Could Wales afford independence? What the finances tell us

Wales would face a substantial funding challenge if it became independent. The latest official estimates attribute £41.5bn of revenue and £64.3bn of public spending to Wales in 2024-25, leaving a £22.8bn gap. Those figures matter, but they do not tell us what an independent country would earn, spend or borrow.

The question is whether a future Welsh state could finance its choices and improve people's lives through the transition and beyond. That requires decisions about taxes, pensions, debt, currency and trade. Historic accounts can help identify the problems a plan must solve. They cannot supply the missing plan.

What the £22.8bn actually measures

The Office for National Statistics published its latest country and regional public sector finances on 26 May 2026. They cover the year from 1 April 2024 to 31 March 2025. The headline figures here use its geographic allocation of North Sea oil and gas revenues consistently.

The deficit is an annual difference between spending and receipts. It is not a total debt owed by Wales, a bill falling due on independence day, or the Welsh Government's own budget shortfall. The publication does not measure regional debt stocks.

ONS assigns revenue according to who pays and spending according to who benefits, including benefits from expenditure elsewhere. Its figures describe Wales inside the UK's public finances. Calling them an independence forecast would give them a purpose they do not have.

The same release estimates a £20.9bn Welsh deficit in 2023-24, compared with £22.8bn in 2024-25. These are current-price estimates, not inflation-adjusted sums. The comparison uses one release's revised figures rather than mixing old and new versions.

The practical implication is substantial: any proposal to preserve comparable provision would need to explain how it would be financed under new arrangements. Equally, applying today's attributed gap unchanged to every future year would assume away the policy choices and economic changes that independence is intended to make possible.

Does a country have to close the whole gap immediately?

Governments can spend more than they receive in a year and finance the difference through borrowing. The Office for Budget Responsibility explains that debt can increase in pounds while falling relative to the size of a growing economy. An independent Wales would not face a universal rule requiring a balanced budget every year.

That does not make borrowing unlimited or costless. The OBR’s debt analysis shows that sustainability depends on the debt already owed, interest costs, economic growth and the balance between revenue and spending before interest. Faster growth can help; more expensive finance can make the task harder. These are general relationships, not a Welsh forecast.

The affordability question is therefore how much could be financed, on what terms and for how long. These sources establish neither a borrowing rate for an independent Wales nor a safe annual deficit. A plan would need to show a credible path, including what changes if growth disappoints or lenders demand higher returns.

The Welsh budget is a different account

Wales already controls some taxes. Land Transaction Tax and Landfill Disposals Tax replaced their UK equivalents in 2018, and income tax was partially devolved in 2019. Welsh rates can change within existing bands, but Wales cannot currently reset those thresholds or add new bands, as Senedd Research explains.

HMRC collects Welsh income tax. The personal allowance and higher-rate thresholds follow England and Northern Ireland, while savings and dividend taxation remain UK responsibilities. Having a Welsh rate therefore does not mean the whole income tax system is devolved.

For 2026-27, the Welsh Government's final budget forecast £5.5bn from Welsh income tax rates, property transaction and landfill taxes, and non-domestic rates. That is a forecast for the devolved budget, not an estimate of all revenue raised across Wales.

Comparing that £5.5bn directly with the £64.3bn national spending figure would combine different accounts and different years. It would make the funding position look much worse without describing a real fiscal relationship.

Is Welsh tax being counted in London?

A company having its headquarters outside Wales does not mean all its tax is counted outside Wales. Corporation tax is apportioned using employment information for roughly 70% of liability, with registered addresses used for the remainder where employment information is unavailable.

Income tax is assigned by where taxpayers live, rather than where they work. These rules do not make regional accounts perfect: a company's tax return does not directly reveal its Welsh profits. But the claim that corporation tax simply follows every head office to London misdescribes the method.

Could Wales remove spending it does not want?

The ONS expenditure breakdown includes £6.006bn of public sector debt interest and £2.928bn of defence spending attributed to Wales in 2024-25. Those allocations attract attention because an independent government could seek different arrangements. They are not, however, a verified list of savings.

Some UK-wide spending cannot be assigned to a particular place. ONS uses population-based shares for non-identifiable defence and debt interest. That is an accounting convention, not an agreement about a future state’s obligations. Removing an allocation still leaves the question of what Wales would pay in its place.

A costed proposal would need an actual defence policy and its price, alongside assumptions about inherited obligations and new borrowing. A smaller commitment could cost less than the present allocation. A claim of savings still needs to account for replacement provision, rather than treating it as costless.

Debt also involves more than identifying who originally issued a bond. In its 2014 Scotland technical note, the Treasury said the continuing UK would honour existing debt contracts, while a separate agreement would set an independent Scotland's share and repayment terms. That was Scotland-specific policy, not a settlement for Wales.

It illustrates why responsibility to bondholders and a possible obligation between governments are different questions. Neither assuming Wales inherits every allocated cost unchanged nor assuming it walks away from all costs answers what the negotiating terms would be.

What would happen to pensions and the pound?

The Independent Commission on the Constitutional Future of Wales said in 2024 that the fiscal outcome would depend on negotiations over pensions, debt, currency and defence. It considered continued UK funding of Welsh pension costs unlikely, while allowing for transitional or reciprocal arrangements.

Its reasoning was that state pensions are paid from current tax revenue, rather than an accumulated pot of individual National Insurance savings. That assessment should not be turned into a promise that pensions would stop, or a guarantee that the UK would keep paying them. The financial responsibility needs a settlement.

