Final Welsh Budget passed by Senedd

18 Mar 2021

Members of the Welsh Senedd passed the Final Budget for 2021-22 on Tuesday 9 March, with the Labour administration’s Budget going through despite opposition from Conservative and Plaid Cymru members. The same day also saw debates and votes on a supplementary Budget for the current financial year, and to confirm that Welsh Rates of Income Tax will remain in line with those in England for another year.

Debate One: Third Supplementary Budget for 2020-21

The first of three budgetary debates on the same day was on the third supplementary Budget for 2020-21. It is unusual to have a third supplementary Budget, with this update necessary to take account of changes to the Welsh Budget since the latest COVID-19 lockdown (and to include repayment of pension surplus). This supplementary Budget presents the Welsh Government's final spending plans for the current financial year. It revises the financing and expenditure plans approved by the Senedd in the second supplementary budget in November.

Welsh Finance Minister Rebecca Evans (Labour) opened the session by talking about the extra funding this Budget delivered. Evans said a total of £660 million has been provided for business support through to the end of March. The Welsh Government has allocated £32 million to provide a £500 payment to support people who have been asked to self-isolate, or parents and carers of children who have been asked to self-isolate by test, trace and protect services, and £16.7 million to top up statutory sick pay for social care workers. £69 million has been provided for hardship support for higher and further education and local authorities are supported by an additional £30.7 million for the council tax reduction scheme and loss of council tax.

Chair of the Finance Committee Llyr Gruffydd (Plaid Cymru) said that during the second supplementary Budget, many of the committee’s recommendations related to the issue of transparency. This situation has not changed, he said, explaining it has been difficult for the committee and the Senedd as a whole to have a clear picture of the funding being made available to the Welsh Government.

He reiterated the committee’s recommendation that the Welsh Government continue to press the UK Government for clear, systematic changes to the funding process in relation to the structure of UK fiscal events. He said the increase of £244.5 million to the health and social services main expenditure group, compared with the second supplementary Budget, is prudent.

He wanted reassurance from the Welsh Government that the funding provided to local authorities is taking full account of the differential impact of COVID-19 on local authority incomes. He complained that the extra funding for the third sector is modest compared to support given to health services.

Gruffydd asked the Welsh Government to continue to put pressure on the UK Government to ensure a fair funding settlement for Wales. He is pleased that the UK Treasury has agreed that the Welsh Government can carry forward £650 million funding that was provided late in the financial year, in addition to the current limits to the Wales reserve.

Welsh Conservative Finance Minister Mark Isherwood wanted reassurance from the Welsh Government that the funding provided to local authorities is taking full account of the differential impact of COVID-19 on local authority income. He said the level of additional funding the third sector is receiving was modest in comparison to the support given to the health service, and ‘that will cost the health service dear’.

Plaid Cymru’s Shadow Finance Minister Rhun ap Iorwerth said caution and holding some funds in reserve has been important for Wales considering the ever-changing impact of COVID-19. He said the Barnett formula has proved to be a ‘very ineffective tool—far too simplistic in how it distributes funding from Whitehall to the devolved governments’. Allocating funds on a population basis would not reflect the specific challenges posed by COVID for public services in Wales, he said. Wales has a higher proportion of older people and people with health complaints than is the case in England, he added. There should have been, at the very least, temporary reforms made to the formula, for example including a specific coronavirus needs-based factor. He opined that the pandemic has shown that we need that sort of longer-term reform of Barnett, and urgently.

Welsh Labour’s Rhianon Passmore remarked that in Wales, we value transparency in our public finances, and this could not be in more direct and stark contrast to England, where the UK Conservative Government has not afforded scrutiny across the year of its financial proposals.

The third supplementary Budget for 2020-21 was agreed after a vote (For 28, Against 12 and Abstain 11)

Debate Two: Welsh Rates of Income Tax (WRIT) 2021-22

Finance Minister Rebecca Evans said in keeping with previous commitments, there will be no changes to Welsh income tax levels in 2021-22 which will ‘provide stability’. Evans said it was disappointing that the future planned freeze to the basic rate threshold of income tax, included in the UK Government's budget announcement last week, impacted more on those least able to afford to pay. This runs counter to our commitment to delivering progressive tax systems here in Wales, she said.

Evans was pleased that the WRIT project has been formally closed after successful implementation with the final cost of the implementation project just under £8 million which was lower than the original forecast. One of the final elements of the project was to amend the annual tax summary that is available to every taxpayer, via their HMRC personal account. For Welsh taxpayers, this now shows the amount of WRIT they have paid for the tax year. Alongside this, there is an online WRIT calculator, providing a breakdown of where individual contributions have been allocated across key public services. She said: “These two products raise awareness and understanding of WRIT and how it's spent, delivering public services here in Wales.”

She was also pleased the National Audit Office's report on the administration of WRIT, published in January, confirmed that HMRC has adequate rules and procedures in place to ensure the proper assessment and collection of Welsh rates of income tax, as well as the appropriate governance measures.

Mark Reckless, Independent, commented that these income tax rates being devolved to Wales, even if they have not changed, is costing £35 million a year in reduced block grant, on account of the revenue that Wales are not getting that was previously projected.

Evans countered that based on current forecasts, the net impact of WRIT is an increase of £30 million in 2021-22, and that is in contrast to the minus £35 million forecast in the Welsh taxes outlook in December. She said that is partly to do with the result of recent data showing relatively higher earnings performance for income taxpayers in Wales.

