Spending Review 2021 Preview: Better outlook for Welsh budget, but in context of huge post-pandemic pressures

The Wales Fiscal Analysis team is projecting an improved fiscal outlook compared to forecasts from before this year’s Senedd elections – although planned UK government spending in 2024-25 will still be below pre-pandemic plans outlined in March 2020.

Issuing their latest Welsh Budget Update ahead of the Spending Review 2021 later this month, the researchers indicate that over the next three years, day-to-day spending on public services in Wales is set to grow by approximately 3% per year on average in real terms.

The Spending Review will set the Welsh Government’s block grants for the years 2022-23 to 2024-25, alongside confirmation of the additional funding resulting from the recently announced UK-wide Health and Social Care Levy.

Relative to March 2021 Budget plans, the researchers project that Welsh Government funding will increase by £659 million in 2022-23 and £497 million in 2024-25, though actual consequentials may be lower than this if a share of the additional spending goes towards UK-wide reserved spending.

Guto Ifan commented:

“We project that increases in Welsh Government funding will be broadly sufficient to meet post-pandemic spending pressures in the NHS over coming years. Funding for local government could also increase if consequentials from social care and schools spending in England are passed on, and relatively modest council tax increases may be sufficient to meet spending pressures.

“But even in this modestly optimistic scenario, funding for all other areas of spending will need to be cut in 2022-23, before increasing slightly in real-terms in 2024-25.”

Wales Fiscal Analysis (WFA) is a research body within Cardiff University’s Wales Governance Centre that undertakes authoritative and independent research into the public finances, taxation and public expenditures of Wales.