Welsh budget boosted – but cost of living challenge looms

Wales also in line for £200m Tax Devolution dividend

The Welsh budget is set for a £1.6bn boost in 2022-23 as a result of yesterday’s UK budget, according to a report from Cardiff University’s Wales Governance Centre. But significant cost of living pressures loom ahead of the winter, with households facing rising gas and electricity prices.

Researchers from the Wales Fiscal Analysis project have today published their independent analysis of the Chancellor’s announcements and the implications for Wales.

The Welsh budget outlook has been transformed since March 2021, when the UK Government set out its previous plans, and core Welsh Government day-to-day spending, excluding Covid-19 funding, is now set to grow by an average of 3.1% per year in real terms from 2021-22 to 2024-25.

The Budget also confirmed that the Welsh Government will receive an additional £314 million for day-to-day spending on its Covid-19 response in 2021-22, bringing the total available to £2.9 billion.

The report also points to a projected Tax Devolution dividend, underscoring the positive effect of transferring tax powers to the Welsh Government and Parliament. Newly published forecasts point to the strong performance of Welsh income taxes and Land Transaction Tax, which means that by 2024-25, Wales could be £200m a year better off than if those taxes had not been devolved.

However, even after the announced changes to Universal Credit, the average Welsh household in each income decile will still be worse off than they would have been had the £20 a week uplift been reinstated instead. A cause for concern also remains over cost of living pressures from energy prices, with the poorest 20% of Welsh households already spending 12% of their income on energy bills.

Guto Ifan commented:

“Our analysis demonstrates that increased spending on the NHS and public services in England, and a turn away from austerity, has led to a welcome boost in the size of the Welsh budget.

“But cost of living pressures remain a huge concern and the actual story for households in Wales going into 2022 might be far more negative than yesterday’s budget announcement would suggest.

“We are seeing UK-wide spending streams like the Levelling Up Fund begin to come into play, although ultimately the size of those funds are not as important as Barnett formula-driven public spending.

“The boost for Wales from our own devolved taxes is also welcome, with tax devolution proving, perhaps against some expectations, to be beneficial for the Welsh budget.

“As it sets its budget for the coming years in December, the Welsh Government will need to balance the financial challenges facing the NHS, many other areas of public services, as well as the concerns over inflation hitting already-disadvantaged households.”