Welsh Government faces difficult budgetary trade-offs

14 September 2016

Senedd Building in Cardiff Bay

The Welsh Government’s budget could be cut by 3.2% in real terms over the next three years, with cuts largest in 2018-19 and 2019–20, according to a new report commissioned by the Wales Public Services 2025 Programme.

Hosted by Cardiff Business School, Wales Public Services 2025 provides independent analysis of the fiscal, economic and policy challenges facing public services in Wales.

The new report - Welsh Budgetary trade-offs to 2019–20’ - which was undertaken by researchers at the Institute for Fiscal Studies (IFS) also found that protecting the NHS budget in the same way as the English NHS budget would mean other spending would face cuts averaging 7.4% in real terms.

The report also highlights that the complete loss of EU grants, if not made up by additional grants from Whitehall, would see the Welsh Government losing over £500 million a year following Brexit, more than doubling the overall budget cut.

Michael Trickey, director of Wales Public Services 2025 said: “The tough times for public services in Wales are far from over: austerity still has some way to run and further cuts seem unavoidable over the next three years. This will intensify the pressure on public services to increase the scale of change and mitigate the impact on communities. But there are also big questions for politicians and the public about the services and priorities we want for the future.”

Other key findings detailed in the report include:

  • Increases to the NHS budget of 2% a year (well below historic norms) while protecting funding for councils’ education and social services responsibilities would lead to ‘unprotected’ areas facing cuts averaging 18% over the next three years given current plans and forecasts.
  • If income tax were to be partially devolved increasing rates across-the-board by 1p in the pound could offset almost half the overall cuts to the Welsh Government’s budget.
  • However, in the run up to the 2016 Assembly elections there was more talk of tax cuts than tax rises. An across-the-board 1p in the pound cut in income tax rates would increase overall budget cuts from 3.2% to 4.7% by 2019-20.

Polly Simpson, a research economist at the IFS and an author of the report said: “This research highlights the difficult budgetary trade-offs facing the Welsh Government. Protecting such large areas of spending as health, social care and education would require substantial cuts to other areas of spending that have often already had to absorb seven years of real-terms cuts.

“It is also important to realise that increases in the taxes under Welsh Government or councils’ control is unlikely to be a panacea. For instance, even increasing council tax by over 7% a year, could still leave some council services facing double-digit cuts over the next three years.”

The report also considers the costs the Welsh Government may face if the EU funding Wales currently receives is not fully replaced. It notes that:

  • The UK government has stated that funding for payments to farmers will be guaranteed until 2020 but funding for areas like rural development and regional development projects will not be guaranteed unless projects were signed off by the time of the upcoming Autumn Statement. Later projects will instead be funded on a case-by-case basis. If only half were funded, real terms cut to the Welsh budget by 2019–20 would rise from 3.2% to 4.3%.
  • It is even less clear what funding will be available for schemes currently funded by the EU after 2020. If no additional funding was provided, the Welsh Government would have to find over £500 million a year from its existing budget if it wanted to continue to fund these schemes. This could more than double average budget cuts to 6.9% in 2020–21 (assuming the remainder of the Welsh Government’s funding was unchanged).

The report is available to read in full here.

Wales Public Services 2025 is co-funded by Cardiff University and five national bodies in Wales - the Welsh Local Government Association, the Wales Council for Voluntary Action, SOLACE Wales, Community Housing Cymru, and the NHS Wales Confederation.