Budget analysis: What could Rishi Sunak's announcement mean for Wales?

Rishi Sunak's budget will have implications for communities across Wales Credit: PA

Budgets are always significant political occasions, but the one to be delivered by the Chancellor on Wednesday will be more significant than most.

Unusually, it’s the second budget this year and, like the first in March, will set out how the UK Government intends to deal with the consequences of the pandemic and rebuild the economy in the coming years.

It’s also coupled with a Spending Review, something which only comes along occasionally as a means of rethinking a government’s spending plans for the longer term.

It all means this budget will pack a lot in: deal with the biggest shock to the economy since the Second World War, set a direction for UK Government spending for the medium to long term, attempt to balance unprecedented levels of spending with Conservative party hopes for smaller government and set the tone for the next UK General Election. 

Add into that mix the effects of Brexit and another pressing political matter for Boris Johnson’s government: the future of the United Kingdom and you can see there’s a lot for Rishi Sunak to try to get done.

Here are some things to watch out for, much of which has already been announced. 

Pay and cost of living

The cost of living has increased during the pandemic, with the £20 Universal Credit uplift also coming to an end Credit: PA

The Conservative government has made clear it wants to drive up wages as a way of proving wrong the critics of Brexit and as a means of fulfilling its promises to voters in former Labour seats, such as those across the north here in Wales, who turned to the Conservatives in 2019.

Aside from what has already been previewed in recent days, Conservative supporters and opponents will want to see what Rishi Sunak plans to do to deal with the cost of living crisis. 

It’s already been announced that the Chancellor will raise the minimum wage to £9.50 an hour from April for those aged over 23, boosting pay for the lowest paid workers by £1,000 a year.

He will also end the public sector pay freeze, although police officers, job centre workers and others will have to wait until next year to find out how much of a pay rise they’ll get. 

Teachers, health workers and some other public sector employees here in Wales are employed by the Welsh Government which has generally matched any pay rises in England. 

However, the recent controversial ending of the Universal Credit uplift and next year’s planned National Insurance increase means that people may not feel much better off. The Institute for Fiscal Studies calculates that disposable income could increase by just £250 a year.

Political opponents of the UK Government say the changes mean that people will actually be worse off. Labour claims that someone on the minimum wage will lose more than £800 a year.

Welsh Conservatives see it differently. Their spokesperson Joel James said: “The increase of the national living wage is great news and further proof that Conservatives are on the side of hardworking people who want to get on in life.

“This sends a clear message that the UK Government will end low pay by the end of the current parliament and sets a clear example to all employers to value and invest in their staff.”

Help for small businesses

Many businesses in Wales still face uncertain futures Credit: PA

The Welsh Conservatives are also welcoming a new £130m fund to help small and medium sized businesses here in Wales.

The Chancellor is expected to announce the fund to deliver loans through the British Business Bank to help firms in Wales invest and grow.

There’s a political aspect to this announcement too. It’s one of the first practical steps made by the UK Government to intervene in areas which have previously been left to the devolved governments, as part of its efforts to “strengthen the union” of the United Kingdom.

Welsh Government funding

Mark Drakeford's government may be in line for a Barnett consequential cash injection Credit: PA

Every new amount committed to spending in England in a devolved area (for example health, education, transport, agriculture) leads to extra money for the Welsh Government to spend as it wishes.

This is what’s meant by “Barnett Consequentials” because of the Barnett Formula, used to work out how much UK Government spending goes to the devolved nations.

For Wales, it’s roughly 5% of what’s spent in England. So if £1m is spent on schools in England it should trigger £50,000 added to the amount the Welsh Government gets from the UK Government. 

However, much of what is being announced on Wednesday bundles together “new” money, previously-announced money and funds from existing budgets so the figure won’t be as clear cut as working out what 5% of £5.9 billion is. 

As part of the budget announcements, though not necessarily in the Chancellor’s speech, the figure for Wales will be set out. Based on previous budgets, the Welsh Government will not accept it until it sees the final confirmed figures.

The Welsh Government will not be obliged to spend the money on the same things but there will be political pressure (from the Conservatives) to match spending plans in England, for example on the NHS. 

These are the announcements so far that will trigger extra funding for the Welsh Government:

Wales and England or UK-wide spending

In non-devolved areas like welfare, defence and policing, the Chancellor’s announcements will directly affect Wales although it’s more difficult to work out how much. 

Here are the announcements so far in this category:

Shared Prosperity Fund

The Shared Prosperity Fund replaces EU structural funds Credit: PA

Opponents of Boris Johnson, and in particular Labour Welsh ministers will be keeping a very close eye on anything that’s said about the Shared Prosperity Fund. 

This is the replacement scheme for European Union funding (known as “structural funding”) 

The UK Government says it will increase the money available in the fund to £1.5bn a year to fulfill its commitment to at least match the amount of money Wales used to get from the EU scheme which was around £375m a year. 

There are other political factors to it too, primarily that the way it’s intended to operate. Decisions on divvying it up will be taken by the UK Government, leading to accusations that it’s intended to “bypass” or “undermine” devolution.

Watch out for big Budget announcements to be funded through the SPF. 

One has already been announced. The “Multiply” scheme to improve numeracy will be funded by the SPF and will be available to people in all parts of the UK.

This is clearly the first time a UK Government has launched a project in an entirely devolved area (education)  and sets the tone for future SPF projects.

Coal tips

The UK and Welsh Governments have been in an arm wrestle over funding for making coal tips safe

The Welsh Government has made this its main demand ahead of the Spending Review. It says the cost of making the tips safe is £600 million over 10 to 15 years and that to meet that cost, it needs help from the UK Government. 

Even though this is a devolved area, the Welsh Government says it’s clear that the problems were created pre-devolution. 

It’s likely to be disappointed. The UK Government has said the Welsh Government is “more than adequately funded.”