Saturday, April 25, 2009

What just happened?

The fiscal influence of the London centre was once again demonstrated this week with the UK budget announcement. Those decisions of course represent the most obvious influence on the Welsh economy. There has already been alot of comment but I am deeply disappointed by the timid reaction from political parties in Wales and from the media.

A yearly budget reduction of more than £400m per year from the Welsh budget because of the UK's priorities will without a doubt lead to cuts. I do not follow the line that 'sometimes cuts are necessary'. For historic reasons our economy is hugely dependent on the public sector. This has been seen as a fundamental weakness of the Welsh economy but we should also remember that these jobs are generally more stable than those in the private sector, and that it was not the public sector that caused the economic crisis. It follows that anything beyond voluntary redundancies and natural wastage will be hugely detrimental for us.

I am concerned that this has been accepted as normal and inevitable. Plaid Cymru resisted the budget cuts loudly but the Welsh Labour component of the administration was less noisy, particularly when compared with the Scottish Government's reaction. Perhaps this was tactical, so that the impact of the cuts would be lessened. But Rhodri Morgan and Andrew Davies' response to the budget announcement has also been pale and lax. Indeed, it was all they could do to praise Gordon Brown's apparent 'leadership' in solving the world's problems. This attitude can be seen in the Welsh Assembly Government's official response.

Compare this to Mark Serwotka's call for a united front of the political parties and the trade unions to fight for an alternative to public expenditure cuts.

Mark Serwotka, general secretary of the Public and Commercial Services Union, said the assembly government should not automatically accept budget reductions.

"It is a matter of political priorities and political will," said the union leader.

"There should be a united front with politicians in Wales and unions to argue in Westminster that the cuts should not be made."

The post-recession UK and post-recession Wales will still be fundamentally unsustainable countries marked by polarised levels of wealth between the rich and the poor. There was no bailout for manufacturing and industry, something incredibly important in Wales. A socially-inclined administration would have argued for bailouts and state aid to assist the poorest. Benefits could have been hiked so that the spending would be transferred into the real economy. But what happened was instead just a drop in the ocean.

They did however get their headline with the new tax rate. Again, I am skeptical. The G20 meeting failed to agree any concrete moves (except for warm words) against tax avoidance, and the Labour government has been just as likely to tax the poor to give to the rich (see last year).

The whole situation shows how little influence we unfortunately have in the current devolution settlement. As long as the UK Government knows that Welsh Labour will not rock the boat, Wales' interests will not win the day. In Scotland, where the government is very much rocking the boat, the budget cut has not been so severe. The full impact on Wales will not become obvious for some time. When it does, I think we might regret that Mark Serwotka's united front never happened.

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