Welsh Government unveil in-year financial changes as they have had to ‘spend more than previously planned this year’

Welsh Government say budget changes will enable the direction of £425 million of additional funding to support the Welsh NHS this year, as they unveiled how they needed to find around £600m to balance the books this year.

Transport for Wales budget will also increase by £125 million in-year “to help safeguard services for passengers and continue the programme of transformation”.

Welsh Government, much like Wrexham Council, have made an unusual in-year financial statement and changes, explained as since setting the budget “…we have experienced record prolonged levels of inflation along with continued challenges in the fiscal context, particularly in areas such as public sector pay. As a result, overall, we are having to spend more than previously planned this year, placing unprecedented pressure on the devolved Welsh Budget”

As part of the package of changes, the Welsh Government will make up to £100 million available from in-year reserves and the Wales Reserve, and will ask the UK Treasury to switch some capital funding to revenue funding this financial year – a mechanism regularly used by the UK government to help manage its budgets, and something we have documented historically that the First Minister has asked for historically.

The announcement came in the Senedd yesterday (A full update PDF was later published) with the Finance Minister Rebecca Evans saying, “We are currently in the second year of a three-year financial settlement. Our revenue budget increased by just 5 per cent this year, against inflation running at 8 per cent on average so far this year. I am grateful to Cabinet colleagues for working hard in order to address these pressures, caused by the triple impact of inflation, the impact of more than a decade of austerity on public services, and the ongoing consequences of Brexit. These, combined with the UK Government’s economic mismanagement, including the disastrous mini-budget, have combined to place the devolved Welsh budget under unprecedented pressure.”

Her speech detailed elements from the documents released, with the following ‘main expenditure group’ funding areas given.

The lack of detail on where the cash from cuts would be found was explained with a pointer to the new year, ” I have set out the headline details of these changes in a document published today alongside the statement. The detailed changes will be reconciled in the normal way through the second supplementary budget, to be laid before the Senedd early next year.”

The speech ended with a warning, “Turning to the next financial year, I want to be clear with the Senedd. Our revenue budget is set to increase by just 2 per cent, and our capital budget will actually fall by 1 per cent. With inflation still stubbornly high, these pressures we have sought to address this year will be even more difficult next year, and we will simply not be able to do all of the things that we would wish to do. We will continue to make financial decisions guided by our principles and our values, protecting the people of Wales and Welsh public services as much as possible from the current pressures that we face”.

Welsh Government have said the local government Revenue Support Grant (RSG) has also been protected. This helps to pay for schools, social care and many of the services people rely on in their everyday lives, such as their recycling and waste collections and local libraries. They added every ministerial portfolio was asked to make a contribution to meet the extraordinary financial pressures. Ministers have re-prioritised spending and activities as much as possible, rather than cutting programmes as a whole.

Peter Fox MS gave the Welsh Conservatives response in the chamber, “I want to begin by acknowledging again that governments across the world are facing difficult choices as a result of global events. I know also, from first-hand experience, that projected deficits present real challenges and insecurity to services and their users. However, we’ve got to be clear. It must be said that Wales is in its current financial situation as a direct result of extremely poor management and short-sighted decision making and planning, underpinned by a politically driven philosophy, leading to Wales being left incredibly vulnerable, especially to global economic changes.

“The fact that the Government only started focusing in any meaningful way on the projected position of their budget on 1 August beggars belief. At the end of last year we know that the Wales fiscal analysis mentioned to the Government the possibility of this shortfall. They had a forecast of around £800 million then. They said the situation was predictable, as the inflationary pressures were there, and they were surprised that the Welsh Government were shocked.”

“So, why wasn’t this seen, to a degree, prior to setting the budget in March? Challenges facing the budget due to inflationary factors should have been pre-empted far earlier. It is crucial that forward planning and contingency thinking should have been at the forefront of Government’s mind far earlier. But it wasn’t, was it? Their eye has been off the ball for some time, while focusing on their suite of pet projects that have siphoned millions away from core services, increasing our vulnerability. I acknowledge that there were unknowns surrounding pay levels in service areas. However, that cannot be an excuse for the current state of play. We know that the Welsh Government’s total budget this year is the largest ever, at nearly £25.5 billion. Once again, I want to emphasise the fact that this has been the largest ever settlement given by Westminster, with next year’s projected at £26.5 billion—another thousand million.”

