Can Plaid Cymru learn from the SNP and put Welsh independence on the agenda?

Plaid leader Leanne Wood tells The Staggers that the SNP’s success represents a golden opportunity for Welsh nationalism.

2007 was a good year for nationalist parties in Scotland, Northern Ireland and Wales. In addition to the SNP winning control of the Scottish Parliament for the first time, Sinn Fein entered into a new power-sharing agreement at Stormont and Plaid Cymru formed a coalition administration with Labour in the Welsh Senedd.

Since then, the SNP has secured the right to stage a referendum on independence, while Sinn Fein has consolidated its support north of the Irish border and enjoyed a surge of popularity south of it. By contrast, Plaid Cymru’s progress has all but reversed.

At the 2011 devolved elections, Plaid lost votes on both the constituency and regional ballots, reducing its tally of Assembly seats from 15 to 11 in a chamber of 60. The reassertion of Labour’s dominance over the Welsh political landscape, coupled with an unexpected Conservative revival, pushed Plaid into third place - its worst result in the devolved era.

The defeat led to the resignation of long-term leader Ieuan Wyn Jones and his replacement by Leanne Wood, a 40-year old former probation officer with pronounced socialist and republican sympathies. Wood has sought to breathe new life into her beleaguered party, but there’s no disguising the extent of the challenge it faces: surveys consistently suggest fewer than 15 per cent of Welsh people back a formal split from the UK.

Nonetheless, Wood believes the SNP’s success represents a golden opportunity for Welsh nationalism. Speaking to me recently from her Cardiff office, she said: "We’ve called for a constitutional convention to be held after the referendum. It should be as open as possible. It shouldn’t rule out any options. But whatever happens next year, things will change fundamentally."

Wood pays close attention to SNP campaigning techniques, so much so, in fact, that she has even hired Claire Howell, a political psychologist employed by Alex Salmond in recent years, to help deliver an SNP-style turnaround in her party’s performance.

The decision to bring Howell on board reflects Wood’s conviction that where Scotland leads, constitutionally speaking, Wales will eventually follow: "There’s an appetite in Wales for a stronger devolution settlement. People are looking to Scotland and seeing that things are developing quickly there. My feeling is that, in time, we’ll want the same sort of progress".

Ultimately, though, Wood’s approach is pragmatic. Even if Scotland does vote to leave the UK (and that remains a remote prospect at this stage), she acknowledges it will take at least a generation to persuade Welsh voters of the merits of independence - a position which suits Plaid’s underlying gradualism. Central to Wood’s long-term strategy is strengthening the Welsh economy, which has been chronically weak since the 1980s.

"Our economic situation is the reason support for an independent Wales is not as widespread as it is for an independent Scotland. We’ve been in decline for three decades now. The task is to get to the point where nobody can say 'you can’t afford it'".

The economics of independence haven’t been explored as thoroughly in Wales as they have in Scotland, but debate in the two countries follows a similar pattern. For instance, one argument commonly advanced by Welsh unionists is that Wales receives substantially more in public spending from Westminster than it generates in tax, although - as the nationalists are quick to point out - there is no Welsh equivalent of Government Expenditure and Revenue Scotland, which makes it difficult to establish an accurate picture of the national balance sheet.

Yet doubts over the economic viability of an independent Wales have done little to dampen the Welsh public’s enthusiasm for greater autonomy within the Union. In 2011, Wales voted in favour of giving the Senedd primary law making powers, freeing Cardiff from the requirement to apply for a Legislative Competence Order from Westminster before it can enact legislation.

In this respect, Wales’s experience of home rule has mirrored that of Scotland’s, albeit on a smaller scale. Devolution may not have radically altered attitudes towards independence, but it has laid the groundwork for more devolution. As in Scotland, the real battle has been over which side - nationalist or unionist - controls the devolutionary agenda. So far, Welsh unionists have found it easier to maintain control than their Scottish counterparts.

Laura McAllister, Professor of Governance at Liverpool University and the author of various books about Welsh politics, attributes this in part to Plaid’s initial confusion over its role in the new Assembly.

"To be fair to Plaid, the SNP had a much better terrain in that the [Scottish devolved] model was much more expansive", she told me. "But that doesn’t excuse the fact that Plaid equivocated over what it was meant to be doing. Even the decision to enter government in 2007 was subject to a lot of internal party strife."

Like Wood, McAllister sees Wales’s lack of economic confidence as a major obstacle to Plaid’s electoral development: "In Scotland you’ve got a major natural resource, [but we] need to develop the Welsh economy after years of structural and industrial disadvantage. I’m not suggesting it’s all about oil, but it’s pretty fundamental."

The decisive factor, however, has been Welsh Labour’s willingness to differentiate itself from the Labour Party in London. In 2000, Alun Michael, a Tony Blair appointee, was deposed as first minister (or secretary, as it was called then) in exchange for Rhodri Morgan, the preferred candidate of the party’s grassroots. Morgan went on to deliver a speech attacking Blair’s programme of public service modernisation and pledging to put "clear red water" between his administration and the London government.

