Welsh Budget update

The Welsh Finance Minister Rebecca Evans AM has updated the National Assembly about the UK Spending Round for 2020/21 and the implications for our Welsh Budget. A number of points have been made about the short term nature of the UK spending announcement, the need for the spending plans to be voted upon in Westminster before the money is confirmed, and the absence of any details regarding the Shared Prosperity Fund. Not a very satisfactory situation, but the Minister’s statement was as follows:

“Llywydd, I am today providing members with a further statement on the UK Government’s Spending Round, the implications for Wales, and the actions that we as a government are taking to respond to the UK Government’s unpredictable approach to public finances.

On 4 September, the Chancellor of the Exchequer presented the UK Government’s Spending Round setting out its spending plans for 2020-21. Immediately following the Chancellor’s Spending Round I provided members with a written statement during recess outlining an initial response to the key headlines for Wales.

The Chancellor’s announcement was against the backdrop of escalating Brexit uncertainty and evidence of the UK potentially entering another period of recession.

In the fortnight since the Spending Round we have seen further chaos, uncertainty and mixed messages from the UK Government. The range of scenarios we now need to consider include the prospect of publishing our draft Budget in a pre-election period.

The Chancellor’s announcement provided, for the first time, details of our revenue budget for 2020-21 which will increase by £593 million above the 2019-20 baseline. This represents an increase of 2.3% in real terms. The Spending Round also includes an increase of £18 million to our capital budget, which had already been set for 2020-21. Our capital budget will be 2.4% higher in real terms than in 2019-20.

On the basis of the Chancellor’s announcement, the Welsh Government’s budget in 2020-21 will still be 2% or £300 million lower in real terms than in 2010-11. The additional funding does not even return our spending power to the levels of a decade ago.

We have consistently called for the end of the UK government’s austerity policy and for increased investment in our vital public services. While the Chancellor’s announcement indicates some signs of loosening the purse strings in the short-term, it does not make up for nearly a decade of cuts, neither does it come close to providing the sustainable, long-term basis on which to plan that our public services desperately need.

We remain unclear about the UK Government’s plans for an Autumn Budget. The Office for Budget Responsibility has informed the UK Parliament’s Treasury Committee that it has not been engaged to produce an updated forecast and would normally require 10 weeks’ notice.

The UK Government is acting irresponsibly by publishing spending plans at this time based on forecasts from March, which assumed a relatively benign Brexit, and a previous administration’s fiscal policy. Since March official data has shown that the UK economy contracted in the second quarter and the latest survey data indicates that it remains weak. A smaller economy means lower tax revenues and makes it likely that this UK Government will quickly revert to a policy of austerity.

Indeed, if the Office for Budget Responsibility had produced the timely economic and fiscal forecasts that normally underlie such a statement, the “headroom” that the Chancellor has exploited may well have been shown to be illusory.

The spending announcements will add further to borrowing, and the OBR has since stated that the Government’s own fiscal rules and a key Conservative manifesto pledge to deliver balanced budgets by the mid-2020s may well be off course, only adding to the high probability that another round of austerity will be likely in the near future.

We can have no confidence that these spending announcements will be sustainable. We certainly cannot rely on the claimed long-term settlements for NHS and schools in England and any potential consequential which they might deliver, because the funding implications for these settlements beyond 2020-21 will actually be determined as part of the next Comprehensive Spending Review. The reality is that the Chancellor’s announcement is a pre-election distraction from the UK Government’s management of an increasingly chaotic Brexit.

The Chancellor announced a further £2 billion in 2020-21 for Brexit delivery. We have been clear that the support to address even a proportion of the impact of Brexit cannot be delivered without a much more significant increase in public spending. We will require substantial additional funding and flexibilities to be able to respond meaningfully to the challenge of Brexit. I pressed this point to the Chief Secretary of the Treasury at a meeting of the Finance Ministers’ Quadrilateral at the end of August. The answers we have received from the UK Government to date provide no assurance that the funding we would require would be forthcoming.

It is clear that the Prime Minister is prepared to take the UK over the no deal cliff edge. This would have a catastrophic impact on Wales. All the evidence shows that leaving the UK without a deal will produce a severe economic slowdown in the UK and that a prolonged recession is likely. In those circumstances we know that the economy in Wales is likely to be around 10 per cent smaller in the long term. This would be reflected in real incomes that, in today’s terms, would be up to £2,000 lower per person than otherwise.

I am deeply concerned that with exit day looming large the Chancellor was silent on replacement EU funding to support our communities and business in Wales. He was unable to provide any kind of assurance that the UK Government will keep the promises of the Prime Minister that we will not receive a penny less than we would have expected within the EU and that in accordance with the long-standing devolution settlements, we must have autonomy to develop and deliver successor arrangements for EU funding programmes. These are principles which have the full backing of the Assembly.

Llywydd, despite these challenges and unprecedented uncertainty I am more determined than ever to look positively to the future and support our public services in Wales as best we can.

I am now proposing to bring forward our plans and publish the Welsh Government Budget earlier to November to provide as much certainty as possible to our partners and stakeholders. I am liaising with the Business and Finance Committees to seek their support for this change. I welcome the support both committees have already offered and I hope these new arrangements are acceptable.

The Welsh Government Budget will be based on the needs of the people of Wales and we will aim to deliver the fairest possible settlement for Welsh public services. This consistent commitment is borne out by the fact that health and social services spending in Wales continues to be significantly higher than in England and cuts to local authorities in England have been twice as deep as in Wales.

The Welsh Government has made it very clear that health will continue to be our priority along with providing local government with the best possible settlement.

We remain determined to maximise the impact of the resources we have. In my July statement on the Future of Public Spending I outlined that our budget preparations have been shaped by our eight priority areas of early years, social care, housing, skills and employability, better mental health, decarbonisation, poverty and biodiversity.

We recognise these eight areas as having the greatest potential contribution to long-term prosperity and well-being. They reflect the times in people’s lives when they may be most in need of support, and when the right help can have a dramatic effect on their life course.

They are priority areas where it has been shown that early intervention – tackling the root causes, rather than treating symptoms – pays dividends. If we are to realise the full potential of the Well‑being of Future Generations Act, then integration and collaboration between activities and services, with an early intervention and people-centred approach, is essential to delivering long-term outcomes.

Our budget will be focused on the areas where we can have the greatest impact over the long-term and will be at the heart of the way Wales will respond to the challenges presented by this Spending Round”.

 

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