Welsh Government fiscal response to Covid-19 will increase to over £5 billion this year

The Welsh Government has over £5 billion to allocate to its Covid-19 fiscal response in 2020-21, according to a new briefing paper from Cardiff University’s Wales Governance Centre.

However, a lack of funding certainty and borrowing powers is hampering effective planning of support for Welsh businesses and public services.

The report, ‘Funding the firebreak and beyond’, from the Wales Fiscal Analysis team reveals the costs of Covid-19 related business support and public health interventions, as well as assessing the huge budget uncertainties facing the Welsh Government.

The £5 billion of available funding comprises £4.4 billion triggered by UK Government spending decisions in England (Barnett consequentials) as well as reprioritised funding from within the existing Welsh budget.

After already-allocated support for businesses, public services and local authorities, the Welsh Government’s recent Supplementary Budget included £1.2 billion of unallocated funding. This funding will allow the Welsh Government to provide more economic support over coming months.

However, the unallocated spending also reflects huge uncertainties surrounding budget planning this year, amplified by a lack of borrowing powers, inflexible funding arrangements, as well as a lack of clarity on the costs of UK Government support for businesses in England.

Guto Ifan, Wales Fiscal Analysis researcher, commented:

“The UK Government has made open-ended commitments to businesses in England, dependent on future economic restrictions, making the eventual additional funding this will trigger for the Welsh Government highly uncertain.

“Without more flexibility in funding arrangements from the Treasury, or current borrowing powers of its own, the Welsh Government may be unable to make similar ‘whatever it takes’ commitments to businesses here in Wales.”

To date, the report also finds no evidence that the Welsh Government’s public health interventions have led to greater levels of UK Government Covid-19 spending in Wales, and the earlier Welsh ‘firebreak’ lockdown will likely be proven to be cost-effective.

Guto Ifan added:

“Although the lockdown may have increased demands on the UK Government’s furlough scheme, it will have mitigated the need for costlier and longer-lasting restrictions at a later point, as we now see in England.

“Over coming months, the UK Government’s economic support policies should accommodate the devolved governments’ decision-making too, and not only the restrictions put in place in England.”