

• 2004 - £36bn
• 2005 - £41bn

• 2006 - £30bn

• 2007 - £33bn

• 2008 - £61bn
• 2009 - £142bn

Northern Rock crashed in 2007, by which time the Government had already borrowed £160bn - and all this during one of the longest periods of uninterrupted economic growth since the Second World War. Recklessness indeed.
 

Last Wales Poll before the Election (Updated)

    
ITV Wales have just published the topline results of the last Wales voting intention poll before tomorrow's general election:

CON      27% (+4)
LAB      35% (+2)
LDEM   23% (-6)
PLAID  10% (+1)

The comparisons are with the YouGov Wales poll of April 19th at the height of Cleggmania - it seems the Welsh electorate have now pretty much returned to their senses.

UPDATE: YouGov have now also published the regional figures for North Wales, so here they are:

CON      33% (+9)
LAB       33% (-8)
LDEM   19% (+4)
PLAID   10% (-4)

The comparisons this time are with the actual North Wales General Election results of 2005. The big losers since 2005 are Labour (down 8 points) and Plaid (down 4 points). To give you an idea of how the voting intentions in North Wales have changed over the past 5 years, see the Druid's North Wales poll tracker below:

click to enlarge

At the time of the 3 March 2010 poll, there were many Plaid-supporting bloggers who claimed that the depressed Plaid Cymru figures for North Wales were purely down to YouGov's North Wales sample being too small. However, as the above poll tracker shows, Plaid's voting intention in North Wales has now consistently remained at 10% for the last three polls (3 March, 19 April, and 5 May). Furthermore, if these results are accurate, Plaid's claim that their polling figures have been adversely effected by not being included in the Leaders Debates does not hold water - at least not in North Wales. It is clear that Plaid's support slumped to 10% before the Leaders Debates and has remained there ever since. 

Of course, we will find out how accurate these polls are tomorrow...

     

Why Wales is the "least competitive" region in the UK

  
The below chart shows state spending as a percentage of GDP in the UK regions compared to a selection of OECD member countries:

click to enlarge 

(chart source: coffee house blog)

As you can see, state spending as a percentage of GDP in Wales is currently running at almost 70% - i.e. of every £10 spent in Wales, £7 is spent by the Government. This is approximately 25 percentage points above the OECD average and 20 percentage points above the Euro average. More remarkable still is the fact that Wales also eclipses both Sweden and Denmark - standard bearers of the Nordic big government model (with corresponding big taxes).

The consequences of having an over-large state sector in Wales is that the majority of resources (both financial and in terms of young talent) get sucked up by the public sector thus stunting private sector growth. We should therefore not be surprised when Wales is named as "the least competitive" region in the UK - as it was just last week by the UK Competitiveness Index.

This problem is compounded when you consider that we are increasingly governed by people who have had no private sector/wealth creating experience at all. The below chart shows the backgrounds of the Assembly Members who make up the current ruling Labour/Plaid Cymru coalition before they went into politics:

click to enlarge

Only a paltry 13% of Labour/Plaid Cymru AMs have ever worked in the wealth creating part of the economy (You can see more details here). Policies will of necessity reflect the beliefs, value systems and experience of the politicians who formulate and vote for them - therefore, when you consider the background of our legislators, the answer to any problem will always be more public spending thus making us even more uncompetitive as a nation.
    

Quote of the Day (Incorrect or misinformed edition)

        

The Plaid Cymru-supporting 'Welsh Ramblings' blog writes:

"Welsh Ramblings deeply opposes the political intentions of the blog "The Druid: Fighting For Anglesey". The Druid's arguments must be undermined and contested, as they are quite frequently incorrect or misinformed."

Just for the record: I am proud to be considered "frequently incorrect or misinformed" by a blog which celebrates the Venezuelan dictator, Hugo Chavez, and ponders what lessons Wales can learn from that anti-democratic, tin-pot bully. As far as I'm concerned, I totally agree with the Cynical Dragon.