Wales and the Spending Review

I’ve been trying to make sense of the devolution implications of the UK Government’s Spending Review.  In particular, I find the outcome of the review for Wales rather baffling.  Why does Wales do markedly worse than Scotland or Northern Ireland?  As I’ve argued before (HERE), health and education are the largest drivers of changes in the overall block grant, as well as the largest spending items of the devolved governments.  These departments were relatively sheltered in the review.  In real terms, between now and the end of the review period in 2014-15, current health spending in England will increase by 1.3 per cent, and capital spending will decline by 17 per cent.  Education current spending in England will decline by ‘only’ 3.4 per cent, and the capital budget by 60 per cent.  (Education means Pre-18 spending, and schools spending is to be protected in real terms.)  The UK Government claims that ‘the Barnett formula will be applied in the usual way’ to the review.  Devolved block grants are all to shrink: by 6.8 per cent for Scotland, 6.9 per cent for Northern Ireland and 7.5 per cent for Wales, for current spending.  For capital spending, the forecast figures are -38 per cent for Scotland, – 37 per cent for Northern Ireland and -41 per cent for Wales.  (Those figures are set out in tables 1 and 2 on pages 10-11 of the Spending Review document, Cm 7942.)  Wales clearly gets the short end of a not very long stick.

Why is this?  The biggest difference in the composition of the block grants between Wales and the other devolved administrations relates to policing and justice functions.  These are devolved in Scotland and Northern Ireland, of course, but not in Wales.  Under the new Statement of Funding Policy (available here), Ministry of Justice functions are more than 99 per cent ‘comparable’ – so devolved – and Home Office ones are 76 per comparable.  (In essence, that’s because policing is devolved, but border control is a UK matter.)  However, these functions fare pretty poorly in the SR.  The MoJ’s current budget declines by 23 per cent and 50 per cent in capital terms, while the Home Office’s declines by 23 per cent (current) and 49 per cent (capital).  So the main immediate differences in devolved spending between Wales on one hand and Scotland and Northern Ireland on the other should logically work to Wales’s advantage, where health and education make up a larger proportion of devolved functions, but they don’t.

A more likely contender relates to local government spending, which accounts for a substantial amount of spending.  There’s a major difference here, as non domestic rates are fully devolved in Scotland and Northern Ireland, but there’s a single ‘England and Wales’ pool for NDR.   (My instinct suggests this helps Wales overall, given generally lower commercial property values there, but I’ve not seen any data on that – if anyone has some, I’d be very interested in it.)  The SR report doesn’t suggest what’s to happen to non domestic rates, though it talks about a freeze in council tax to be funded from central funds.  As NDR forms the basis for the bulk of central government grants to local authorities, and local government grants overall in England are to reduce by 28 per cent over four years, that appears likely to be the explanation.

A second factor that may be at work is the nature of convergence.  This is an arithmetical property of the Barnett formula – over time, with accurate population figures and with nominal increases in public spending (as there still will be – the cuts are in real terms, not nominal ones), spending will converge on the English level.  Inaccuracies in the population figures appear to explain why this didn’t happen in Scotland during the 2000s (as Scotland’s population was in continued decline which wasn’t picked up in the numbers used in the Statement of Funding Policy), even though spending was increasing rapidly.  The effect of convergence is more marked the closer  to the English level one is, so Wales suffers this to a greater relative extent than Scotland or Wales.  Again, it’s not proven, but it’s likely to be a factor.

The other issue that has attracted widespread discussion in Wales is the question of funding of S4C, and the way it is be funded from the licence fee that otherwise funds the BBC.  There’s good news discussion of that in the Guardian’s media section (see here), and this piece by Geraint Talfan Davies (who has been closely involved in events from the S4C side) in ClickonWales is also interesting.

What’s notable here is the parallel with the 2012 London Olympics (the story of which is told HERE; see also HERE and HERE for its latest manifestation).  A lot of work had been done on this in the weeks leading up to the review, and MPs briefed about the likely shape of the deal.  At the last minute, all that was unpicked to find a resolution to a quite different set of issues – in this case, the attempt by the UK Government to get the BBC to pay for free TV licences for elderly people, and the BBC’s to resolve its future finances.  The deal appears to have been done very late, by a small number of people, notably the BBC’s Director General, the UK’s Culture Secretary, and the Chief Secretary to the Treasury.  That number appears not to have included either the Welsh Secretary or representatives of S4C (let alone the Assembly Government).  The result is that the Conservatives have done themselves a great deal of damage when it comes to the Welsh language, unpicking nearly 30 years of work.   As with the ongoing row about the Olympics, the UK Government legislated in haste and will be able to repent at leisure.

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14 Comments

Filed under Conservatives, Devolution finance, Intergovernmental relations, Wales, Whitehall

14 responses to “Wales and the Spending Review

  1. Jeff Jones

    Alan. At last someone has made an attempt to analyse the figures rather than adopt the Wales ‘the victim’ stance. On the NDR I’ve recently read a report that the UK government is considering not handing back all of NDR to local government as part of a strategy to build up a war chest for tax cuts prior to 2015.The difference by 2015 is about £3 billion.

