Following the Pre Budget Report, and the work done by the Institute of Fiscal Studies on the spending implications of what was announced (available here), I’ve been trying to work out its implications for the budgets of the devolved administrations.
In its usual way, the Treasury has issued ‘regional press notices‘ identifying key implications of the PBR for Scotland, Wales and Northern Ireland (and the English regions). These identified consequential payments, attributed to ‘additional provision for UK Government departments’, as follows:
Scotland £104 million
Wales £60 million
Northern Ireland £143 million
It’s never at all clear how such numbers are calculated, or on what basis, and indeed whether they’re part of the devolved block grant or include spending on devolved social security programmes (housing benefit and council tax benefit for all three administrations, and all social security in Northern Ireland). I would suppose that the Northern Ireland figure includes increased social security payments, but have no way to verify that.
What interests me more is the impact that UK Government spending plans for the next spending review period (2011-12 to 2013-14) will have for the devolved administrations, if the present financing arrangements remain intact. This means a lot of assumptions, including Labour’s spending plans not being altered after the election, the general financial environment not getting any worse, and proposals for change including the partial tax devolution ones set out in Scotland’s Place in the United Kingdom not being implemented. Even trying to work things through on this basis is quite complex. The UK Government has promised to maintain real-terms spending on health and Sure Start, and to increase slightly spending on ‘front-line’ schools. (I have translated that as relating to all consequential spending on devolved functions comparable to that in England for the Department for Children, Schools and Families, for simplicity’s sake.) Those functions account for the bulk of the block grants to the devolved administrations, and (by my reckoning) for 73.5 per cent of changes in the block grants for the Scottish Government and 74.1 per cent for the Welsh Assembly Government. (These numbers are only for Scotland and Wales – I’ve not had a chance to do the sums for Northern Ireland.) The IFS say that this means spending on other functions must decline by 6.4 per cent in real terms in 2011-12 and 2012-13 to compensate for the protection of health and education (as well as development aid).
The Scottish block in 2008-09 (using estimated out-turn figures from PESA 2009, available here; see table1.12) was £27 746 000, and that for Wales was £14 427 000.
If the block grants were to be changed in those proportions (and in 2008-09 values), the blocks for 2011-12 and 2012-13 would be as follows:
Scotland £27 062 100
Wales £14 215 500
This means that the block grants will remain very largely what they are in real terms, with reductions of about 1.5 per cent from the 2008-09 levels. This obviously is a significant constraint on devolved Scottish and Welsh public spending, but given the austerity likely to be visited on many other areas of public policy, it is actually not too bad an outcome at all – if, of course, Labour’s plans in fact are sustained. There are many imponderables, not least the cost of servicing the huge public debt, whether unemployment remains relatively low, and how strong are political commitments to those spending plans. The IFS add that we face ‘two parliaments of pain’, with the overall debt burden reaching a peak around 2015-16, in consequence of the fact that the UK is now running a structural (not just a cyclical) deficit. The ‘if’ therefore remains a big ‘if’.
There’s also a question of what the implications of this situation will be. The outlook for major transport infrastructure projects has to be bleak, if the department’s budget were to be cut by 6.4 per cent. As two of the major schemes on the agenda are electrification of the Western main line, and the ‘High Speed 2’ project ultimately extending from London via Birmingham and Manchester to Glasgow and Edinburgh, this is not good for Wales or Scotland’s transport links. Moreover, if the devolved budgets are largely sheltered while important areas of spending in England are cut, that will fuel existing English resentment about the way the devolved administrations are treated. And if the Treasury seeks to maintain the allocation of devolved spending between capital and current spending, with capital spending and investment scheduled to drop dramatically after 2011-12, that means that the choices open to the devolved administrations about how they spend their money are limited in another respect. As the Treasury has been concerned about their low levels of capital spending in the past, it would be ironic if it were now to try to prevent the devolved administrations increasing capital spending to fit with UK spending targets.