Finance

Covid, confusion, and consequentials: how much funding will the Welsh Government get from the Summer Statement?

As usual, the UK Chancellor’s “mini budget” on 8 July was followed by claims, counterclaims, and confusion over the amount of additional funding for the Welsh budget.

The UK government claimed, “the Summer Economic Update confirms an additional £500 million of Covid-19 funding for the Welsh Government through the Barnett formula.”

Later, the Welsh Government said it would be getting only £12.5 million in consequentials as a result of the Summer Statement.

So, who and what is to be believed?

Consequentials from the UK government’s Plan for Jobs

In the latest stage of the fiscal response to Covid-19, the UK chancellor set out measures costing ‘up to’ £30 billion. Most announcements apply across the UK, from the Job Retention Bonus Scheme, to the ‘Eat Out to Help Out’ meal subsidy scheme.

However, the £2 billion Green Homes Grant and £400 million for traineeships, apprenticeships, school leavers, and careers advice in England, represent policy areas devolved to Wales, which would normally trigger consequentials for the Welsh Government. This is why the £12.5 million figure quoted by the Welsh Government seemed implausibly small at first glance.

However, it is now clear that all of the Green Homes Grant scheme and about half of the traineeships-related spending will be funded from within pre-existing budgets. Since only a fraction of this is ‘new’ money, the consequential is therefore considerably smaller than expected. If the Welsh Government wishes to replicate these schemes, it will need to re-prioritise existing spending plans.

One would also usually expect consequentials from the £5.6 billion of infrastructure investment package (the so-called ‘New Deal’ announcement). However, as well as being funding brought forward from previously planned investment, it will also be funded by underspends on capital projects this year. Hence, no additional consequentials for capital projects in Wales.

Consequentials from the Stamp Duty holiday

What is not counted in the £12.5 million figure is the potential implications for the Welsh budget stemming from UK government’s Stamp Duty Land Tax temporary cut. Applying to transactions in England and Northern Ireland, increasing the 0% threshold to £500,000 will cost £3.8 billion (based on March 2020 forecasts).

Because the policy will lower revenues in England and Northern Ireland, it will decrease the Welsh Government’s Block Grant Adjustment (BGA). This is the amount taken away from the Welsh block grant to account for devolution, and changes from year to year are linked to comparable UK government revenues. Based on current forecasts, the BGA would fall by roughly £77 million as a result of this policy.

The Welsh Government has since responded by increasing the threshold for paying Land Transaction Tax to £250,000.[1] There was some confusion around the claim that the tax cut will “free up” £30 million for spending on social housing. It was rather the decision not to replicate UK government policy (or not to pass on all of the £77 million in the form of tax cuts in Wales) which has allowed more funding for social housing. The tax cut itself has presumably cost roughly £47 million.

Wider Covid-19 consequentials

As we set out in our analysis of the Welsh Government’s 1st Supplementary Budget for 2020-21, the outlook for the Welsh budget in 2020-21 had changed substantially since Final Budget plans were made in March. Additional revenue consequentials included in the supplementary budget included £1,856 million from Covid-19 response funding, on top of £123 million from Budget 2020 measures.  

The supplementary budget only included consequentials confirmed at Main Estimates by the UK government. Tracking funding past this point is tricky, given the regular funding announcements being made by UK government departments. Figure 1 summarises our attempt at estimating the total Covid-19 consequentials coming to Wales.

The “additional £500 million” for Wales quoted by the UK government did not result from the economic stimulus package, but from confirmation of additional spending on public services and business support. The £500 million also contained totals already announced (such as funding for the cultural sector).

The bulk of the additional funding for Wales appears to come from increased allocations to health spending (£340 million). Though it didn’t get much attention in the speech itself, the UK government announced a further £32.9 billion of public services funding (see footnote 6 of table 2 here). This included (a rather eye-watering) £15 billion for PPE procurement and £10 billion for the government’s Test, Trace, Contain and Enable programme.

Given the scale of these funding commitments, one would have expected to see larger Barnett consequentials resulting from them. However, it is noted that certain health services funding was being provided at a UK-wide basis, and some of the funding may also be coming from within pre-existing budgets.

