22 December 2020: Welsh Finance Minister Rebecca Evans has set out plans to spend £22bn in the financial year commencing 1 April 2021.

On 21 December 2020, the Welsh Government put out for consultation its Draft Budget for 2021-22, based on planned spending of £22.3bn as summarised in Table 1.

Table 1 – Summary Welsh Government Draft Budget 2021-22

	£m	Spending	£m
UK Government	18,556	Main Expenditure Groups	21,099
Devolved taxes	3,429	Unallocated budget held centrally	1,075
Net borrowing	143	Senedd (Welsh Parliament)	63
Drawdown from the Wales Reserve	125	Audit Wales, Ombudsman, Elections	16
Total funding	22,253	Total spending	22,253

^{Source: Welsh Government, Draft Budget 2021-22.}

 

The Welsh Government sets out its objectives for the 2021-22 Budget as being to (i) protect public health and jobs; (ii) build a greener future; and (iii) make changes for a fairer, more equal Wales.

In line with the UK Government’s Spending Review, the Budget only goes as far the next financial year ending on 31 March 2022, with no forecasts provided for subsequent financial years as would normally be expected.

Funding

The majority of the funding comes from the UK Government in the form of a block grant, calculated in accordance with the Barnett formula. Excluding COVID-19 and farm subsidies, core funding under the Barnett formula is expected to increase by 4.6% in 2021-22.

The Welsh Government anticipates collecting £3,429m in devolved taxes in 2021-22, comprising £2,064m from the Welsh element of income tax, £1,101m from business rates, £231m from land transaction tax (the Welsh equivalent of stamp duty on properties) and £33m from landfill disposals tax.

In putting together the Budget, the Welsh Government is proposing to leave the Welsh rate of income tax unchanged at 10%. However, it intends to reduce land transaction taxes on the purchase of business properties to support the economic recovery and to increase the rate on second home purchases by 1 percentage point. The net £13m expected to be raised in 2021-22 is to be used to increase investment in social housing.

Net borrowing consists of £150m in new borrowing – the maximum permitted under devolution arrangements – less £7m in debt repayments. This should result in outstanding debt reaching £341m on 31 March 2022.

In addition, the Welsh Government plans to draw £125m from the Wales Reserve it holds with HM Treasury. This stood at £336bn on 1 April 2020, before taking account of withdrawals in the current financial year.

Spending

Spending allocated to the seven main expenditure groups within the Welsh administration in 2021-22 is £21,099m, comprising £17,727m for resource expenditure (including depreciation) and £3,372m for capital spending (including financial transactions) as set out in Table 2 below. This is a 5.0% increase compared with the budget for the current year, reflecting a 4.6% increase in the core Barnett formula, £244m in separate funding for farms and fisheries, an increase in general capital funding of £60m, and a £191m reduction in financial transactions capital.

These amounts exclude a centrally held budget that has yet to be allocated, with only £77m of £766m in COVID-19 related funding provided by the UK Government incorporated into departmental budgets so far. Further allocations are planned to be included in the final version of the Welsh Budget when is finalised in March 2021, with any remaining balance held centrally to provide a contingency for use during the year as needed.

The remaining budget lines comprise £63m for the Senedd Commission that covers the running costs of the Welsh Parliament, £8m for Audit Wales, £5m for the Welsh Parliamentary Ombudsman, £2m for the Electoral Commission and £1m in other spending.

Table 2 – Draft spending allocations 2021-22

	Spending £m	Change £m	Change %
Health and Social Services	9,213	+369	+4.2%
Housing and Local Government	6,026	+235	+4.1%
Education	2,697	+172	+6.8%
Economy and Transport	1,691	+134	+8.6%
Environment, Energy & Rural Affairs	719	+63	+9.6%
Mental Health, Wellbeing and Welsh Language	336	+16	+4.9%
Central Services and Administration	417	+19	+4.9%
Main Expenditure Groups	21,099	+1,008	+5.0%
Resource allocations (DEL and AME)	17,727	+829	+4.9%
Capital allocations (DEL and AME)	3,372	+179	+5.6%
Main Expenditure Groups	21,099	+1,008	+5.0%

_{Source: Welsh Government, Draft Budget 2021-22.}

 

Expenditure increases include £385m in extra funding for core NHS services, taking funding for NHS Wales to more than £8.4bn. There is an extra £10m in capital funding for diagnostic equipment and an extra £6m for energy efficiency within the NHS.

There is an uplift of £176m for local government, taking account of the effect of the pandemic on business rates collection and the freeze in the business rates multiplier in 2021-22, with an additional £37m for social housing.

The increase in education spending includes an additional £22m for sixth forms and further education colleges as more students are predicted to stay in education next year, while there is an additional £40m for capital spending on schools, including £5m for net-zero carbon schools.

Investment in public transport includes £275m of capital funding for the South Wales Metro, with an additional £20m of capital funding identified to increase the budget for improving access to public transport to £55m. There is also an increase of £15m to £168m in the combined capital and revenue budget for the strategic road network in Wales.

Other increases include £20m for fuel poverty and renewable energy programmes, £27m for economic and environmental resilience including ‘Circular Economy’ initiatives to keep resources in use for as long as possible and avoid waste, £15m extra for childcare for working parents of three and four-year-olds, £8m in new capital investment in tourism and creative sectors, and £5m in the Centre for Digital Public Services Wales.

Brexit

The Welsh Government highlights a number of uncertainties around the impact that any new trading arrangements with the EU in 2021 may have on the Welsh economy and its public finances.

In particular, it says that the funding provided by the UK Government for Welsh farmers is £173m less than it would have been if existing arrangements had continued, while the UK Shared Prosperity Fund (the post-Brexit replacement for EU regional development spending) is reportedly worth £220m for the whole of the UK in 2021-22 – a substantial reduction from the £375m previously spent by the EU in Wales alone through the European Structural and Investment Funds.

Comment

Martin Wheatcroft FCA, external advisor to ICAEW on public finances, commented:

“The proposed 5% increase in spending allocations in the Welsh Government’s Draft Budget for 2021-22 may look generous at first sight, but there is a lot going on under the bonnet as EU regional development funding tails off following Brexit and the sizeable investments required to achieve net-zero start to become more apparent.

“With a resurgent coronavirus pandemic and significant uncertainty surrounding the implications for the Welsh economy and public finances of new trading arrangements with the EU from 1 January 2021, the job of members of the Welsh Senedd scrutinising the Budget over the next few weeks will be even harder than usual.”

For more information visit the Draft Budget 2021 to 2022 page on the Welsh Government website.