The perception that Welsh Labour was more than merely a satellite of British Labour chimed with an increasingly assertive sense of Welsh national identity, which in turn worked to limit the appeal of Plaid Cymru at a time of growing popular discontent with the New Labour project.

Conversely, Scottish Labour’s revolt against Blairism was short-lived. When Henry McLeish attracted media criticism over an expenses scandal in 2001, he found himself isolated within the Labour MSPs group at Holyrood. One reason his colleagues failed to back him was that he had recently defied Blair over the issue of free personal care. Following McLeish’s departure, the post of first minister was handed to a more compliant substitute, Jack McConnell. A few years later, a resurgent SNP was able to capitalise on the perception that McConnell hadn’t lived up to Scots’ aspirations for their new parliament.

Conscious of Labour’s experience in Scotland, Carwyn Jones - Morgan’s successor - has been eager to stay abreast of Welsh aspirations. Jones has joined Wood in calling for a constitutional convention to examine ways of making the British political system more responsive to the needs of the Celtic fringes. One of his proposals is for the House of Commons "to be balanced by a new upper house with equal representation from England, Wales, Northern Ireland and Scotland".

Jones adopted this idea from Conservative AM David Melding, the deputy presiding officer of the Welsh Assembly and a leading advocate of federalism: "A federal approach would apportion sovereignty between the home nations at one level and the UK state at another, so the same rules would apply to all parts of the country", he explained when I spoke to himlast month. "You couldn’t then argue that Scotland and Wales were second-class members of the UK."

Without far-reaching reform of this sort, Melding fears Scotland’s departure from the UK will be hastened, leaving Wales facing what he calls an "immediate existential challenge": "It would be a very, very junior partner in any continuing union. It would be difficult to see how Britishness could be projected. Independence would become a more feasible proposition to some [Welsh] people".

The fact that Melding is a Conservative is significant. In Wales, the Tories have managed to avoid theslow motioncollapse they’ve suffered in Scotland over recent decades toremain a substantial political force. Having seen their vote increase in the 2010 UK general election, they went on to become the official opposition in the Senedd the following year.

While the decline of Tory unionism in Scotland has worked to loosen Scottish ties to the Union, the resilience of Welsh Conservative support has helped cement Wales’s place in the UK. Yet, paradoxically, feelings of Britishness have weakened in Wales as they have in Scotland, with more than 60 per cent of Welsh people now defining themselves as Welsh first and British second (if at all).

That support for a separate Welsh state hasn’t grown in line with a strengthening Welsh identity casts doubt on Melding’s belief that Scottish independence could trigger a separatist domino effect across the UK. Nationalist movements, it seems, operate according to their own specific, local dynamics, even when they exist in close proximity to one another. Nothing illustrates this more clearly than the contrasting fortunes of Plaid Cymru and the SNP over the last five or six years. 

Leanne Wood, who was elected as Plaid Cymru leader in March 2012.

James Maxwell is a Scottish political journalist. He is based between Scotland and London.

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We're racing towards another private debt crisis - so why did no one see it coming?

The Office for Budget Responsibility failed to foresee the rise in household debt. 

This is a call for a public inquiry on the current situation regarding private debt.

For almost a decade now, since 2007, we have been living a lie. And that lie is preparing to wreak havoc on our economy. If we do not create some kind of impartial forum to discuss what is actually happening, the results might well prove disastrous. 

The lie I am referring to is the idea that the financial crisis of 2008, and subsequent “Great Recession,” were caused by profligate government spending and subsequent public debt. The exact opposite is in fact the case. The crash happened because of dangerously high levels of private debt (a mortgage crisis specifically). And - this is the part we are not supposed to talk about—there is an inverse relation between public and private debt levels.

If the public sector reduces its debt, overall private sector debt goes up. That's what happened in the years leading up to 2008. Now austerity is making it happening again. And if we don't do something about it, the results will, inevitably, be another catastrophe.

The winners and losers of debt

These graphs show the relationship between public and private debt. They are both forecasts from the Office for Budget Responsibility, produced in 2015 and 2017. 

This is what the OBR was projecting what would happen around now back in 2015:

This year the OBR completely changed its forecast. This is how it now projects things are likely to turn out:

First, notice how both diagrams are symmetrical. What happens on top (that part of the economy that is in surplus) precisely mirrors what happens in the bottom (that part of the economy that is in deficit). This is called an “accounting identity.”

As in any ledger sheet, credits and debits have to match. The easiest way to understand this is to imagine there are just two actors, government, and the private sector. If the government borrows £100, and spends it, then the government has a debt of £100. But by spending, it has injected £100 more pounds into the private economy. In other words, -£100 for the government, +£100 for everyone else in the diagram. 

Similarly, if the government taxes someone for £100 , then the government is £100 richer but there’s £100 subtracted from the private economy (+£100 for government, -£100 for everybody else on the diagram).

So what implications does this kind of bookkeeping have for the overall economy? It means that if the government goes into surplus, then everyone else has to go into debt.

