What the first budget of Keir Starmer's premiership could mean for Wales

Keir Starmer’s warning that Britain will have to “embrace the harsh light of fiscal reality” is only the latest signal that the Labour UK Government’s first budget will be full of difficult decisions such as tax rises and spending cuts.

Welsh Labour politicians have sounded similar alarms while at the same time loudly hinting that they expect some moves towards what they call “fairer” funding for Wales from their fellow party members.

So, what can we expect from the budget when it’s unveiled on Wednesday and how is it likely to affect us here in Wales?

'Fix the foundations'

The Chancellor of the Exchequer, Rachel Reeves, has previously said that the budget will “rebuild Britain” and “fix the foundations.”

Since winning the UK General Election in July, Labour politicians have hammered home their claim that the Conservatives left a £22bn “black hole” in the public finances that needs to be filled.

She says that will only be filled by spending decisions that are effective cuts and tax increases.

The last Conservative Chancellor, Jeremy Hunt, says the figure is a lie and could actually turn out to be a £39bn surplus.

Taxing times

As for how Rachel Reeves plans to plug the gap, she’s given a clear signal that employers can expect to pay higher National Insurance Contributions (NICs).

Labour is being criticised for breaking a manifesto pledge by doing so, although it says its promise was not to increase NICs for working people.

That in turn has led to an argument about how to define “working people” with senior Labour figures saying that it means people who go out to work rather than who derive income from assets such as stocks and shares.

The party’s manifesto also promised not to increase income tax or VAT for “working people” and to cap corporation tax for businesses at its current rate, 25%.

It doesn’t leave many other taxes to increase so the Chancellor is said to be considering increasing inheritance tax or capital gains tax (or both) or lowering the threshold for paying those levies.

She’s also reported to be looking at reducing the amount people can take from their pensions without paying tax.

At the moment, most people over the age of 55 can withdraw 25% of their pension pot up to a total of £268,275. The Treasury is said to be considering cutting that amount to £100,000.

More money for Welsh Government?

Welsh Labour politicians have hailed the election of Keir Starmer’s UK Labour government as a chance for a new start.

What’s more, having spent recent years blaming the NHS’ problems on what they describe as 14 years of austerity, expectations are high that there will be more funding for the Welsh Government, even while Rachel Reeves continues to warn of “difficult decisions.”

As a result, any increase might continue to feel like a cut.

During the UK General Election campaign, Cardiff University’s Wales Fiscal Analysis team calculated that Labour’s manifesto pledges suggested spending increases that would mean an increase of 1.1% compared to the Conservative spending plans, an effective or “real terms” cut.

So where could any extra funding come from? The UK Government has said it will not only protect health and education spending but will boost it, by as much as £10bn in the the NHS’ case.

Both are devolved and so any increase in spending on them in England will trigger more money for the Welsh Government. It doesn’t have to spend it on the same things but is highly likely to do so.

There’ll also be more money for building affordable and social homes in England - that too should lead to more money for the Welsh Government.

Coal Tip safety

There may be some funding for making safe coal tips here in Wales. Eluned Morgan says she has made the case to Keir Starmer about Welsh Labour’s long-standing call for the UK Government to jointly fund efforts to make Wales’ coal tips safe.

The previous Conservative UK Government argued that the Welsh Government had enough funding to cover the bill.But the ownership for coal tips is confused and disputed. The Welsh Government hopes that Rachel Reeves will accept that it shares responsibility.

Finance Minister Mark Drakeford has suggested that a decision is forthcoming but more likely to come in the spring rather than this autumn.

HS2

What there won’t be, according to the First Minster, is any extra money as Wales’ share of spending on the controversial High Speed 2 rail project (HS2).

None of the planned track will be laid in Wales but HS2 has been categorised as an England and Wales project, meaning it wouldn’t trigger any extra money for Wales under the Barnett Formula.

All parties in the Senedd have called for it to be re-designated as England-only, with estimates of the funding that would mean for Wales being put as high as £4bn by senior Labour figures as well as opposition politicians.

That’s changed recently, with the Labour Welsh Government now saying that the total would be closer to £350m.Whatever the amount, it’s unlikely to feature among Rachel Reeves’ announcements.

Recently Eluned Morgan told ITV Cymru Wales that while Keir Starmer “knows that Wales feels shortchanged,” because she’s made the case with him, she wouldn’t expect it to be dealt with in this budget.

She said that, "I don't think that’s likely to be in the budget this autumn but it’s really important that that conversation continues, and I've offered to suggest some infrastructure projects where they could help us."

What other parties think

The leader of the Welsh Conservatives in the Senedd Andrew RT Davies has warned that “this Budget will show the harsh reality of what Labour does when in government, and the chill will be felt more in Wales than anywhere else in the country.

“The expected rise to employer national insurance will bludgeon businesses, and that will have a devastating impact in Wales where unemployment is the highest in the UK."

“Labour must step back from the edge, keep pensioners warm this winter and work with businesses which pay the salaries that support families up and down Wales.”

Meanwhile Plaid Cymru’s Treasury Spokesperson in the UK Parliament, Ben Lake has said that “The Labour Party's election campaign centred on a promise of change, and so now in Government they must deliver it.

“In opposition, the Labour Party supported Plaid Cymru’s calls for the £4 billion owed to Wales in rail funds. It cannot renege on this call now that it is in government. This Budget is its chance to prove that ‘change’ was more than just a slogan.”

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