Wales and the Chancellor's spending review: what to watch out for

Rishi Sunak, Chancellor of the Exchequer Credit: PA

Decisions involving billions of pounds of taxpayers' money and which will affect us all will be announced by the Chancellor of the Exchequer later.

Rishi Sunak will set out a Spending Review, setting the pattern of the UK Government's activity for the next financial year.

He'll announce it in a speech beginning at 1230. What should you look out for?

What is the Spending Review?

It’s like a budget but not like a budget! This Spending Review will set out what the UK Government will spend around half its budget on over the course of the next financial year 2021/22. 

Normally these reviews cover much longer periods of time (up to five years) and give chance for governments to reset priorities. 

This one has been delayed and reduced to a single year in order to prioritise tackling the pandemic and saving jobs.

It will in many ways therefore look and feel like an annual budget although there won’t be any tax changes announced and only around half of the UK Government’s total spending will be involved. The next budget will take place in March.

Credit: PA

Money for Wales

The amount spent in Wales will come in two parts: the money spent in non-devolved areas (such as benefits, criminal justice) directly by the UK Government and as a figure of the total amount of funding the Welsh Government will get from Westminster.For 2020/21 the Welsh Government originally received £14.7bn from the UK Government. Since then, as a result of covid, the UK Government has substantially increased that amount, it says by £5bn. 

It’s important to note that funding from the UK Government doesn’t represent total Welsh Government spending because it also raises money itself through partially or wholly devolved taxes. The original estimate for Welsh tax revenue in 2020/21 was around £4.5bn.

The Welsh Government has made the following calls on the Chancellor ahead of the Spending Review:

  • long term funding to deliver certainty for Welsh communities affected by intense storms and coal tip safety issues

  • delivering post EU-funding guarantees

  • budgetary flexibilities to ensure existing funding can be targeted where it is needed, when it is needed

Shared Prosperity FundThere could be an angry political confrontation over this. What you can expect today as part of the Spending Review is the overall amount which will be dedicated to the Shared Prosperity Fund. The SPF is what the UK Government is planning to replace EU funds with. First promised in 2017 and repeated in the 2019 Conservative manifesto, details of this have been much promised and much delayed. A consultation was also promised although there is virtually no chance of that now happening. 

Opponents and the devolved governments say the amount must match Conservative pledges for it not to be a penny less than the EU funds it’s replacing. Ministers have repeatedly insist that the figure will equal that figure. 

However, a treasury spokesperson was quoted in reports at the weekend as saying the Spending Review would “include £220 million next year for pilot programmes ‘well before investment from EU Structural Funds starts to tail off’.”  

The current period Wales gets an average of £308m a year from EU funding. Credit: PA

If that’s a UK-wide figure it would fall far short of current levels. In the current period Wales gets an average of £308m a year from EU funding while the UK total is £2.1bn a year.

That could well be one argument but an even bigger one could be over the administration of the SPF although it’s not clear if these details will be announced during the Spending Review.

EU funds allocated to Wales are administered by a Welsh Government agency following broad rules set by Brussels.

All the indications are that the SPF will administer its funds centrally,  working with the devolved governments and local authorities.

Depending on your political view, this is seen either as the UK Government asserting itself over the devolved administrations or by supporters as Westminster simply taking on the role of Brussels but with input from elected Welsh representatives, i.e. MPs.

Wales’ Brexit minister Jeremy Miles and his Scottish counterpart have issued a joint statement warning the Chancellor to ‘respect devolution. 

Jeremy Miles said, “The UK Government must make good on promises repeatedly made that Brexit would not mean any loss of funding and that the devolution settlement would be respected.”

Credit: PA Images

Public Sector pay freeze. 

It has been reported that measures that the Chancellor is looking at beginning the process of paying for the pandemic include freezing or limiting public sector pay. It’s thought that wouldn’t include NHS workers but could affect teachers, police officers and, for instance, people working in Welsh prisons, the DVLA or HM Revenue and Customs.

The Welsh Government is responsible for the pay and conditions of teachers, NHS and social care workers, local authority employees, fire and rescue services and some other public employees. Mark Drakeford has publicly criticised the idea of a pay freeze but has also acknowledged his government would have to consider its own pay settlements in the light of whatever is set across the border.

Impact of spending in England

You can expect re-confirmation of funding to meet Conservative pledges on police recruitment and the recruitment of nurses, as well as spending on schools and nurseries, £3.7bn investment in 40 hospitals in England.

There's also likely to be re-confirmation of£1 .5bn to continue improving Further Education college buildings, a ten year school rebuilding programme, increased spending on schools from £47.6bn this year to £49.8bn.

Health and education is devolved to Wales so any new spending in these areas should trigger funding for Wales under the Barnett formula. The Welsh Government isn’t obliged to spend it on health and education. 

National infrastructure bank

This would be a UK-wide investment institution based in the North of England to support projects in England, Scotland, Wales and Northern Ireland. 

The Treasury says “It will help to catalyse private investment, including leveraging funding from overseas, to support key projects and create jobs across the UK.”

Credit: PA

Criminal Justice 

Criminal justice isn't devolved to Wales so anything announced in this area will apply to Wales as well as England. It's expected commitments will include an extra £275m funding to increase capacity in courts to cope with the impact of covid, £40 million for victims and support services  and additional funding as part of UK Government’s promise to recruit 20,000 new police officers by 2023. 

“Tens of millions” committed to creating “a world-leading Counter Terrorism Operations Centre” to be based in London