The spending accounts also distinguish categories that should not be confused. Their £20.953bn social protection figure covers more than the State Pension; it cannot be used as a Welsh State Pension bill. Treasury guidance allocates household transfers by recipients' residence, while occupational pension schemes use separate payment information.

On currency, the commission warned that introducing a different currency could encourage people to keep savings in England or continue using sterling. It also identified the need for a new state to establish its creditworthiness. These are risks it assessed, not predictions that a particular currency decision has been made.

Keeping sterling and having a currency union are different

Treasury analysis prepared for Scotland in 2013 distinguishes using sterling without a formal agreement from joining a negotiated currency union. Unilateral use would retain the familiar currency, but would give no control over UK monetary policy or automatic entitlement to Bank of England support. A formal union would require agreement on institutions and financial responsibilities.

A separate, freely floating currency could give a Welsh central bank its own monetary policy. It would also introduce exchange-rate risk and currency-conversion costs when trading with the UK. These are mechanisms described in the historical Treasury analysis, not a forecast for Wales or proof of what today’s UK Government would agree.

Preparation also matters. The Scottish Government’s 2022 proposal envisaged a central-bank track record, adequate reserves and sustainable finances before introducing a Scottish currency. Those were its proposed safeguards, not an agreed Welsh timetable. Any Welsh proposal would need its own arrangements for savings, payments and existing contracts.

Trade with the rest of the UK matters

The Trade Survey for Wales estimated that businesses sold £48.2bn of goods and services to the rest of the UK in 2022, against £24.2bn internationally. Rest-of-UK sales were therefore roughly twice international sales in this survey.

These are provisional survey estimates, revised in June 2026, with a 15% response rate and limited industry coverage. They should not be used to calculate a trade balance. Nor should they be combined casually with HMRC's international goods figures, which do not cover the same activity.

The comparison shows why trading arrangements belong near the centre of any independence proposal. It does not tell us that sales would disappear, continue unchanged, or grow. Each of those claims would require assumptions about the agreement reached and how businesses and customers responded.

Would stronger growth make the sums work?

An economic case for independence rests on improving future performance. The constitutional commission identified greater control and accountability as strengths, while warning that financial markets and other dependencies would constrain that freedom. Readers need the steps connecting a proposed power to investment, better jobs, higher incomes and public revenue.

Wales's output per hour worked was 84.9% of the UK average in 2023, according to the official productivity release. That measures production for each hour worked. It is not a judgement about effort, and it should not be confused with economic output divided by the whole population.

Welsh Government analysis of household income found 22% of people and 32% of children in relative poverty after housing costs across the three years ending March 2025. The measure compares household income with 60% of the UK median, after adjustment for household circumstances.

Those poverty estimates incorporate new administrative benefits records and remain subject to revision. They show the scale of hardship, but neither poverty nor low productivity proves that the constitutional settlement caused the outcome, or that a different settlement would reverse it.

The same discipline applies to the case for remaining in the UK. A projection should not freeze today's services, tax system and economic performance indefinitely. The relevant comparison is between plausible futures, with the assumptions behind each made visible.

As analytical tests, ask what produces additional growth, how quickly it arrives, and who benefits. Ask what funds services while that change develops. An eventual gain could be meaningful and still leave a difficult transition; that makes timing and distribution part of affordability, rather than details to settle later.

Why figures can tell different stories

A deficit as a share of the economy can help put a cash amount in perspective, but only if the denominator is right. The ONS supplementary tables show the Welsh deficit as 0.78% of UK GDP. That is not a Welsh deficit-to-Welsh-GDP ratio.

The latest annual Welsh GDP estimate available on 14 September covers calendar 2023: £92.8bn. Dividing the 2024-25 fiscal gap by that figure would mix periods. The next annual GDP release was scheduled for 24 September 2026. A neatly calculated percentage would not fix the mismatch.

Even within the ONS release, assumptions produce different answers. Using a population share of North Sea revenues gives a Welsh gap of about £22.6bn, compared with £22.8bn on the geographic basis used here. Both are published allocation methods. Switching between them without saying so can create an apparent contradiction.

Ireland provides another caution. Its Central Statistics Office reported modified Gross National Income, or GNI*, of €334bn in 2025, equivalent to 55.4% of GDP. That measure adjusts for disproportionate effects of globalisation on the headline size of the economy.

The lesson for this comparison is to examine what a prosperity measure captures. Irish GDP alone cannot establish typical household living standards or forecast Welsh results. Another country's experience can inform a proposal, but it cannot substitute for explaining the policies and conditions Wales would face.

What would a convincing plan need to show?

The constitutional commission judged enhanced devolution, a federal UK and independence viable long-term options without choosing between them. It called independence the most uncertain, with scope for long-term improvement but a risk of Wales being significantly worse off in the short to medium term.

It also warned that enhanced devolution could leave Wales's relatively weak economy and low incomes unchanged. Its conclusion was about governance choices with risks and opportunities. It was not approval of a particular independence budget or a finding that present arrangements guarantee prosperity.

A proposal readers can assess would distinguish agreed terms from negotiating aims. It would publish revenues and spending on a consistent basis, price the transition and continuing services, explain pensions and debt, and set out currency and trading arrangements. Independent scrutiny should test the assumptions as well as the arithmetic.

It should also show less favourable outcomes: slower growth, lower revenue or a more expensive transition. Readers need to know which taxes, services or borrowing assumptions would change in those circumstances, and which households would carry the cost.

The accounts leave a substantial challenge to explain, not a verdict on national ambition. Whether independence would be good for Wales depends on the credibility of the alternative, the value people place on greater control, and the risks they are willing to accept. The evidence can sharpen that choice. It remains the reader's judgement.