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The Budget and Wales: what to look out for

Credit: PA, Stephen Chung

Today's budget will be the last before Britain leaves the EU and also the first since Theresa May declared an end to austerity and comes at a time of intense political and economic uncertainty.

Opponents and supporters alike will be hoping for action on concerns over benefit changes while the Welsh Government will be looking to see which spending announcements will trigger funding changes for areas it controls.

There'll certainly be some extra cash for ministers in Cardiff with expected announcements of spending on mental health, cutting business rates, improving roads and improving green spaces in England by planting millions of trees all expected to trigger funding increases for Wales.

Meanwhile supporters of a plan known as the North Wales Growth Deal see the budget as make-or-break time for the £700m scheme.

It's thought the Chancellor will put off some of the very biggest decisions until next year's spending review. Expect instead some tweaks to previously announced plans, tweaks that nevertheless could still have a significant impact.

There are said to be no plans to increase or cut tax on fuel which is likely to be frozen for the ninth year in a row. The drinks industry has called for a similar freeze on alcohol duty, warning that one in 10 pubs could close if those taxes go up.

The Chancellor is expected to respond to political pressure to deal with concerns from Conservative MPs as well as opponents about the introduction of the Universal Credit benefit change. It's thought he could announce a substantial increase in funding for the scheme and slow down its rollout to new areas while problems are ironed out.

North Wales Growth Deal

Credit: David Dixon, Creative Commons

Watch out for news on this long-awaited plan which could channel nearly £700m to projects aimed at boosting the North's economy and creating thousands of jobs.

There are strong signs that the Chancellor may put a figure on how much he's prepared to give to the deal. If he doesn't, those involved in the bid say it could spell the end of it.

The deal is a means by which UK and Welsh Government funding can be brought together with private sector, council and further and higher education funding to create a £700m pot. The two governments were due to hold talks last week to discuss their roles in making it a reality.

Last Friday each of the local authorities, colleges, universities and business councils involved in the bid voted to back the plan that's now been submitted to the UK Government.

They said that leaves the ball in the Chancellor's court. Look out for him referring to a 'head of terms agreement' or the 'Proposition document' to see if he's giving it a thumbs up or thumbs down.

Taxes

The Chancellor needs to raise money through taxes as well as savings but while he's unlikely to increase income tax, he may slow down planned changes.

Currently the amount you can earn in a year before paying the basic rate of income tax (20p) is currently £11,850. That's due to increase in April but Monday's budget will reveal by how much. The Conservative party manifesto pledged that figure would be £12,500 by 2020-21.

At the moment you start paying the higher rate (40p) when you earn £46,350. The Government's commitment is for that to be £50,000 by 2020/21.

Whatever Philip Hammond announces will apply in Wales although technically, from April next year (2019) you will in fact be paying two batches of income tax and the money itself will go in two separate directions: the UK Government and the Welsh Government. From that date the Welsh Government will have partial control over income tax, receiving the amount brought in by 10p of each of the rates and having the ability to raise or lower that amount.

Public sector pay rise?

Welsh nurses join a protest against the public sector pay cap in 2017 Credit: PA, NurPhoto

People working in the public sector will be watching closely for any increase but the situation is complicated because the pay in some services is the responsibility of ministers in Cardiff not in London.

Pay for police, NHS workers, teachers and other public sector pay in England and Wales was frozen for two years in 2010, apart from those earning less than £21,000 a year. Since 2013 increases have been capped at 1% but that cap has effectively been lifted.

There have been different settlements recently in Wales. All doctors will receive a 2% increase to their base pay with GPs receiving a further 2% increase and specialist doctors gaining a further 1.5%.

Welsh NHS workers (on Agenda for Change contracts) have recently won a 6.5% pay rise over 3 years higher than the 3.5% seen in England but lower than Scotland's 9%.

Teachers pay has been devolved to Wales since September (2018) and a consultation is underway on developing a new system here.

In a pre-budget letter to the Chief Secretary of the Treasury, the Finance Secretary Mark Drakeford says he wants assurances that the cost of England and Wales increases will be fairly shared.

