This article was written by Guto Ifan. Guto joined the Wales Governance Centre at Cardiff University as a research assistant on the Government Expenditure and Revenue Wales (GERW) project, estimating and analysing Wales’ fiscal position.
The Autumn Statement will have left many onlookers in Wales feeling slightly underwhelmed. A year ago, the then-Chancellor George Osborne brashly announced an “historic” funding floor and the scrapping of the referendum requirement for income tax devolution. This time around, in line with the less flamboyant style of the new Chancellor Phillip Hammond, Welsh-related funding announcements were limited to “good progress in discussions” on already-announced city deals.
Perhaps this was to be expected. The Welsh Government and HM Treasury are currently engaged in multi-million pound negotiations at a body named the Joint Exchequer Committee to set the future ‘Fiscal Framework’ in which Welsh Government finances will operate. The agreement to be reached will cover how tax devolution will be implemented, funding reform, the Welsh Government’s borrowing powers and much more. Those expecting big announcements on Welsh public finances must wait another few months.
But what does this Autumn Statement mean for the Welsh Government budget? Under existing spending plans, the Welsh Government’s block grant for current (day-to-day) spending was facing a real terms cut of around 3% to 4% by 2019-20, which won’t be offset by the negligible increases in current spending announced in the Autumn Statement.
There was better news in terms of the Welsh Government’s capital budget however, with the Treasury announcing over £400 million extra capital funding for the Welsh Government through to 2020-21. This extra money comes through the operation of the Barnett formula; if a UK Government spending policy change is determined by the Treasury to be in a devolved area, then the same pounds-per-person change is passed onto the Welsh Government budget. This extra funding will be a small but welcome boost to a capital budget which is almost a fifth lower in real terms than it was in 2010.
A further boost will come from the Welsh Government’s ability to borrow (from April 2018 onwards) up to an overall limit of £500 million to finance capital spending. Furthermore, the £2 billion share of Welsh income taxes soon to be under the control of the Welsh Government will allow for an increase in this capital borrowing limit set by the UK Government. This will be one of the key outcomes of the ongoing Fiscal Framework negotiations.
At the end of the tortuous 11-month-long Scottish Fiscal Framework negotiations in February, the UK Government agreed to an overall limit of £3 billion for the Scottish Government. This was generally seen as a rather strict limit given the substantial devolved tax revenues it was taking on.
However, much has changed since then, not least the arrival of a new Chancellor and Chief Secretary to the Treasury. The relaxation of the UK-wide fiscal rules on borrowing, the announcement of mayoral borrowing powers in England, and the Chancellor’s professed fixation with productivity and infrastructure spending will all boost the Welsh Government’s case for a big increase in its capital borrowing powers.
Therefore, the effect of this Autumn Statement on the Welsh Government budget may appear underwhelming, but it could open the door for a large increase in the Welsh Government’s ability to borrow and pay for some of the much-needed infrastructure projects across Wales.