We tend to think of money as if it is a bunch of poker chips already lying around, but that’s not how it really works. Money has to be created. And money is created when banks make loans. Either the government borrows money and injects it into the economy, or private citizens borrow money from banks. Those banks don’t take the money from people’s savings or anywhere else, they just make it up. Anyone can write an IOU. But only banks are allowed to issue IOUs that the government will accept in payment for taxes. (In other words, there actually is a magic money tree. But only banks are allowed to use it.)

There are other factors. The UK has a huge trade deficit (blue), and that means the government (yellow) also has to run a deficit (print money, or more accurately, get banks to do it) to inject into the economy to pay for all those Chinese trainers, American iPads, and German cars. The total amount of money can also fluctuate. But the real point here is, the less the government is in debt, the more everyone else must be. Austerity measures will necessarily lead to rising levels of private debt. And this is exactly what has happened.

Now, if this seems to have very little to do with the way politicians talk about such matters, there's a simple reason: most politicians don’t actually know any of this. A recent survey showed 90 per cent of MPs don't even understand where money comes from (they think it's issued by the Royal Mint). In reality, debt is money. If no one owed anyone anything at all there would be no money and the economy would grind to a halt.

But of course debt has to be owed to someone. These charts show who owes what to whom.

The crisis in private debt

Bearing all this in mind, let's look at those diagrams again - keeping our eye particularly on the dark blue that represents household debt. In the first, 2015 version, the OBR duly noted that there was a substantial build-up of household debt in the years leading up to the crash of 2008. This is significant because it was the first time in British history that total household debts were higher than total household savings, and therefore the household sector itself was in deficit territory. (Corporations, at the same time, were raking in enormous profits.) But it also predicted this wouldn't happen again.

True, the OBR observed, austerity and the reduction of government deficits meant private debt levels would have to go up. However, the OBR economists insisted this wouldn't be a problem because the burden would fall not on households but on corporations. Business-friendly Tory policies would, they insisted, inspire a boom in corporate expansion, which would mean frenzied corporate borrowing (that huge red bulge below the line in the first diagram, which was supposed to eventually replace government deficits entirely). Ordinary households would have little or nothing to worry about.

This was total fantasy. No such frenzied boom took place.

In the second diagram, two years later, the OBR is forced to acknowledge this. Corporations are just raking in the profits and sitting on them. The household sector, on the other hand, is a rolling catastrophe. Austerity has meant falling wages, less government spending on social services (or anything else), and higher de facto taxes. This puts the squeeze on household budgets and people are forced to borrow. As a result, not only are households in overall deficit for the second time in British history, the situation is actually worse than it was in the years leading up to 2008.

And remember: it was a mortgage crisis that set off the 2008 crash, which almost destroyed the world economy and plunged millions into penury. Not a crisis in public debt. A crisis in private debt.

An inquiry

In 2015, around the time the original OBR predictions came out, I wrote an essay in the Guardian predicting that austerity and budget-balancing would create a disastrous crisis in private debt. Now it's so clearly, unmistakably, happening that even the OBR cannot deny it.

I believe the time has come for there be a public investigation - a formal public inquiry, in fact - into how this could be allowed to happen. After the 2008 crash, at least the economists in Treasury and the Bank of England could plausibly claim they hadn't completely understood the relation between private debt and financial instability. Now they simply have no excuse.

What on earth is an institution called the “Office for Budget Responsibility” credulously imagining corporate borrowing binges in order to suggest the government will balance the budget to no ill effects? How responsible is that? Even the second chart is extremely odd. Up to 2017, the top and bottom of the diagram are exact mirrors of one another, as they ought to be. However, in the projected future after 2017, the section below the line is much smaller than the section above, apparently seriously understating the amount both of future government, and future private, debt. In other words, the numbers don't add up.

The OBR told the New Statesman ​that it was not aware of any errors in its 2015 forecast for corporate sector net lending, and that the forecast was based on the available data. It said the forecast for business investment has been revised down because of the uncertainty created by Brexit. 

Still, if the “Office of Budget Responsibility” was true to its name, it should be sounding off the alarm bells right about now. So far all we've got is one mention of private debt and a mild warning about the rise of personal debt from the Bank of England, which did not however connect the problem to austerity, and one fairly strong statement from a maverick columnist in the Daily Mail. Otherwise, silence. 

The only plausible explanation is that institutions like the Treasury, OBR, and to a degree as well the Bank of England can't, by definition, warn against the dangers of austerity, however alarming the situation, because they have been set up the way they have in order to justify austerity. It's important to emphasise that most professional economists have never supported Conservative policies in this regard. The policy was adopted because it was convenient to politicians; institutions were set up in order to support it; economists were hired in order to come up with arguments for austerity, rather than to judge whether it would be a good idea. At present, this situation has led us to the brink of disaster.

The last time there was a financial crash, the Queen famously asked: why was no one able to foresee this? We now have the tools. Perhaps the most important task for a public inquiry will be to finally ask: what is the real purpose of the institutions that are supposed to foresee such matters, to what degree have they been politicised, and what would it take to turn them back into institutions that can at least inform us if we're staring into the lights of an oncoming train?