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Written Statement - Response to UK Government Spending Review and Autumn Statement

Jane Hutt AM, Minister for Finance and Government Business

The UK Government has published its Spending Review and Autumn Statement which sets out public spending plans for the next four years.  This Written Statement is the Welsh Government’s initial response.

The Welsh Government has urged the UK Government to change its course and use this Spending Review to invest in people, communities and the economy.  We regret therefore that the Spending Review will do little to improve lives and livelihoods in Wales and across the UK.  The Chancellor has made deep cuts to budgets, but there is little sense of a plan about how the public sector can meet people’s needs and expectations based on drastically reduced resources.  The Chancellor’s cuts to public health budgets in England, is counter-productive and at odds with our own preventative spend approach.

The UK Government’s policies have had a disproportionately negative impact on the people and communities that are the most vulnerable. During the previous Spending Review period the real terms reduction in the Welsh Government’s budget of 8 per cent since 2010 has also reduced our own capacity to invest in the economy and public services and support disadvantaged communities.  

For the Welsh Government’s budget the result of the Spending Review is that our revenue budget will rise from £12,916m in 2015-16 to £13,285m in 2019-20 and our capital budget rises from £1,461m in 2015-16 to £1,648m in 2019-20. This is an overall 3.6 per cent real terms reduction between 2015-16 and 2019-20 consisting of a cut of 4.5% in real terms for revenue and an increase in capital in real terms of 4.7%.  Whilst we currently only have a partial picture about what is being cut to deliver additional funding it is apparent that the boost to NHS funding in England is being funded in part by other parts of the health and social care budget.  We believe this is a narrow view of what is needed to address the deep-rooted pressures on health services.

There was some good news in the Spending Review. We have long made the case for further investment in our infrastructure requiring increases in Capital budgets, and I am pleased that this has gained traction with the UK Government.  The Welsh Government will ensure that, through our approach to innovative capital investment and our closer developing links with the European Investment Bank, we will invest effectively in our national infrastructure across Wales.  

We welcome confirmation that a funding floor will ensure that in future public spending in Wales will not fall below 115 per cent of equivalent spending in England.  However, the clarity about how this will be demonstrated in practice is still absent, and there is scope for different interpretations to be made which could result in Wales losing out in the future.  It is essential that this is followed up with an inter-governmental agreement on the way forward.

The news that the UK Government will match our own commitment to help fund a City Deal for the Cardiff Capital region is also welcome.  The Welsh Government has worked closely with Local Authorities in South East Wales to develop a compelling investment proposition.  We look forward to receiving the detail of what the UK Government’s commitment will mean in practice.  

We are also pleased with the assurances received from the UK Government that investment in High Speed 2 will result in additional resources being made available in future to the Devolved Administrations.  This is an issue that the Finance Ministers in each of the Devolved Administrations have taken up with successive UK Treasury Ministers.  I am glad that the case we made has been recognised.

However, in an attempt to meet his spending reduction targets, the Chancellor is continuing with massive reductions in social welfare spending.  We continue to oppose the UK Government’s approach to welfare reform.  Research shows the UK Government’s tax and benefit changes will take much more from people on low incomes than more well-off households, and families with children will be hardest hit.   The UK Government’s proposed tax and benefit changes announced up to and including the July Budget, to be introduced between 2015–16 and 2019–20, will reduce household incomes in Wales by around £600 million a year in total.  Lower-income households, particularly those with children will lose considerably more on average.

As a result many difficult choices must be made through our own Draft Budget which I will lay next month.  We will continue to do everything in our power to reduce the impact of austerity on the people of Wales and the public sector workforce.  However, it is clear that by 2020 the historically low levels of planned investment by the UK Government in public services will mean the nature of public service provision will have changed markedly since the start of the decade.  

The lack of movement on the devolution of Airport Passenger Duty (APD) and absence from the Chancellor’s Statement of any updates on rail electrification in North and South Wales, and the Swansea Bay tidal lagoon are also of concern.

The late announcement of this UK Spending Review has presented us with practical challenges in developing our own budget plans.  Based on the budget settlement received today the Welsh Government Draft Budget 2016-17 will be published on 8 December.  We will set our budget plans in the context of the national well-being goals for Wales which were agreed though the Well-being of Future Generations Act.  The national goals, and the principles of prevention, involvement, integration, collaboration and a focus on the long-term will be at the heart of the way Wales will respond to the challenges presented by today’s Spending Review.