Welsh Quest for Borrowing Power Spurred by Jobs Lost in Mining Ghost Towns

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Wales will receive 58 billion pounds over four years, a reduction of 2.7 percent, compared with a 1.9 percent decline in Northern Ireland and a 1.8 percent cut for Scotland, according to the U.K. government spending review set in October 2010.

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Photographer: Matt Cardy/Getty Images

Wales will receive 58 billion pounds over four years, a reduction of 2.7 percent, compared with a 1.9 percent decline in Northern Ireland and a 1.8 percent cut for Scotland, according to the U.K. government spending review set in October 2010. Close

Wales will receive 58 billion pounds over four years, a reduction of 2.7 percent, compared with a 1.9 percent decline... Read More

Photographer: Hannah Johnston/Getty Images

First Minister Carwyn Jones renewed his call for greater spending on infrastructure and more devolved powers at the Welsh Labour Party conference on Feb. 18. Close

First Minister Carwyn Jones renewed his call for greater spending on infrastructure and more devolved powers at the... Read More

Photographer: Scott Eells/Bloomberg

As Prime Minister David Cameron implements the biggest budget cuts in absolute terms of anywhere in Europe, the Scots, Welsh and Northern Irish are seeking more power over their own economies. Close

As Prime Minister David Cameron implements the biggest budget cuts in absolute terms of anywhere in Europe, the... Read More

Photographer: George Konig/Keystone Features/Hulton Archive/Getty Images

Tredegar's most famous son is Aneurin Bevan, seen here during the general election campaign in 1951. Close

Tredegar's most famous son is Aneurin Bevan, seen here during the general election campaign in 1951.

The cast iron gates that once belonged to the Tredegar Iron and Coal Company in Blaenau Gwent are all that’s left of the Welsh mining town’s former glory at the height of Britain’s industrial revolution.

In its place is the highest percentage of benefit claimants of any U.K. municipality and queues at the job center are lengthening. About 19 percent of residents aged 18 to 24 receive job-seekers allowance, more than anywhere else in Britain and compared with a national average of 8 percent, according to the Office for National Statistics.

“There are no jobs,” said Gavin Griffin, 31, who hasn’t worked for four years since a local factory shut. His girlfriend, Susan Elias, 23, left school at 16 and has never worked. “My dad worked in the mines all his life. There’s nothing left in this town anymore,” Griffin said.

As Prime Minister David Cameron implements the biggest budget cuts in absolute terms of anywhere in Europe, the Scots, Welsh and Northern Irish are seeking more power over their own economies. That’s threatening to disunite the United Kingdom more than at any time in three centuries as Scotland prepares to hold a referendum on independence in 2014.

The Welsh Assembly, created in 1999 along with the Scottish Parliament, is seeking the power to borrow on its own and have more control over tax. First Minister Carwyn Jones renewed his call for greater spending on infrastructure and more devolved powers at the Welsh Labour Party conference on Feb. 18.

‘Hard to Resist’

“It’s the curse of devolution, the more you go down this path, the more the devil drives you down it and expectations are raised,” Patrick Minford, professor of applied economics at Cardiff University, said by phone. “The arguments are quite populist and very hard to resist like ‘why aren’t we running our own affairs?’ and so on. It acquires momentum.”

The ageing shopping center in Tredegar, a town of about 14,800 in Blaenau Gwent, is dotted with pram-pushing mothers and bored teenagers braving the cold wind from the nearby hills.

Budget shops such as Farmfoods and Peacocks stand along with vacant plots adorned with posters warning against theft. Outside the town, bulldozers shift coal on the slag heaps, a legacy of the mining industry.

“In the valleys and other parts of Wales we can’t turn around people’s economic fortunes without having control over those financial levers like borrowing,” said Leanne Wood, a member of the assembly bidding to lead her pro-independence Plaid Cymru party, a contest that will be decided on March 15.

State Benefits

About 11,660 people in Blaenau Gwent claim benefits, 27 percent of the population, said the statistics office. The jobless rate is 14 percent. For those in work, the average full- time employee in the area earns 385 pounds ($735) a week, about 120 pounds less than the U.K. average.

