Welsh fiscal boost next year to be followed by cutbacks to spending plans, says new budget report

After a further boost to the Welsh Government’s ‘fiscal firepower’ to deal with the pandemic, cuts to non-virus spending from 2021-22 will reduce the projected increase in the Welsh budget by £600m, according to a new report.

The Wales Fiscal Analysis budget briefing, issued today by Cardiff University’s Wales Governance Centre, analyses the impact this week’s UK budget will have on Wales. The analysis estimates the additional £735m for the Welsh budget brings total available funding to deal with Covid-19 next year to almost £2 billion. The Welsh Government has already made large allocations to the NHS, the local government hardship fund and a business rates relief package.

But this fiscal boost will, on current plans, be followed by a potential funding squeeze. The UK Government’s decisions to cut back on pre-pandemic, non-virus spending plans for 2021-22 onwards will reduce the projected increase to the Welsh budget by approximately £600 million a year.

The analysis notes the short-term positive impacts of the Universal Credit uplift extension, benefiting 21% of Welsh households, and the extension of furlough, which delays and reduces the projected peak in unemployment.

The report also finds that devolved income tax revenues are set to increase significantly relative to previous forecasts, which will have a positive effect on the Welsh budget going forward.

Guto Ifan, researcher on the Wales Fiscal Analysis programme, commented:

“The good news of a £735m boost in the Welsh Government’s fiscal firepower is followed by bad news of a significant £600m funding squeeze compared to pre-pandemic spending plans, which has mostly escaped attention in the analysis of the budget so far.

“Cuts to previous spending plans are concerning, given the emerging evidence of the post-pandemic NHS backlog, the support for public sector pay increases, and the impact of Covid-19 on the most disadvantaged sectors of society. Unfortunately, the budget kicked dealing with these issues into the long grass.

“Our analysis finds that the additional UK Government direct investments for Wales contained in the budget, like the City Deals and new UK-wide funds, are relatively small in budgetary terms and account for less than 0.1% of GDP - although they will be welcome for specific communities.

“But the wider debate ahead of the Welsh election in May should be about the future of the Welsh public finances and what the next Welsh Government can do to build a genuine recovery in the economy and in public services.”