We have consistently called for an end to the cap on public sector pay, so we welcome announcements of pay deals in excess of 1%. We now expect the UK Government to provide the requisite funding – for all workforce groups – to avoid increases in pay impacting on the delivery of vital public services.

– Mark Drakeford AM, Finance Secretary

Action to help High Streets in England could lead to more money for Wales.

The Chancellor is expected to announce a range of measures to help High Streets in England which include cutting business rates for small retailers and a New Future High Streets Fund to help town centres transform. At least some of that spending in England will spark extra funding for Wales although the Welsh Government won't be obliged to spend it on the same sort of project although the Welsh Secretary thinks it should follow suit.

As the Chancellor is expected to announce a £1.5bn boost to support high streets in England at Budget, I would very much hope that through the extra funding the Welsh Government will now receive they will follow the Chancellor’s lead to urgently review the less generous Welsh scheme to show support for our high streets across Wales.

– Alun Cairns MP, Secretary of State for Wales

Welsh Government borrowing powers

Credit: Traffic Wales

One to watch for those who support or oppose a new motorway being built to ease congestion on the M4 around Newport but any announcement would also be revealing in terms of politics between the Welsh and UK Governments.

In his pre-budget letter to the Chief Secretary to the Treasury, Mark Drakeford makes clear that the Welsh Government believes it needs the ability to borrow more money in order to 'invest in infrastructure.'

There remains significant pressure on the resources available to the Welsh Government to invest in infrastructure. We already make full use of our borrowing capacity, but in order to continue to deliver our ongoing investment priorities we need to see an increase.

– Mark Drakeford AM, Finance Secretary

Currently it can borrow up to £1bn, a sum that's now seen as too little to pay for the full M4 relief road although the Welsh Government isn't obliged to spend it on that project.

The Treasury has traditionally been reluctant to allow increases which would add to the UK's debt total but politicians in Westminster frustrated at continued delays over improving the M4 may well feel that agreeing to the request will call the Welsh Government's bluff and prevent ministers in Cardiff from blaming ministers in London for any further delays or an outright rejection.

Other Welsh Government demands

As well as the demand for public sector pay funding and increased borrowing powers, the Finance Secretary listed in his letter further actions he believes the UK Government should include in the budget. They are:

  • delivering on its promise that Wales will not lose a penny of funding from the decision to leave the EU
  • continuing constructive joint working on the four new tax ideas
  • recognise expert reports and reverse the decision not to devolve Air Passenger Duty to Wales
  • address the significant under-investment in Wales’ rail infrastructure and commit to an equitable share of rail funding for Wales

Opposition party demands

Meanwhile Plaid Cymru has called on the Chancellor to give Wales funding that it says should be triggered by the HS2 rail programme and to use the opportunity to devolve powers over VAT, airport duty and corporation tax.

Wales is currently forced to fight off the erosion of our economy with one hand tied behind its back. Westminster should take this opportunity to give Wales the fiscal powers we need to rebuild our economy.

Emboldened by Brexit, Westminster now seems set to snatch back control over economic development and the money received as a result of our EU membership. Vital finance used to mitigate Westminster’s negligence will be kept from Wales despite promises that our nation would not be a penny less worse off.

This pre-Brexit Budget is the last opportunity for Westminster to give Wales the tools it needs to defend itself from the economic onslaught of Brexit.

– Jonathan Edwards MP, Plaid Cymru

The Welsh Liberal Democrats have urged the Chancellor to use the budget as a 'golden opportunity' to end austerity.

By pausing and fixing Universal Credit, delivering ambitious Growth Deals for North and Mid Wales and truly ending austerity, the UK Government can improve the lives of people across Wales who need a helping hand.

We have a clear plan to stop Brexit, fix Britain’s broken tax system and fund public services properly. We urge the UK Government to follow our plan to create the fairer, more prosperous Wales we need. We demand a free, fair and Liberal Wales and our plan helps deliver it.

– Jane Dodds, Welsh Liberal Democrat leader