Tredegar’s population declined about 25 percent from 1951 to 2001 as the closure of coal mines and factories led people to look elsewhere for work. The town’s most famous son is Aneurin Bevan, who founded the National Health Service in 1948.

“I’ve seen the town change since I was growing up,” said Tammy Sutton, 34, who borrows from her parents to support her two sons, Kye, aged 12, and Kenzie, aged 3, on top of the 157 pounds a week she receives in state support. “Shops are closing in town and there don’t seem to be any jobs.”

Income Source

Wales’s three million people get a grant from Westminster. While the cut to its budget is less than in some municipalities in England, Wales is facing the largest of the devolved nations. Wales will receive 58 billion pounds over four years, a reduction of 2.7 percent, compared with a 1.9 percent decline in Northern Ireland and a 1.8 percent cut for Scotland, according to the U.K. government spending review set in October 2010.

Capital spending in Wales, or money to be used for roads and other infrastructure, was lowered by 41 percent over four years to 4.7 billion pounds, compared with 38 percent in Scotland and 37 percent in Northern Ireland, the review states.

“It’s easy to say ‘give me more money, give me more money,’ particularly if you’re not responsible for raising that money,” Cheryl Gillan, U.K. secretary of state for Wales, said in a telephone interview. “We’re spending a great deal on infrastructure that is going to benefit Wales.”

Wales has had borrowing powers since 1975 that it’s never used because the amount raised would be deducted from its grant from London. Jones, who as first minister runs Wales’s devolved administration, said its borrowing should be excluded from the grant and more money is needed to invest in building projects to create jobs and growth.

‘No Sense’

“We will end up as the only part of the U.K. where the government can’t borrow to fund large capital projects,” Jones said in an interview at the assembly in Cardiff last month. “It makes no sense that where the U.K. government can borrow to build a new road or railway, we can’t do it.”

The Scotland Bill, currently being discussed by U.K. lawmakers, will allow Scotland to borrow as much as 2.2 billion pounds over 10 years and have more control over public spending and taxation even without the full independence that First Minister Alex Salmond is campaigning for.

The Commission on Devolution, set up by Westminster in October, is reviewing whether the Welsh Government should receive greater tax-raising powers. The commission must report its findings by autumn 2012.

Tax Control

“If you spend money, you ought to have the ability to raise it,” Paul Silk, chairman of the commission, said by telephone from his office in London. The Welsh government has “responsibility for spending but no ability to raise revenue, which is very unusual for a sub-national government,” he said.

The Welsh Assembly is asking Westminster for control over air passenger duty, stamp duty, landfill tax, aggregates levy and revenue from tolls across the Severn Bridge that links Wales and England. The measures may add 250 million pounds of annual revenue for Wales, said Jones.

Greece, Portugal and Ireland show the perils of accumulating too much debt when economic growth is slowing, said David Davies, a legislator for Wales in the U.K. Parliament in London and a member of Cameron’s Conservative Party.

Those three countries were forced to seek aid from the International Monetary Fund and European Union as financial markets shut them out.

“Giving Wales borrowing powers at a time when we’re suffering a huge financial crisis as a result of government borrowing is extraordinary,” Davies said. “Wales wants to embark on its own course of creating even further debt which somebody somewhere is going to have to pay off.”

Debt Pile

U.K. net debt exceeded 1 trillion pounds in December for the first time since records began in 1993, equating to 64.2 percent of gross domestic product, the statistics office said on Jan. 24. That compares with 59.4 percent a year earlier. It dipped to 989 billion pounds in January.

Off Tredegar’s main street, stone plaques commemorate Bevan, a miner’s son. The engraved words reflect his political view, shaped by the mining community and the Tredegar Medical Aid Society, an earlier form of health service.

“All I am doing is extending to the entire population of Britain the benefits we had in Tredegar for a generation or more,” it says. “We are going to ‘Tredegarise’ you.”

To contact the reporter on this story: Katie Linsell in London at klinsell@bloomberg.net

To contact the editor responsible for this story: Mark Gilbert at magilbert@bloomberg.net

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