Public spending in Wales: planning ahead in uncertain times

15 Nov 16

Ahead of addressing the CIPFA Wales conference later this month, Welsh Government cabinet secretary for finance Mark Drakeford sets out the challenges for public services posed by Brexit and austerity.

The outcome of the EU referendum in June has raised fundamental questions about our future. We do not know how our relationship with the European Union will be recast – the UK government's negotiating position remains unclear and the full impact on the UK’s public finances and the Welsh budget in the long-term is yet to be realised.

Since devolution in 1999, Wales has been a net beneficiary of EU funding. We currently receive around £650m a year in structural funding, agricultural subsidies and grants. While we have received welcome assurances the Treasury will guarantee funding for structural and investment projects approved before the UK leaves the EU, we must ensure Wales continues to receive this funding in the years afterwards. 

The decision to leave the European Union is the single biggest issue to face the UK in a generation. Wales must therefore be involved in the detailed discussions about the UK’s negotiating position so we can make sure we get the best possible deal for Wales and the three million people living here.

We continue to face cuts to our overall budget as a result of the UK government’s austerity policies – we are facing a period which the Institute for Fiscal Studies has called “an extraordinary 11 or more years of retrenchment in public service spending”. Last week, the IFS warned the prospects for the UK’s public finances have deteriorated by £25bn since the UK government’s March Budget and before the referendum.

The chancellor has signalled that he wants to take a different approach to austerity but we won’t know what that means until the Autumn Statement on 23 November. I’ll be addressing the CIPFA annual conference the following day, when we hopefully have clarity about what the chancellor’s fiscal resetting means for Wales.

In less than 18 months, Wales will be raising its own taxes for the first time in almost 800 years when we introduce two new devolved taxes – land transaction tax and landfill disposals tax. These two taxes will replace stamp duty land tax and landfill tax and will mean the Welsh Government will for the first time be raising our own revenue to fund our public services.

We are in the process of negotiating a fiscal framework with the UK government to set out new funding arrangements for Wales for when the two taxes are devolved and in preparation for the eventual partial devolution of income tax at some point in the future. The fiscal framework will specify the adjustments to be made to the Welsh block grant, including how these will interact with the Barnett formula and the funding floor, and will examine our capital borrowing limits and essential changes to our budgetary procedures.

Against the backdrop of these uncertain times, I published our spending plans for 2017-18 to take Wales forward. Our budget has been designed to provide stability for our valued public services in the immediate future while we work collectively to plan for the future. But it is also a budget with ambition to make progress on our promises to the people of Wales. 

Infrastructure investment is central to the Welsh Government’s ambitions – it is vitally important for business confidence and for the long-term economic wellbeing of people and communities in Wales. Alongside our one-year revenue plans, we have published four-year capital plans to provide confidence and assurance to our key stakeholders, local construction sector and business.

We will face hard choices in the months and years to come but we will continue to work to protect our public services from the worst effects of ongoing austerity and fiscal uncertainty while continuing to invest in Wales and take our country forward.

• Mark Drakeford will be delivering the keynote address at the CIPFA Cymru Wales Annual Conference on 24 November.

  • A blueprint for Welsh councils reform, which will set out more details of plans to pool some services at regional level, will be published early next year, Welsh local government secretary Mark Drakeford has said.
    Mark Drakeford

    Mark Drakeford is the Welsh Government cabinet secretary for finance and local government

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