Written Statement: Welsh Government response to the Chancellor of the Exchequer’s UK Spending Review

The Chancellor of the Exchequer today delivered the UK Government’s Spending Review setting out its spending plans against the backdrop of the evolving Covid-19 pandemic and on the eve of leaving the European Union as the transition period draws to a close. This Statement provides an update to Members on the immediate implications for Wales. 

Alongside the Spending Review, the Office for Budget Responsibility (OBR) provided its first full set of economic and public finance forecasts since the Covid-19 crisis began. The OBR expects national income (GDP) to contract by 11.3% this year and it is not expected to return to its pre-pandemic level until the end of next year. At no point in the OBR’s 5 year forecast does productivity growth return to the average rate recorded before the financial crisis. Consequently, real wage growth will be disappointing relative to historic norms and economic prospects will be much worse if the UK leaves the EU transition period without a comprehensive Free Trade Agreement.

The Spending Review provides, for the first time, details of our budget for 2021-22. The Welsh Government’s core resource Departmental Expenditure Limit has risen £694m in 2021-22, an increase of 4.6% in cash terms. In addition, the Chancellor has also confirmed additional funding in relation to Covid-19 in 2021-22 which will provide us with an extra £766m.

The March 2020 Budget showed an increase in UK general capital departmental expenditure limits of 19% between 2020-21 and 2021-22. A proportionate share of that would have meant a £400m increase in the Welsh Government’s capital budget. Instead, the Welsh Government has received an increase of just £60m or less than 3% in cash terms.

In light of this it is surprising that the Chancellor has today claimed to be making a once in a generation investment in infrastructure. There was nothing new for Wales in today’s statement. Despite calls for the UK Government to provide long term certainty for Welsh communities affected by storms and coal tip safety issues, there was no response from the Chancellor to these Welsh priorities. We have ambitious, Wales-wide investment plans which we could bring forward if more capital was available to boost our efforts to support the economy in Wales as it recovers from the impacts of the Covid crisis.

Although the Chancellor has announced a boost to the ‘Restart’ programme to help unemployed people find work, not enough is being done to support new job creation relative to the scale of the collapse in vacancies and increase in redundancies, and there still needs to be a more ambitious investment in training and skills.

While I welcome the Chancellor’s commitment to implement the pay review body advice to increase pay for NHS workers, I am disappointed the he has decided to introduce a public sector pay freeze rather than stand by the range of frontline workers who have sacrificed so much this year and continue to play a critical role to keep services running. This decision is unfair and only reduces the funding available for pay in Wales.

The Chancellor also spoke of protecting lives and livelihoods yet did not offer anything to prevent an unacceptable increase in poverty. I have consistently called for the benefits system to provide an adequate level of support to vulnerable individuals and families who, through no fault of their own, lose their jobs. The Chancellor’s refusal to protect additional universal credit payments means that the burden of this crisis will be heaped onto those who can afford it least. 

I am also deeply concerned that today’s Spending Review has revealed that the UK Government has failed to meets its own commitment that Wales would not be worse off as a result of leaving the EU and to replace funding in full for farmers, fisheries, rural development and regional investment.  This is illustrated in the Chancellor’s proposed replacement for the EU Common Agricultural Policy funding which will leave Welsh farmers and rural communities £137m short of the expected funding in 2021-22.

It is now completely clear that the UK Government want to bypass the Welsh Government in allocating funding from the Shared Prosperity Fund if they can persuade Parliament to give them the new spending powers they want.  The UK Government appears to be prepared to trample over the many years of hard work we have undertaken with stakeholders to provide a greater role for our regions in decision-making on how funds are spent through our regional investment framework. Moreover the funding they are putting on the table is derisory – only £220 million across the whole of the UK in the next financial year, whereas Wales alone would have had a legitimate expectation of an additional £375 million, which we currently receive each year through the European Structural and Investment Programmes.  

In order to provide as much certainty as possible to our partners and stakeholders I am preparing to bring forward our plans and publish the Welsh Government Budget on 21 December. The Budget will be based on the needs of the people of Wales and we will aim to deliver the fairest possible settlement for Welsh public services to deliver a more prosperous, greener and just Wales as part of a fair recovery.