    The S4C issue is a classic example of what happens when you assess opinion through blogs and comments by politicians. Many historians looking at Italy before 1914 often comment on the gulf between ‘political ‘Italy and ‘real’ Italy. You could argue that exactly the same gulf now exists in Wales. For the chattering classes particularly if they speak Welsh or are close to the media industry the fate of S4C is of major concern. The way in which the announcement was made is in their eyes a clear example of the lack of ‘respect’ being shown by the UK Coalition to Wales. But what about the 80% who don’t speak Welsh, read newspapers printed in Fleet Street and in a digital age probably have a TV with a wide variety of channels and know about events in Arkansas through Fox news then Aberystwyth? Many of them if they are rugby fans like I am will only watch S4C if there is a rugby game on. Many wouldn’t even know that it is an issue. Others will either have no opinion or would support the argument that S4C should either be cut or even paid for by viewers through subscription. When you look at the potential effect of the UK Coalition’s policies on Wales, losing votes because of S4C is the least of their worries. In any case given that by 2015 Wales will probably only have 30 MPs with very few marginal seats why should anyone sitting in the present cabinet even worry about an area that as devolution progresses is becoming increasingly marginalised. Watching the empty Commons as the adjournment debate on the closure of the Newport Passport Office took place was a sad sight. Not even all the Welsh MPs turned up to support the local members. The decision to hand over funding of S4C to the BBC you could argue is quite a clever one because any future funding decisions now have nothing to do with the UK government. Personally I would have gone further and handed the funding to the Assembly and then watched the uproar as Plaid tried to protect the channel whilst other services are being cut.

  2. Hendre

    “Personally I would have gone further and handed the funding to the Assembly and then watched the uproar as Plaid tried to protect the channel whilst other services are being cut.”

    Using the Welsh language as a stick with which to beat Plaid Cymru and pitting Welsh speakers against non-Welsh speakers? How very old Labour of you.

  3. Jeff Jones

    No It’s not Old Labour. It’s politics. Just look at the way in which Plaid are trying to exploit industrial relations in both NPT and RCT even though both Councils will have to take tough decisions because of a local government settlement set by a government of which Plaid is a member. The idea that somehow S4C should not only be ring fenced but have a settlement that automatically rises with inflation is not sustainable and is not a policy that in my opinion would be supported by a majority even in Wales. Responsible government should have meant that in the run up to the CSR that the Assembly should have indicated that it would take control of S4C. Unfortunately too many amongst the Welsh political establishment want the power that goes with lawmaking but not the responsibility of raising the taxes required to pay for those powers.

    • Hendre

      But you seemed to assume that Plaid Cymru would be the only champion of S4C in the Assembly.

      S4C had a statutory funding mechanism for a good reason – to ward off the predations of a hostile/indifferent Whitehall department. It’s unfortunate that it found itself in a department which was due to suffer significant cuts at the hands of a Minister who was more than happy to make them. Any changes to S4C’s funding should have been dealt with as the statutory matter that it was. These Cameroons are proving no better Parliamentarians than New Labour.

      Why should the Assembly have volunteered to take on the funding of S4C but yet have no say in other broadcasting matters affecting Wales? Welsh language provision has been part of Public Service Broadcasting since virtually the beginning. To single out Welsh language provision for transfer to the Assembly would be a punitive act.

  4. Jeff Jones

    No it would be a reposnsible act. What ver happened to the ‘new confident Wales’ magically created by the establishment of the Assembly? You are asking that S4C should be protected when every other media organisation in England which relies on government grants is having to take a cut. S4C hasn’t been singled out by the DCMS have a look at the cuts arts organisations in England are having to make. The issue of S4C is a classic example of the divide that exists between the Welsh political establishment and Welsh voters. There are far more important issues to worry about in the next few years than the fate of S4C. Ask your local school governing body how they are going to manage with a reduced budget at a time when in many areas school numbers are increasing? In England school budgets are being cut by 2.25% despite the rhetoric of protection. I wonder what the cut will be on November 17th in Welsh school budgets when Wales already spends so much less per pupil than England? It’s issues such as this that concerns ordinary voters not whether they can watch a version of the White Heather club in Welsh at peak time on a Saturday night when the majority of viewers are watching the X factor.

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  6. Hendre

    I agree with Alun Ffred on this matter: S4C is not a sacred cow. But that doesn’t give Jeremy Hunt carte blanche to unpick a statutory settlement as he has tried to do.
    By bringing up schools you have made my point for me. Would Welsh speakers be constantly reminded that they are taking money away from schools and hospitals?
    This reminds me of the post-referendum position of the Tories in 1997. They suddenly developed an interest in a children hospital for Wales. How could the nasty, heartless devolutionists deprive the poor ickle sick children of Wales their own hospital? A hospital that Tories never quite got round to aspiring to during 18 years in government.

  7. russell mellett

    Hello Alan:

    You are quite right to try and understand the relative impacts of announced austerity measures by examining the composition of grants for each of the devolved governments, and by paying particular attention to local spending. But by comparing the relative size of cuts, can relative fairness toward each of Scotland, Wales, and Northern Ireland be determined? Equal per capita cuts across the board, or to each spending item gives the appearance of fairness; but is this approach really equitable?

    Equity in austerity needs to account for the relative (pre-cut)grant levels of each of the Devolved Governments and not just focus on changes to these levels. For example, if Scotland were overfunded, Wales underfunded and NI about right (relative to a UK standard), then equal per capita cuts may not be appropriate. Overall, the Barnett formula should be revised to include a measure of the relative expenditure requirements of each devolved government prior to adjustments to this formula being made in the usual (per capita) manner. So we have to ensure that the grant levels (from which we are cutting) are equitable, in addition to ensuring that cuts from these levels are fair.

    The second issue is that the Devolved Governments have little or no power to tax, and no ability to borrow in their own name. Consequently, they have little ability to decide when or how fiscal austerity will be applied in their own regions. Perhaps Westminster sees Devolved Administrations; government, however would seem to require some ability to make own fiscal decisions. Indeed, Westminster may find it advantageous to share responsibility for austerity with the Devolved Governments. Something beyond the Calman and Holtham recommendations would be required for this.

    A final point is that your puzzling over how the announced cuts came to be may point to a need for a greater degree of transparency in how Barnett calculations are carried out. This is a longstanding problem, but one that may be more acute in the current circumstance.

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