Borrowing powers for the Welsh Government?
For our second debate we again use some recent results from an opinion poll. This time, the poll was commissioned by this Commission. We found that of the 1,000 Welsh residents asked, 66 percent were in favour of the Welsh Government being able to borrow money to fund capital projects such as building roads and hospitals. A summary of the results are available here on our web-site. This is another very important issue that the Commission is looking at.
Let’s have a look at some of the arguments for and against……
At the moment the amount of money that the Welsh Government can spend on capital projects such as roads and hospitals is decided by the UK Government and is based on what will be spent on such projects in England. Some argue that the Welsh Government should be able to decide how much to spend on capital projects and if they could borrow money then they would have greater flexibility on when and how much to spend.
Some people also argue that if their local authority can borrow it seems odd that the Welsh Government cannot.
Those against the Welsh Government being able to borrow argue that the Welsh Government should only spend what they have and that borrowing money will just mean we the Welsh Government will have to pay the money back plus the interest. They also argue that you only have to look at Greece to show you the problems caused by excessive borrowing by Governments.
So, what do you think?
If you agree with the 66 percent in the opinion poll that think that the Welsh Government should be able to borrow, do you think that the amount they can borrow should be decided by the UK Government or decided by the Welsh Government? Do you think the Welsh Government should be able to issue their own bonds? Or should the Welsh Government only be allowed to borrow via the UK Government?
If you don’t share the opinions of those 66 percent in the survey then tell us. Why don’t you think the Welsh Government should be able to borrow money?
Have your say.
Comments (10)
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Dwi’n credu os y dylai’r Cynulliad gael yr hawl i fenthyca arian, yna mae’n rhaid sortio allan y Fformiwla Barnett yn gyntaf er mwyn cael y tegwch ariannol sydd ei angen ar Gymru. Ac yn ail, fe ddylem ystyried yn gryf y posibilrwydd o bwerau trethi sef datganoli trethi corfforaethol i Gymru cyn menthyg arian. Mae’n hanfodol dros ben i gael ryw fath o falans rhwng yr arian sy’n dod i fewn ac allan o drysorlys y Cynulliad. Mae’n hurt bost menthyg arian, ac wedyn yn gorfod dibynnu a’r gyllid y Cynulliad i dalu yr arian ‘na nol ac yn hurt i anwybyddu’r incwm ychwanegol a geir drwy dreth corfforaethol a’r Ystadau’r Goron.
If the Welsh Public are going to borrow money in the form of bonds, to pay for, what will ultimately be assets that cannot be used to back up the bonds in their own right, we the Welsh Public will need to be clearly and transparently made aware as to the implications of taking out such a loan. This would mean correctly costing out the projects; the amount to be loaned (bonded) and a vote would need to be taken that is clear and transparent as to our responsibilities; the implications for non payment and our likely ability as a nation to be able to pay this money back either by re-numeration from the UK Government (and taking into account their ability to make payment) alongside Wales ability to make the repayments in our own right.
it’s a frankly absurd anomaly that a tiny community council in wales can borrow money but our own national welsh government cannot! This ludicrous state of affairs is something the silk commission can and i hope will rectify when it makes its final recommendations!
I was committed to home rule and complete autonomy for Wales, but now, after we have seen what has been achieved by self government I take a very different view.
In the run up to the devolution referendum we were assured time and time again that there would be no need for any more civil servants because we already had the staff at the Welsh Office doing the work. What happened after the Yes vote was a very different story.
We witnessed a large increase in the number of WAG offices and a meteoric rise in personnel numbers. We have ended up with a completely unsustainable proportion of the working population employed in the public sector.
Our First Minister said they are important, well paid jobs and we need to protect them but he failed to suggest how or who should pay for them. This was before WAG was granted law making powers which I have no doubt will generate even more unproductive jobs.
Our Revenue Offices, we are told, are stretched to bursting point, therefore any variation in tax would mean more staff to do the extra work, thus creating the need for even higher taxes to pay for them.
It has been suggested that tax varying powers might make our AMs more accountable! Their track record of blunders and u-turns, and their general ineptitude would clearly suggest that the concept would be beyond them.
Tax varying powers ………..NO,NO,NO!
sadly this is a very conflicted issue as I can honestly see the benefits of Wales borrowing from outside sources, however borrowing should be regulated and held open to public account, maybe a regulating body (spending more money I know). Also with the public eye on government lending it would ensure that the money was well spent only on neccessary projects, and would detract borrowing just for the sake of it.
In these times of austerity we need to be very careful that we do not leave the next generation with further debt.
In theory I think that for capital projects, such as roads, hospitals, schools etc. the Welsh Government should be able to borrow. You cannot run a business without Capital and Government is essentially a business. However, for Wales to be proposing to borrow when UK are trying to decrease the national debt will, quite rightly, not sit well with UK. Let us not forget that it is UK as a whole that picks up the tab for Wales’ deficits.
Whilst not wholly against the prospect, any WG borrowing powers should be regulated by UK Government in the first instance and there must be a cap on the amount that can be borrowed in a (to be specified) term before they have to seek oversight from UK Government. There must also be transparency. The public have a right to know and WG should report to UK so that figures on borowing are published from the UK and not massaged by WG spin doctors.
Before a decision is made Welsh Government should be asked to give an example capital project with full cashflow and repayment forecasts including scenarios for with borrowing and without. This is real world finance and I suspect Welsh Government do not have the necessary experience to make these type of decisions.
