Welsh government faces three year funding cut, says IFS

14 Sep 16

The Welsh Government’s budget could be cut by 3.2% in real terms over the next three years, according to an analysis from the Institute for Fiscal Studies.

Using forecasts set out in the 2016 Budget, the think-tank highlighted that the cuts could be deeper across a range of service areas if the Welsh Government decided to protect the NHS budget. If ministers chose to do this, as has been the case for the English NHS, then other spending would could face cuts averaging 7.4% in real terms, according to the review, which was published as part of the Wales Public Services 2025 programme, hosted at Cardiff Business School. This programme provides independent analysis of the fiscal, economic and policy challenges facing public services in Wales.

Local councils are likely to be particularly affected by cuts. If the Welsh Government protects NHS funding and cuts grants to councils in line with the rest of its spending, grants would be cut by 7.4% in real terms by 2019-20.

According to the report, the Office for Budget Responsibility predicts that Welsh councils will increase council tax bills by around 4% each year, in each of the next three years. Accounting for the additional revenue this would provide, councils would see an overall drop in their budgets of 5.9%. This is on top of the real-term cuts of between 20-50% that areas like housing, culture and leisure, and planning have faced since 2009-10.

The IFS also highlighted the potentially serious implications for the Welsh Government’s budget, in light of the UK’s vote to leave the European Union. The UK government has confirmed that funding for payments to farmers will be guaranteed until 2020. However, funding for rural development and regional development projects will not be guaranteed unless projects are signed off before the upcoming Autumn Statement. Later projects will be funded on a case-by-case basis.

There is little certainly around what funding will be available for EU-funded schemes after 2020, the IFS highlighted. If no extra funding is provided, the Welsh Government would have to find over £500m a year from its existing budget if it wanted to continue to fund these schemes. This is likely to more than double the average budget cuts to 6.9% in 2020–21.

Polly Simpson, a research economist at the IFS and an author of the report said the research highlights the difficult budgetary tradeoffs facing the Welsh Government.

“Protecting such large areas of spending as health, social care and education would require substantial cuts to other areas of spending that have often already had to absorb seven years of real-terms cuts,” she stated.

She highlighted that tax hikes were “unlikely to be a panacea. For instance, even increasing council tax by over 7% a year, could still leave some council services facing double-digit cuts over the next three years.” 

Responding to the report, head of CIPFA Wales, Chris Tidswell, said that question marks would now inevitably hang over the sustainability of services.

“With savings and efficiencies, local government organisations have so far managed to balance the books, but these options are being exhausted, leaving a very real risk to non-statutory services,” he said.

In order to support struggling services, additional revenue would need to be raised through other means, he added. “Councils must look to more entrepreneurial solutions to raising income. If not, it will be a case of organisations managing decline, rather than developing services to meet the needs of communities now and in the future.”

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