Mr Fox branded it ‘disappointing’ adding, “Welsh Government is looking to blame again the UK Government for the Welsh Government’s political choices. The decision to implement the default 20 mph speed limit is a perfect example—a £33 million price tag with a cost of £4.5 million to the Welsh economy demonstrates well what I’m saying. And with the universal basic income, add another £20 million, together with a host of other pet projects, topped off with the plans for another 36 Senedd Members at £120 million over future years says it all. These were the Government’s priorities, decisions supported and encouraged by Plaid Cymru. So, it would be a bit rich if, on those benches, they start calling foul today.”

Plaid Cymru’s Peredur Owen Griffiths MS said, “Given that the Welsh Government has been telling us since August that they’ve been working to address the £900 million hole in their budget, which, let’s not forget, represents almost 5 per cent of the entire block grant for the current financial year, I’m sure many will be scratching their heads as to how they’ve been able to find an additional £550 million”

“Since many of the savings that have been outlined here are coming from anticipated consequentials from NHS pay awards and draw-downs from the Wales reserve, both of which could have been known for some time, I’m not clear why it has taken over four months after the supplementary budget to provide this clarity. I’d therefore be very grateful, Minister, if you would commit to appearing before the Finance Committee as soon as possible to explain the relevant timescales, current developments and decisions taken by the Government that have led us to this point”

He added a focus on the TfW funding, “You have also made a further £125 million available for Transport for Wales. Is this an admission that the service is not performing as it should be and becoming a bit of a money pit? You’ve also mentioned that substantial savings have been found through portfolio reprioritisation, of which a substantial portion is coming from underspends of demand-led programme.”

The Minister replied, “In terms of Transport for Wales, and particularly rail, I know that there have been some real struggles because people just haven’t been returning to rail in the numbers that we would have anticipated as we came out of the pandemic. I know that there’s a programme of transformation going on within rail at the moment, so this will enable that piece of work to continue and to support those services as things move forward, at least through this financial year.”

Vale of Clwyd MS Gareth Davies MS asked about the local health board, asking “You announced the increase of £425 million to the NHS, but then, in another breath, you say that difficult decisions are still going to have to be made by health boards. So, what is that essentially saying? Is that saying that’s a cut in real terms, or what sort of message is that giving out to health boards? And from a north Wales perspective, I’d like to ask—. Asking Betsi Cadwaladr to make difficult decisions while they’re in special measures is quite a task, because obviously, the challenge of special measures is to eventually get the board out of special measures, and if they’re suddenly embarking on making difficult decisions, then that’s going to jeopardise the quality of the health board coming out of special measures in a specific time. So, can you comment on that matter and expand a bit more on your comments on the NHS and what that means for the people of north Wales from a Betsi Cadwaladr perspective?”

The Minister replied, “In terms of the NHS, the NHS has been making difficult decisions for years now, and it’s been doing that because of austerity and the constrained public spending that we’ve been able to provide to the NHS and all public services in the context of austerity. But, that said, the NHS will be receiving year-on-year now, this year, an increase of more than £800 million as compared with the last financial year. But, still, it’s not enough, it’s not enough to meet the pressures within health, it’s not enough to provide the kind of service that we would want to provide to everybody. But that’s where we are, so we are prioritising the NHS and we are asking colleagues to make difficult decisions across Government to meet that. This pressure is here because of inflation and because of years and years of underinvestment by the UK Government in public services.”

Towards the end of the debate the Minister wrapped up, “In terms of what we’re doing, today’s exercise isn’t about asking for more money; it’s about flexibility to use the money that we have. But that’s not to say that we’re not asking the UK Government for the money that we need. I’ve written to the Chancellor, ahead of the autumn statement, to outline the priorities for Wales, and said that has to be about investing in public services and addressing the impacts of inflation on our budget, including noting the pressures on local government, continuing to provide cost-of-living support, including implementing an essentials guarantee that would ensure that people are able to meet their essential costs, and also increasing the discretionary funding for housing payments and local housing allowance rates. Also, in that letter to the Chancellor, I talked about reclassification of HS2 as an England-only project, ensuring that Wales receives the consequential funding lost to date—that £270 million—and, also, then, conducting a wider review of rail comparability and committing to investing in a wider programme of investment in rail in Wales, providing the infrastructure that we need. “