Let us remember that WG were slated for their Green Bank bid which displayed a complete lack of understanding as to what is required in a bid. Let us also remember the £1.6 million spent on a hotel for self-defence courses that is still not utlilised.
If further powers are granted in this regard it should be for a trial period with UK Government able to rescind within stated period.
Yes.
English councils have recently been given new powers – the Welsh Assembly should also have similar powers.
With the fighting between the Westminster/Bay government- how other way are we going to be able to develop our very poor infrastructure?
Who would be the ultimate guarantor of the loan – UK Gov or WAG? If its WAG I what would be the interest rate on the loans? Very high I would think. If its UK Gov, then why would they permit the WAG to run up debts to which the whole UK nation is responsible for?
When we talk about “borrowing powers”, is this simply a coded suggestion, a euphemism for additional block grant.
In reality, Wales already runs a deficit that is funded by borrowing and its consequent exponentially growing debt – it’s just done on our behalf by Westminster. The difference between the tax collected in Wales and the block grant is the deficit – and that does not include all the other expenditure and investments whose control is retained by Westminster.
There are four ways I can see that any additional debt could be serviced:
Additional all Wales specific taxes
Additional block grant
Cost cutting /efficiency / reduced expenditure elsewhere
GDP growth (providing additional tax revenue)
Can we be sure The Treasury would pass any additional tax revenue back to Wales ? There may be the temptation to retain it given the ongoing economic fiasco. Given Wales alone would be liable for any additional borrowing, then the money to pay at least the interest would have to be found from somewhere. To rely on substantial growth to finance “investments” now would be folly as the prospect for that growth looks very slim for an extended period. The principal sum could accumulate at an alarming rate with successive investment projects.
The present global meltdown is the result of “Alice in Wonderland “economics, made possible by blinkered vision, economic dogma and Ponzi schemes; we must not allow ourselves to again believe in “free money”. In short, there must be total honesty where Welsh finance is concerned.
I suggest any project really worth borrowing for would be and should be funded by the Treasury. To pretend that there exists any room for manoeuvre within the finances of Wales, without additional taxes or spending cuts elsewhere is a red herring.
Borrowing powers may superficially appear to bestow some additional degree of independence, however, I believe it may turn out to be a poison chalice – should one wish to keep the option of future full independence open that is. Bear in mind, a floating Welsh sovereign currency would allow Wales to be more competitive, however, importantly; external debt (denominated in UK pounds or any other) cannot be reduced by currency devaluation.
Should your aim be to lock Wales within the union, then perhaps the more external debt the better?
Future borrowing powers ? The “mythical” world of leveraged finance is already here.
http://www.bbc.co.uk/news/uk-wales-politics-18035438
I’m certainly no expert so please correct me if I’m wrong; this how it appears to work:
Our Welsh government receives from Westminster a block grant that is made up of two portions; one for consumption spending and the other for investments. The rules allow for some of the consumption money to be used for investment but not vice versa. As the WG is not permitted to borrow and the local authorities are, they have jointly engaged in a slightly devious way of leveraging (multiplying the effectiveness of your limited capital by borrowing) some of the investment portion of block grant to dodge this borrowing limitation.
The WG assigns some of the investments grant to each local authority that in turn use this to fund borrowing for road improvements – at present anyway. The local authorities essentially borrow from Westminster / Treasury via one of the various schemes that appear to be available at a `favourable’ interest rate.
This of course reduces the amount of money available to the WG for other projects for the duration (22 years?) of the program. The money can only be spent once. This may amount to relatively small sums at present and may or may not be sustainable, however, problems will certainly arise if more and more bites are taken from this grant money (as hinted at in the BBC article) for further “smoke and mirrors” schemes in the future, especially if the real level of income/funding for Wales reduces further for any reason. Therein lays the greatest danger. Leveraging is only truly effective if it stimulates a real level of income growth or saving above and beyond the total cost of debt service – otherwise it is simple debt funded consumption; aka `free money’. There is plenty of recent evidence to demonstrate where that road leads……….
So is there a real cost to Wales from this; well yes, the loss of the portion of block grant to fund the interest on present and future loans, although, there is the benefit of the brought forward infrastructure improvements. Westminster has, in theory, to borrow up front to cover the future grant allocation that the loans represent.
What about Westminster and the UK tax payer. During the term of the loans, all UK union countries assume joint liability – in the event of a Welsh default. Assuming the block grant is not increased to cover the full repayments, there will be no net increase in government debt beyond the term of the loans.
If Wales only pays the interest and rolls over the principal, then the on-going cost depends on whether the money for the local authority loans is borrowed via bond issue or the QE (Quantitative Easing) route. QE is in practice government issued interest free money – as long as the government bonds purchased by the Bank of England are never returned to the market. As the B of E is effectively owned by The Treasury and most of their profits are returned to the Treasury, then Westminster is able to create money at no interest and many would claim debt free.
Since Westminster is able to create money debt and interest free, within inflation limitations, why would the Welsh Govt. ever consider future funding of investments by borrowing at market interest rates to the sole cost of the Welsh nation ? Indeed, with its own sovereign currency our W G could actually create money debt and interest free in exactly the same manner as the Bank of England and Westminster……………..
Now that really would be opening Pandora’s Box – or perhaps not? Dr Michael Hudson and `Positive Money` may have the answers to that.
http://michael-hudson.com/2011/12/europes-transition-from-social-democracy-to-oligarchy/
or
http://www.positivemoney.org.uk/how-banks-create-money/