Huge drop-off in COVID-19 funding for Welsh budget following UK Spending Review, report finds

Funding for vital Welsh Government COVID-19 support for public services, businesses, and individuals will fall significantly next year, according to a new report by the Wales Fiscal Analysis team at Cardiff University’s Wales Governance Centre.

Funding available for the Welsh Government’s fiscal response to COVID-19 is set to fall from £5.6 billion in 2020-21 to just £766 million next year. While it is hoped COVID-19 related pressures will reduce next year, funding under current UK government plans could well fall short of additional spending costs and demands on the Welsh budget.

The Chancellor has also cut back on non-COVID spending plans over future years, even in the face of additional spending pressures. Even by the middle of the next Welsh Parliamentary term, spending per person is set to be below pre-austerity levels. If NHS spending grows in line with increases in England, non-NHS spending will remain 8% below 2010-11 levels even by 2023-24.

The report also raises concerns around the share of UK transport spending Wales will receive over future years. The decision to include HS2 as an ‘England and Wales’ project and non-devolved Network Rail spending in Barnett formula calculations means the Welsh budget could lose out on £500m of additional consequentials by 2025-26, relative to a reasonable alternative method.

Guto Ifan, commented:

“The UK Spending Review provided a sober reality check. After the huge COVID-19 funding increases we’ve seen for the Welsh budget this year, plans for future years are pretty austere. COVID-19 funding is set to drop off sharply next year, even while knock-on pressures from the pandemic will still be with us.

“As the Welsh Government prepares its draft budget for 2020-21 this month, it faces an increasingly uncertain outlook. It remains a cause of frustration that the Welsh Government lacks the tools to manage those risks, such as greater powers over borrowing and use of reserves this year.”

Cian Sion added:

“The Spending Review plans mean a much gloomier outlook for the Welsh budget and may possibly mean a return to austerity for some public services. This has huge implications for what parties will be able to pledge ahead of the Senedd elections next May.

“An increase in devolved income tax could provide a more progressive alternative to steep rises in Council Tax bills over coming years. But we need a broad debate about the level of public services we want in Wales post-COVID and how to properly fund them.”