Eurfyl ap Gwilym outlines Plaid Cymru’s green investment alternative to Labour’s fiscal failure

Plaid Cymru’s plans to kick-start the Welsh economy by investing £6bn in a five-year green recovery, outlined in our Manifesto yesterday, are in stark contrast with the present Labour Government’s paucity of ambition.

The Labour Welsh Government is seeking more borrowing powers from the London Treasury but it has only used a small amount of the £150m a year it is currently able to borrow from UK Treasury funds.

This is a derogation of duty and financial prudence at a time when interest rates are at an historic low, and when there is a huge capital programme waiting to be implemented. This includes building new social housing, home insulation and refitting, transport infrastructure such as the Valleys Metro, plus much needed investment in faster rural broadband, and in coastal and river flood defences.

Since the Wales Act 2017 the Labour Welsh Government has only drawn down on capacity to borrow from the UK National Loans Fund once, for a single transaction of £65m in early 2019. It has failed to take up its borrowing opportunity in the last two financial years, of 2019-20 and 2020 to 2021.

As set out in our Manifesto, a Plaid Cymru Government will utilize this capacity in full for the current financial year and for the rest of the Senedd five-year term, as well as going to the private capital markets.

Labour’s fiscal failure is in contrast with the Scottish Government which has fully utilised its borrowing powers and raised approaching £2bn in the same period.

The Labour Welsh Government has failed to build the necessary project appraisal and management capacity within the civil service. A Plaid Cymru Government will create a new Office of Regional Development and Investment in the First Minister’s Department, a team of strategic planning, investment management and project appraisal specialists, as proposed by the OECD in its recent report to the Welsh Government.

We will task the National Infrastructure Commission, working with the Future Generations Commissioner and the Development Bank, local government partners and others, to turn its State of the Nation report due to be published in May into a detailed schedule of investable projects that will lay the foundations of a new resilient Wales. Our investment plans include:

  • Building thousands of new social homes to meet unmet housing need.
  • Retrofitting thousands of homes to the highest environmental standards.
  • Investing in decarbonisation research (for example, for key industrial sector like steel, and emerging Welsh strengths in hydrogen and marine energy).
  • Growing Welsh ownership of the renewable sector.
  • Expand and electrify the rail network.
  • Achieving Gigabit digital connection throughout Wales.
  • Building new flood defences.
  • Coverage of Wales for Electric Vehicle charging.

We have undertaken extensive work on the debt servicing requirements that will be needed to sustain the £4bn we will borrow over our first five years, to contribute to our £6bn total investment, the balance coming from the capital allocation in the Welsh block grant. We calculate that debt servicing will reach £195m by the 2024-25 financial year. In their assessment of our figures the independent economists Professor Brian Morgan and Professor Gerald Holtham conclude, “The provision for debt servicing in the budget is probably consistent with borrowing a maximum of £4 billion from all sources.”

We also asked the two economists to examine our estimates of the Welsh Government’s income over the next five years.

Revenue funding for the Welsh Government has two principal sources: the block grant which is allocated by the UK Government and Welsh devolved tax revenues. We have taken 2021-22 as the base year and the core Departmental Expenditure Limit has been taken from the UK's Budget Red Book, published on 3 March 2021.

The Institute of Fiscal Studies and Office of Budget Responsibility forecast an increase in total resource spending of +2.1% in real terms in 2022-23. Given that changes to the Welsh block grant are dominated by changes in health and education spending in England, we have forecast that core (that is, non-Covid related) Welsh Government resource funding will increase annually by 2.0 per cent in real terms. In the case of Welsh Government tax receipts we have taken the forecasts of the OBR published in March 2021 which provide detailed estimates by year to 2025-26.

We have examined our policy proposals with expenditure implications and provided estimates of both the set up and running costs of each of the policies where the cost was estimated to be £1 million or more. Wherever possible relevant comparable benchmarks were employed. Where relevant, phasing-in of costs over a number of years was also factored in.

Our income and expenditure forecasts are predicated on not changing the rates of the devolved taxes within the control of the Welsh Government.

The conclusion of Professor Morgan and Professor Gerald Holtham on this work was that, “Overall we find the projections reasonable in the current policy context”, adding that, “In general, we felt that the recurrent spending was credible...”

One area where Professor Morgan and Professor Holtham expressed a reservation was in the capacity of the Welsh civil service to deliver the full range of our investments. As they comment, “We are concerned that the Welsh government machine currently lacks the experience and capacity to manage such a rapid growth of borrowing and investment. We acknowledge that Plaid has several proposals for building institutional capacity but that takes time.”

This judgement goes to the heart of why Labour has failed to deliver transformative economic change for Wales. It is also why our Manifesto has detailed proposals for tackling this deficiency, in particular our plans for creating a new Office of Regional Development and Investment, and for creating Prosperity Wales, a new arms-length economic development agency. Led by a Plaid Government, these and other new institutions will provide the determination, talent and expertise so necessary to drive Wales forward at pace, characteristics  which have critically been lacking under Welsh Labour for the past twenty years.

Eurfyl ap Gwilym is Plaid Cymru's economic adviser.