Both the Welsh and Scottish Governments are publishing their draft budgets on Tuesday, 19th December, with consultations and debates to follow in the New Year. There will be keen interest in where governments are investing and what cuts will be made.
There is unlikely to be much spare change in the government stockings and definitely no Christmas cheer, as has been admitted by Mark Drakeford this week.
Budgets across the nations have been hit by increased inflation, economies struggling to recover from the pandemic, increasing (and unforeseen) public-sector pay-deals and pressure on an already squeezed public sector.
The Scottish Deputy First Minister has branded this budget as the “most challenging budget settlement since devolution” and in Wales, the expected “severe impact” of the budget has led to members of the Senedd publicly calling for a delay to the Christmas break.
We already know some of what will be in the budgets. In October, the Welsh First Minister announced additional spending on the NHS and Transport for Wales, paid for in part via cuts across other portfolios and in capital spending.
According to the Wales Governance Centre at Cardiff University, “Welsh Government day-to-day spending in 2023-24 is 6% higher than in 2010-11 in real terms – but outside the NHS, spending is still about 10% lower this year compared to pre-austerity levels”.
They have crunched some of the numbers and found that for the Welsh Government to stick to previously made commitments for the NHS, local government and Non-Domestic Rates reliefs for Retail, Hospitality and Leisure businesses would require cuts of £102m across other spending areas. Increased childcare spending in line with the additional consequential and additional funding for Transport for Wales, would increase the cuts needed to £293m.
Looking to Scotland, the Fraser of Allander Institute (FAI) at the University of Strathclyde, Glasgow set out in their blog that “The Scottish Government faces a £1.5bn shortfall in funding for next year due to increased spending pressures and new announcements”
The Scottish Parliament Information Centre have set out their analysis of how the Scottish Government will possibly aim to fill the holes in their budget through public sector reform and reductions in the workforce size. Earlier this year, at the SNP conference, the First Minister for Scotland made some expensive promised, from a “fully funded” freeze on council tax, with the costs estimated up to £330m, and £100m to address the formidable backlog of patients waiting for NHS care.
If cuts and reforms won’t find enough money, budget announcements may also set out proposed changes to tax regimes, following the UK Government announcement for reductions in national insurance contributions and an ongoing freeze on business rates.
The FAI have looked at whether the Scottish Government (as anticipated) will bring in new income tax bands, including a new 45% tax band for anyone earning over £75,000 and the extent to which this could look to fill the £1.5billion hole (in summary, it won’t). We don’t anticipate that the Welsh Government will look to use its powers over the Welsh rates of income tax, but that time might be coming in the near future.
This is not the first time either government has had to make difficult decisions, at PolicyWISE we will be watching closely to see how the two governments are choosing to balance their fiscal books through our unique comparative policy lens.
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