'Standstill' Welsh budget highlights 'perfect storm of financial pressure' for public services

The Welsh Government has published its spending plans describing how public services and the most vulnerable face a "perfect storm of financial pressure".

The draft budget, contains details of a £70m boost to continue to pay social care workers the real living wage of £10.90 an hour.

The spending plans for the next two years, also reveal how the £1.2bn in extra funding announced by Chancellor Jeremy Hunt to help stabilise the economy will be spent which came to Wales through the Autumn Statement.

What else is in the draft budget?

• An extra £165m is being allocated for NHS Wales to help protect frontline services.

• An additional £227m is being provided to councils, including schools

• £28m for the education budget

• £60m to support the war in Ukraine

• £18.8 million to spend on lifeline emergency cash payments to people facing financial hardship

• £40 million on public transport

• The Welsh Government unveiled a commitment to freeze business rates and offer other help to small businesses in a £460m support package for the next two years

Ministers say they've had to make those difficult choices as rising energy costs, public sector pay rises and general inflation eat into the total it has to spend. 

Finance Minister, Rebecca Evans said, “This is a budget in hard times, which will help to protect frontline public services as far as we can in the face of a perfect storm of financial pressures, while also providing some extra help to those most affected by the cost-of-living crisis and supporting our economy through the recession.

“Our approach is designed to maximise the impact of all our available resources. This means balancing the short-term needs associated with the ongoing cost-of-living crisis, with the continued need to make longer-term change and deliver on our Programme for Government ambitions for a stronger, fairer, greener Wales.

“This has been one of the toughest budgets since devolution. It is being delivered as the UK economy is once again in recession, following a decade of austerity, Brexit and the pandemic. Inflation is at a 40-year high and energy costs are soaring.

“Inflation has eroded the spending power of our budget but not our ambition. We have taken very difficult decisions to make sure all our resources are used to help support people, businesses and services through the tough year ahead.”

The Welsh Conservatives labelled the budget as a "display of smoke and mirrors".,

Peter Fox MS said, "While times are tough, the UK Conservative Government has provided £1.2bn in additional funding.

“There are serious questions to be asked about whether the money being spent in successive budgets is actually delivering what is expected, with results in health, education and the economy sorely lacking.

"The Labour Government need to focus on delivery and securing positive outcomes for the people of Wales to reduce our record waiting lists in the NHS, improve our poor education results and unlocking the Welsh economy."

• Analysis by Political Editor Adrian Masters

The Conservative opposition said that Labour should stop trying to "pass the buck" and focus on reducing hospital waiting lists and increasing funding to schools. 

Cardiff University’s Fiscal Analysis team recently described the pressures on public spending as “a perfect storm” and that’s the kind of language that officials within the Welsh Government have also been using as they tried to make the sums work. 

The total budget for 2023/24 and 2024/25 is expected to be around £23bn each year. 

A large chunk of that budget is ‘managed’ by the Welsh Government and includes funding for things that it has no control over, like student loans. 

Senedd officials estimate the amount the Welsh Government can actually decide how to spend is around £19bn and of that, around £3bn can only be spent on “capital” projects such as buildings, roads and other things classed as “infrastructure” like broadband. 

That leaves about £16bn of funding classed as “revenue” which is spent on services. 

Over half of that (around £10bn this financial year) is committed to health and social services.

The rest is split between all the other things the Welsh Government is responsible for which includes education, transport, local councils, the environment and agriculture.

There is also the impact of inflation. The cost of products and services has been increasing rapidly, particularly the cost of energy. 

In turn, that means a standstill budget or even one that increases slightly could still feel like a cut and lead to shrinking services or even job losses.

Cardiff University’s analysis estimates the impact of inflation on the Welsh Government budget could be the equivalent of an £800 million cut in 2023−24 and £600 million in 2024−25. 

Then there’s the question of pay. Around half of everything the Welsh Government spends goes on the wages of those who deliver those services. 

The wave of strikes which seem to come daily have shown how public sector workers including nurses and teachers are demanding higher pay rises than those offered by their employers. 

In Wales, the employer is the Welsh Government. Ministers argue that because they have a budget which is largely fixed they have to rely on UK Government funding for pay. 

Opponents say that the Welsh Government has enough resources and power to make such decisions if it wishes, by increasing Welsh taxes including income tax. 

The Conservative Shadow Finance Minister Peter Fox says that "Labour may try to cry helplessness and pass the buck, but they possess the financial levers and have the decision-making powers. 

"Labour needs to use the considerable additional funding from the UK Government to deliver a Budget that meets the needs of families and businesses."

Plaid Cymru's Finance Spokesman, Llyr Gruffydd said, “The fiscal powers we have to respond to this crisis may be limited – but that doesn’t mean we are powerless. 

"That’s why the Welsh Government should explore how progressive use of tax varying powers could be used to protect public services, improve the pay offer for hardworking public sector workers, and help people suffering the most during this crisis.

“The Government must leave no stone unturned to protect people from some of the worst effects of this Tory- orchestrated economic crisis.

“Plaid Cymru will continue to support the most vulnerable in our society, stand in solidarity with those on strike for better pay and work conditions; and continue to fight for a better future for our communities." 

One UK Government minister, the Chief Secretary to the Treasury John Glen MP told me that he thinks there is “a very significant settlement for the Welsh Government, that amplifies the advantages of the decisions we've taken in Whitehall” adding that the extra money gives Welsh ministers certainty over the next two years.

He also said that his boss, Jeremy Hunt’s recent decisions in the Autumn statement were taken “against a very, very difficult backdrop and tough decisions elsewhere across government."

Mr Hunt himself said the Conservative government needed to be “honest about the challenges and fair in our solutions” as it took “difficult decisions.”