Written Statement: Allocation of funding to meet additional public sector pension costs in Wales in 2019-20

On 7 March I issued a Written Statement updating Members about the allocation of funding to meet additional public sector pension costs in Wales in 2019-20. In my statement I set out the assurances the Welsh Government, together with the Scottish Government, have repeatedly sought from the UK government that the costs associated with the changes they announced to public service pension schemes from April this year would be fully funded to ensure vital funds were not diverted from frontline public services. The Statement of Funding Policy is very clear that “where decisions taken by any of the devolved administrations or bodies under their jurisdiction have financial implications for departments or agencies of the UK government or, alternatively, decisions of UK government departments or agencies lead to additional costs for any of the devolved administrations, where other arrangements do not exist automatically to adjust for such extra costs, the body whose decision leads to the additional cost will meet that cost”. It was on this basis that I was content to allocate the additional funding to public sector organisations in Wales.

Since my statement, the UK government has confirmed the final allocation for the Welsh Government in respect of these costs for 2019-20 is £219 million. The total cost of these changes for devolved and non-devolved public service pension schemes in Wales is £255 million, a funding gap of £36 million.

I have written jointly with the other devolved administrations to the Chief Secretary to the Treasury expressing our deep concerns that the proposed funding does not meet the full costs associated with the self-imposed changes by the UK government. This is unacceptable and undermines the Statement of Funding Policy and the principles for allocating funding within the UK.

We also reiterated the importance of transparency in relation to UK government funding decisions that have implications for devolved administrations’ responsibilities. The lack of transparency and engagement in relation to changes with significant public spending implications undermines and discredits the established UK public spending framework.

Despite pressing the UK government for early certainty about what these changes mean for public sector organisations to enable them to set their budgets for 2019-20 with confidence, we were only notified of the additional funding for Wales a matter of weeks before the beginning of this financial year. Even then, the final funding arrangements were not confirmed until recently.

In the meantime, while the Welsh Government’s budget is 5% lower in real terms in 2019-20 after a decade of austerity, equivalent to £800 million less to spend on public services, we are not prepared to put at risk the delivery of front line services impacted by rising pension costs in Wales. We have therefore provided additional funding to meet the costs to public sector bodies in 2019-20; however, meeting the UK Government’s funding gap inevitably means that we will have less to invest in our own priorities during this period of austerity and unprecedented uncertainty. Further details of the additional funding were provided in the First Supplementary Budget 2019-20 published on 18 June.

The UK government has said future years’ funding will be considered as part of the Comprehensive Spending Review, and we have reiterated the need for clarity on these plans.

We have sought an urgent meeting with the Chief Secretary to allow us to discuss the full implications of the public sector pension funding allocations. If timely progress on resolving this issue is not made, we will seek to pursue a more formal mechanism to resolve the situation by invoking the formal dispute resolution mechanism through the Joint Ministerial Committee.

This is in full accordance with the procedures set out in the current intergovernmental Memorandum of Understanding between the UK government and devolved administrations, notwithstanding our concerns about the inadequacies of those arrangements which will need to be addressed as part of the joint Intergovernmental Relations Review and work to strengthen the finance machinery of government.