One of the common arguments used against Welsh Independence is that we could not afford to pay our share of UK National Debt.
The Blue Book
So the first question that needs to be asked is how much is the UK National Debt? The best source of data is the UK National Accounts, ‘Blue Book’ published by the Office for National Statistics (which is based in Newport, Gwent) with the latest published data being from 2018.
This states that the Total Financial Liabilities of the UK Government for this period were £2,494 billion. This includes all forms of government debt, including £1,967 billion of Long Term Debt Securities issued by Government – basically money borrowed by UK Government.
But this amount needs to be offset against the Total Financial Assets of the UK Government, which were stated as £756 billion for the period. This includes Currency and Deposits, Shareholdings, and Loans payable to UK Government.
The Financial Net Worth of the UK Government is defined as the Total Financial Assets less the Total Financial Liabilities, equivalent to minus £1,738 Billion in 2018. This is the UK Government Debt for which Wales would be responsible for a proportionate share.
Our Fair Share
The precedent established by other countries gaining independence is that their debts are shared on the basis of their population. Wales population is around 5.2% of the UK total, and so we would be expected to share 5.2% of the debt, or around £90 Billion – equivalent to £30,000 for every person living in Wales.
There is a case to be made for distributing this debt on the basis of our share of GDP or GVA rather than population, which would reduce our share to around 4%, but let’s stay with the population basis for now.
As well as taking our share of the debt, we would also be entitled to receive our proportionate share of the UK Government’s Non-Financial Assets, which in 2018 were valued at £1,049 Billion. These assets consist of fixed assets – such as property and infrastructure – and movable assets – such as aircraft and ships – and Wales would be entitled to receive a proportionate 5.2% share of these assets, equivalent to around £55 Billion.
A Negotiated Settlement
There is already a certain amount of UK Government owned property in Wales – For example Crown Offices in Cardiff, DVLA in Swansea, MoD Ranges in Eppynt, Castlemartin etc – and this would be transferred to Wales as part of our £55 Billion settlement at a fair valuation. There is also government funded infrastructure including roads and railways. I do not have any detailed information on the costs of such property and infrastructure, but it should be available somewhere within the ONS data, and this value should be indisputable. Even without the hard data, I strongly believe that the current value of Government fixed assets in Wales is significantly less than our 5.2% share, especially when considering the value of Central London real estate and the value of infrastructure such as M25 and Crossrail.
Similarly, we would be entitled to 5% of UK Government movable assets, which primarily involve military hardware. Even if we wanted it, the UK military are not going to provide us with 5% of their naval fleet, or 5% of their aircraft, or 5% of their tanks. We should identify a realistic military shopping list, including say some coastguard vessels and some helicopters, but we would have no need for any of the big toys, and it would be very difficult to justify transferring ownership of our fair share.
As I said earlier, I do not have any firm data to accurately predict the value of what can be physically transferred to Wales, but I believe that it is in the order of £20 Billion as opposed to £55 Billion.
But if UK Government cannot (or will not) transfer a fair share of physical assets it will need to compensate us with a financial settlement. This could be in the form of a cash transfer or more likely the issue of some sort of Debt Security or bond. This would have the effect of increasing our Net Financial Worth (or reducing our debt) by £35 billion.
According to the Government Expenditure & Revenue Wales (GERW) report issued last year, Wales ‘paid’ a total of £2,123 Million last year in Debt Interest. If we can reduce our share of the debt from £90 Billion to £55 Billion as described above, then our responsibility for debt interest payments would reduce accordingly around £1,297 Million
The GERW Report also included an amount of £2,926 Million for ‘Capital Adjustments’, which in accounting terms is known as Depreciation. This is a write-down of the replacement costs of physical assets – think of it as the repayment part of your house mortgage – and is directly related to how much assets we own. This figure is currently based on our proportionate share of UK Government physical assets – but as outlined above, our share is likely to be significantly reduced following an independence settlement. Assuming a new valuation of £20 Billion then we can reduce the ‘Capital Adjustments’ in our accounts to around £1,063 Million.
To summarise, we can make annual budget savings of around £2.7 Billion simply by accepting our fair share of Government Liabilities & Assets following independence.
The actual amounts concerned would obviously depend on our independence settlement, which would be subject to some tough negotiations. But the data on which to base these negotiations is already in the public domain and should be largely indisputable.