Mark Drakeford, Cabinet Secretary for Finance
This was published under the 2016 to 2021 administration of the Welsh Government
The Chancellor of the Exchequer presented the UK Autumn Budget yesterday.
Ahead of yesterday’s Budget, I called for the UK Government to take concrete action to end austerity and increase public spending to meet the growing demands for public services.
Despite the Chancellor’s claims, the UK Budget provides no evidence austerity is over. It will do little to improve the lives and livelihoods of people in Wales; do little to ease the pressures on frontline services or repair the damage inflicted by a decade of cuts.
As a result of the measures the Chancellor announced yesterday, the funding Wales receives from the block grant will increase by £554.8m in cash terms between 2018-19 and 2020-21. This includes an additional £25m as a result of the funding floor we secured as part of the fiscal framework agreed in 2016.
Even with this additional funding, the Welsh Government’s budget will remain 5% lower in real terms in 2019-20 than it was in 2010-11, equivalent to £850m less to spend on public services.
While it appears our revenue budget will increase by £486m over the period 2018-19 to 2019-20; this includes the previously-announced consequential funding for the NHS as part of the 70th anniversary celebrations. In July we believed that there would be £365m available to invest in NHS services in Wales next year. Now, more than half of this funding has already been spent by the UK Government on pay and pension decisions it has taken. Moreover, in yesterday’s Budget a further £32m was cut from that consequential. The result is that the amount of money available to invest in decisions made here in Wales has been reduced to £165m.
The Budget was a missed opportunity for the UK Government to provide clarity on its pension changes to the discount rate (SCAPE). The Welsh Government shares the concerns of others in the public sector that these changes risk diverting further funding from frontline services.
The UK Government is responsible for these changes and must ensure they are fully funded. The Welsh Government is writing, jointly with the other devolved administrations, to call for these pension changes to be fully funded as a matter of urgency by HM Treasury.
There remains significant pressure on the resources available to the Welsh Government to invest in infrastructure and we welcome the UK Government’s restated intention to review our borrowing powers in line with the calls we have made.
The Chancellor spoke of unleashing investment to drive our future prosperity but the reality of yesterday’s announcement means our capital budget in Wales will increase by just £2.6m in 2019-20 – there will be an additional £68.4m in capital over the period 2018-19 to 2020-21.
On a like-for-like basis our capital budget will be 10% lower in real terms at the end of the decade than it was at the start.
The Welsh Government has long championed a growth deal for North Wales and has been actively engaged in the ongoing work to secure a deal which is right for the people, communities and businesses of North Wales. The UK Government’s unilateral announcement yesterday is disappointing as it falls some way short of what we and the people of North Wales have been expecting and working hard towards.
We remain fully committed to delivering this potentially transformative growth deal and will continue to work to get the package and direction right for North Wales.
Looking at the wider implications of the Autumn Budget for Wales, we have repeatedly raised concerns about the UK Government’s damaging welfare reforms and cuts. This was echoed by the Equality and Human Rights Commission in its report published earlier this year.
The tax changes announced by the Chancellor are regressive in nature. Higher rate tax payers in Wales will be more than £800 a year better off as a result. Basic rate taxpayers will gain up to a maximum of only £130. With most benefits continuing to be frozen at their 2015 level, many of the poorest families who are dependent on the benefit system will gain not a penny.
While the UK Government has taken steps in its Budget to soften the blow of its previously-announced plans, including an increase of £1,000 a year to work allowances within Universal Credit to enable people to earn more before their benefit entitlement is reduced; this does not go far enough.
We need a clear timeline for the Universal Credit roll-out in Wales so people have guarantees about transitional protection arrangements and how this will be aided by the additional £1bn announced yesterday. A timetable will also help families to plan for change and ensure they receive the support they rely on in a timely manner.
The Welsh Government continues to call for air passenger duty (APD) to be devolved to Wales. Once again the UK Government has ignored the compelling independent evidence and calls for Wales to be treated in the same way as Northern Ireland and Scotland and for APD to be devolved to Wales to drive economic growth and promote Wales overseas. I will be looking to the UK Government to work with us to make meaningful progress on this matter.
Following the UK Government’s call for evidence earlier this year on single-use plastics, the Chancellor announced a number of taxation measures aimed at plastics manufacturers. We will look closely at the detail and work with the UK Government to assess the best way forward.
The Welsh Government remains committed to tackling unnecessary plastic use and the associated pollution it causes. We will also continue to work with businesses and wider stakeholder community to develop our ideas and ensure their views are fed into the process.
Looking ahead, the Welsh Government’s budget is dependent on the broader outlook for UK public finances. Over the forecast period to 2023 growth is slightly upgraded but remains very sluggish by historical standards – an annual average of 1.5% compared to historical trend increase of over 2%. On a per capita basis this is even lower – an average of 0.9% over the forecast period. Similarly the forecast increase in real wages, while welcome, is low in historical terms.
Brexit continues to weigh on growth prospects for both Wales and the UK as whole. While the Chancellor spoke yesterday about the promise of more funding to come in the event of a good Brexit deal. The negotiations between the UK and the EU remains far from certain and the threat of a disruptive and disastrous no deal Brexit, which would hit Wales disproportionally hard, edges ever closer.
Yesterday’s Budget means that the Welsh Government still faces hard choices in future years in delivering our priorities to protect our vital public services and invest in our economy. Austerity is not going to go away overnight.
The reality is that there is a long way to go before the people of Wales are rewarded for the fruits of their hard work and the legacy of the UK Government’s failed policy of austerity will continue to cast a dark shadow for years to come.
The Welsh Government will consider the impact of yesterday’s Budget on our own proposals before finalising the 2019-20 Budget in December.