This motion was passed in a vote (For 48, Against 1, Abstain 2)

Debate Three: The final Welsh Budget for 2021-22

Finance Minister Rebecca Evans said her Government was allocating all of the COVID funding it received in the UK spending review last November. Among the spending Evans mentioned was £630 million for the NHS and local government to support people over the next six months and £206.6 million for the local government hardship fund, which will support social care services, provide homelessness support, and ensure schools adapt to their new ways of working. Additionally she was investing £16.5 million in apprenticeships to maintain current levels of apprenticeship places in 2021-22. She has set aside £200 million in reserves for additional business support next year and reminded Senedd members of the extension to the retail, leisure and hospitality rates relief, with a cap for properties with a rateable value of over £500,000, and the enhanced leisure and hospitality rates relief scheme for 12 months.

Evans welcomed the additional £735 million revenue for Wales announced in the UK Budget, but ‘we did not receive a single penny extra in capital next year to support the economic recovery’. She said the longer-term changes to the freezing of personal tax allowances are a stealth tax that will hit the lowest paid hardest, and criticised the Chancellor for not making the universal credit £20 uplift permanent. She reminded Senedd members of the extension in the land transaction tax reduction period in Wales until 30 June.

Evans said Wales faces a reduction in its budget from 2021-22, partly driven by the withdrawal of COVID-19 support, but also by underlying reductions to planned public spending built into the UK Government's medium-term plan.

Chair of the Finance Committee Llyr Gruffydd hoped the many changes to the Welsh Budget this year were not conducive to effective budget scrutiny, and should not set a precedent for future years. Gruffydd said it is ‘extremely disappointing’ that the UK Budget announced that funding to replace EU structural funds will be directly allocated in Wales on devolved matters via the UK community renewal fund and the levelling up fund, ‘bypassing this Senedd’.

He wanted Evans to continue to seek commitments from the UK Government that UK fiscal events will normally take place by a specified date. This is imperative to ensure that devolved administrations have sufficient time to carry out meaningful budget setting and scrutiny, he said.

Conservative spokesperson Mark Isherwood claimed taxation changes in the Budget are as regressive as they were before the pandemic struck. The tax on aspirational opportunity is back, he said, with land transaction tax for homes purchased between £180,000 to £250,000 reverting to levels before the pandemic, at 3.5 per cent. My casework is showing that that is causing a massive problem to people, particularly those from Wales who want to move back from across the border in England, he said. And business rates continue to be the highest in the UK, he complained.

Plaid spokesperson Rhun ap Iorwerth said the Welsh Government should be seeking to increase the number of training places and apprenticeships available. He said a Plaid Cymru Welsh Government would introduce an employment guarantee for young people of 16 to 24 years-old, alongside an apprenticeship or a college or university course – 'a modern version of the Roosevelt new deal, with the emphasis on building a green future’. He closed his remarks by saying 20 years of leading the Welsh Government has seen Labour failing to lead the kind of transformation that would put the Welsh economy on a path towards higher paid employment and higher skill levels.

Labour’s Alun Davies reflected on the UK Budget, He said we were seeing a Welsh Budget that is four per cent lower in real terms than a decade ago, and we are going to see a real squeeze on public services in the coming years. The shared prosperity fund to the levelling-up fund, we are seeing money being taken out of Wales, investment being taken out of Wales.

Caroline Jones, Independent, claimed the Welsh Government has failed to deliver a comprehensive programme of business support in this Budget, which was ‘deplorable’. Jones said having local authorities as the arbiters of some support packages has led to a ‘postcode lottery of support’, with identical businesses receiving different levels of assistance, because of to whom they pay their business rates. More money for buses support and on workplace learning was ‘worthy’ but not what the Welsh economy needs now.

Labour’s Dawn Bowden said this Welsh Budget is putting the NHS and public services first. Bowden said now is not the time for the Chancellor Rishi Sunak to start tightening the purse strings. Austerity is not a sustainable way to manage the economy, as it embeds and deepens inequality. Austerity left our public services ill-equipped to deal with a crisis as huge as the pandemic, she added.

Mike Hedges (Labour) was disappointed that money was not found to provide free school meals to children of parents on universal credit from September when they return to school after the summer holidays. Hedges called on the Welsh Government to postpone road schemes that are not yet started until we see what demand is like given the uptake in home working. He also wanted the Welsh Government to be very wary of using the mutual investment model, given the National Audit Office found little evidence that government investment in more than 700 existing public-private projects had delivered financial benefit.

Hedges also urged the Government to bring in an extended producer responsibility for plastic packaging. An easy win would be for all wrapping paper and card to be just paper as opposed to plastic and paper or glitter coated. That can actually be achieved at no cost. While funding for additional producer responsibility is not in the Budget, the Welsh Government should get funding from its share of any expenditure from Westminster on this.

Rhianon Passmore (also Labour) saw, “in this final Budget, the socialism of this Welsh Labour Government as we set out how we build back a truly fairer Wales: a strong capital package of more than £220 million to pump prime the Welsh economy”. This is Keynesian economics at its very best, she added.

Conservative MS Nick Ramsay said reducing tax and increasing expenditure can be compatible over the long term provided the economy is stimulated and enterprise encouraged.

The Finance Minister concluded the debate by saying the Welsh Government has provided more financial support to businesses than Wales has received in consequential funding from the UK Government, and that means that £1.9 billion is now in the bank accounts of businesses across Wales. This Budget for the next financial year sets aside £200 million in reserves for additional business support next year, she told members.

The Final Budget was passed in a vote (For 28, Against 21, Abstain 2)

The full session can be read here.

By Hamant Verma