Figure 1: Estimated total consequentials for Welsh Government from Covid-19 funding announcements

Source of funding £ m Notes:
Total at Main Estimates for 2020-21 1,856 Confirmed in 1st Supp. Budget. For breakdown, see Annex 1 here.
     
Additional announcements: 440   
Emergency Management Agreement for railway services (for year 2019-20) 35 Not 2020-21 
Additional DEL compensation for existing BR reliefs 5 Included in Main Estimates but not in Supplementary Budget
Charities (8 April) 20 Announcement here
Charity support – National Lottery Community Fund (8 April) 18 Announcement here
Increased response fund (13 April) 144 Announcement here
Fisheries (17 April) 0.3 Announcement here
Local government funding (18 April) 95 Announcement here
Rugby League (1 May) 1 Announcement here
Care homes in England (15 May) 35 Announcement here
Transport for London (19 May) 65 Announcement here
Test and Trace Service and housing for rough-sleepers in England (26 May) 23 Announcement here
     
Consequentials ‘confirmed’ at Summer Statement: 502  
Covid schools catch-up plan (19 June) 50 Announcement here (includes free school meal voucher scheme funding)
MHCLG rough sleeping (24 June)               5 Announcement here
Zoos in England (27 June) 6 Announcement here
New funding package for councils (2 July) 30 Announcement here
Investment to protect cultural, arts and heritage institutions (5 July) 59 Announcement here
Traineeships, apprenticeships etc. in England (8 July) 13 Estimated from available information
Additional health spending in England (8 July) 340 Estimated from available information
     
Total Covid-19 consequentials 2,799  

Overall, the UK government appears to be correct in asserting that the Welsh Government will receive £2.8 billion from all Covid-19 response funding announced to date. Breaking this down by area:

  • £1.3 billion for public services spending, including £717 million from health and social care spending, £229 million from local government funding, £270 from railways spending, and £50 million from schools spending
  • £1.47 billion in business support, including £731 million from business support grants, £625 million from business rates reliefs, and £59 million from support for the cultural sector
  • £29 million in support for individuals from the UK government’s Local Authority Hardship Fund

There may also be some additional funding as a result of the UK government’s promise to reimburse English local authorities for lost income, but this amount is not yet clear.

The Welsh Government’s fiscal response to Covid-19 contained in its 1st Supplementary Budget published on 27 May amounted to £2.4 billion. On top of consequentials and small adjustments, funding for this response contained £256 million of reprioritised funding from within its budget, as well as £245 million from repurposed EU funding.

From the analysis above, it would appear the Welsh Government has approximately £883 million of additional funding to allocate in revenue (day-to-day) spending on top of the plans it laid out in the supplementary budget.[2] This is on top of the unallocated fiscal resource of £148 million already in the budget.

Transparency, clarity, and accountability

In the midst of a public health and economic crisis, squabbling over funding figures may not seem important to many people (beyond bean-counting nerds like myself).

In responding to a question from the Senedd Finance Committee on the funding announcements made last week, the Secretary of State for Wales Simon Hart MP said he was “not worried about the clarity situation”.[3]

However, this lack of clarity and transparency is damaging, especially in current circumstances.

The lack of borrowing powers and budget flexibilities means the Welsh Government is (as ever) reliant on UK government announced consequentials.

If we do not know its fiscal capacity, it makes it impossible to hold the Welsh Government to account for its response to Covid-19. Is it doing enough to support individuals, public services, and businesses through the crisis? How should it support particular sectors? Should it enact similar programmes to the UK government in England?

Confusion will reign until HM Treasury releases its Block Grant Transparency data, which was promised for after the March budget but has not been published since December 2018.

The amount and nature of additional funding available for the Welsh Government should be freely available information and should not require hours of trawling through the selective press announcements of UK government departments.


[1] Despite a Welsh Government-commissioned evaluation of the 2008-2009 Stamp Duty holiday in Wales finding it “generated little additional activity in the Welsh economy”.

[2] This assumes that £25 million of the additional announcements in table 1 is capital funding, while the rest is resource funding.

[3] Full video available here: http://www.senedd.tv/Meeting/Archive/597ffdff-2f78-4c84-a273-d5b13ad11653?autostart=True

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