10/01/2017

A sniff of jam? Blog by Dr Daria Luchinskaya Wales Public Services 2025

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A sniff of jam? Blog by Dr Daria Luchinskaya

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December 20, 2016

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The flurry of pre-Christmas fiscal activity in Wales will not much affect the fundamentals for public services for next
year although there is some good news. Some of the longer-term implications may prove more significant.
The Final Welsh Budget, tabled today, more or less reflects the main decisions in the better-than-expected Draft
Budget in October but is able to finance some new commitments by drawing on the larger than usual reserves (a
hedge against uncertainty) as well as utilising the additional funding released through the Chancellors Autumn
Statement. The Autumn Statement added just 35.8m for day-to-day (resource) spending (0.26%) in 2017-18 and
442m for capital (8.7%) 2017-18 to 2020-21 to the Welsh Budget[1].
The Final Welsh Budget primarily passes on the increased capital allocation over the next four years in the form of
extra spending, including 53.4 million to accelerate our commitment to 20,000 affordable homes, 50 million for
regeneration, 40 million for energy efficiency, 33 million for flood alleviation, 20 million for rural communities
and 41.5m on health innovation and health estate.[2]
Some money has been reallocated from reserves for modest increases in a couple of areas of day-to-day (resource)
spending for 2017-18, e.g. 10m for social services, 10m for support for high-street business ratepayers, and 6m
for homelessness. It looks as though not all the social services money is new, some appears to have come from
adjustments to the NHS budget.
The Budget only covers day-to-day resource spending for 2017-18 and it will be for next years budget to deal with
the tightening in the UK Governments current plans for the following two years. The prospects are clouded by the
uncertainties around Brexit and the performance of the economy remain. For example, finance ministers across
the UK will be closely watching the inflation figures in 2017 for their impact not only on costs of goods and services
but also on the climate surrounding pay negotiations. Real terms reductions in public sector pay to date have been
key to mitigating the impact of spending cuts but the past may not be a good guide to the future.
Which is why this weeks agreement between the Treasury and Welsh Government on a Fiscal Framework[3] could
be so important.
The least exciting part of the deal is the increase in Welsh Government borrowing powers to finance capital
expenditure to a total of 1 billion (150 million in any year) from April 2019; the current ceiling is 500 million
(125 million in any year). The new 150m annual limit represents just 10% of the current Welsh capital budget[4]
and not a major addition to the Welsh Governments armoury.
Much more significant are the introduction of a Welsh reserve to enable the budget to be better managed, not least
around the end of the year; a transitional and long-term needs-based element into Barnett, building on the Barnett
floor announced in the 2015 Spending Review; and a new model for calculating how the block grant will be
adjusted (offset) to take account of Welsh tax decisions. Much of this will start to take effect from 2018-19 and will
be particularly important if and when Welsh income tax rates start to be set, possibly from 2019. This is complex
territory and exactly what it is all likely to mean will be explored in detail by the Wales Governance Centre[5] in the
New Year.
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10/01/2017

A sniff of jam? Blog by Dr Daria Luchinskaya Wales Public Services 2025

Although the prospect of tax-raising powers sets some hearts racing, we should not expect a big impact on public
service spending, at least for a time. The block grant from the Treasury will still account for most of the money
available to the Welsh Government for the foreseeable future and the marginal impact of changes in Welsh
taxation rates is likely to be limited. But the agreement of the Framework represents an important maturation
stage in the devolution story.
Dr Daria Luchinskaya
Research Associate, Wales Public Services 2025

[1] http://gov.wales/about/cabinet/cabinetstatements/2016-new/autumnstatement/?lang=en ; In detail, this

included an extra 450m under the Barnett formula: 16m for day-to-day (resource) spending between 2016-17
and 2019-20, and 434 for capital between 2016-17 and 2020-21. In addition to the Barnett consequentials, Wales
received extra capital funding for the City Deals (details still to be announced) and extra resource funding for the
Apprenticeship Levy.
[2] See Welsh Government Final Budget 2017-18 Explanatory Note, pp. 5-6:
http://gov.wales/docs/caecd/publications/161220-note-en.pdf
[3]
https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/578836/Wales_Fiscal_Framework_A
greement_Dec_2016_2.pdf
[4] The Final Welsh Budget capital budget for 2017-18 stands at 1,487m.
[5] http://sites.cardiff.ac.uk/wgc/

Bookmark.

The November 2016 OBR Economic and Fiscal

Outlook pointed to lower growth and lower real
wages over the next few years, while the
Chancellors Autumn Statement prioritised capital
investment over day-to-day public services costs:
what are the implications for Wales?

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Recommended Websites
Carnegie UK Trust
Institute for Fiscal Studies
Joseph Rowntree Foundation
NESTA Public Services Lab
SIX social innovation exchange
Social Enterprise UK
TED
The Bevan Foundation
The Institute of Welsh Affairs
The Young Foundation

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