The Welsh Government is to find £36m from its reserves to plug a hole created by the Ƶ Government’s changes to national insurance contributions (NICs).
Sir Keir Starmer’s Westminster Labour Government has upped the amount employers have to pay towards NICs.
Until April, businesses had to pay a rate of 13.8% on employees’ earnings above £9,100 a year, but that was increased to 15% on salaries above £5,000. The employment allowance – the amount employers can claim back from their NI bill – was increased from £5,000 to £10,500.
The Ƶ Government said the changes would eventually raise £25bn a year. However, there remain widespread concerns from charities and businesses in particular about how the extra money will be found.
It means an extra £257m bill for the Welsh public sector, which includes health boards, all 22 councils and Natural Resources Wales, and the Welsh Government had called on its party colleagues in London to fully fund the difference to public-sector organisations.
However, the Ƶ Government provided Wales with a Barnett share of funding instead of meeting the actual costs to the Welsh public sector.
Wales’ Finance Secretary, Mark Drakeford, has previously said Chancellor Rachel Reeves’ decision was “wrong” and went against an advisory document prepared between the two governments
Meanwhile, councils warned they were going to be left £20m short. The Ƶ Treasury provided £185m, but there is still £36m left to find.
Now Mr Drakeford has said £36m will be paid from Welsh Government reserves. He said the Welsh Labour administration would “continue to press” for the full costs to be recovered.
Mr Drakeford told the Senedd: “We should have been compensated for the actual costs, not the Barnett share of the costs in England. Treasury ministers had a choice to make, I believe they made the wrong choice.
“The Ƶ Government has provided £185m in funding to Wales following its decision to increase employer NICs in the autumn Ƶ Budget.
“However, this falls significantly short of the £257m devolved public- sector employers in Wales need to meet the increased NICs costs they face.
“This shortfall, of more than £70m, is a result of the Ƶ Government decision that Wales should receive a Barnett consequential of the additional costs to devolved public-sector employers in England, rather than the actual costs. The £185m will be passed on in full to devolved public- sector employers in Wales. I will also provide an additional £36m from the Wales reserve.
“This creates a total package of £220m to support our public services, including further education, with increased NICs costs.
“The Welsh Government faces significant financial challenges and drawing down £36m from our limited reserves reduces our ability to respond to other emerging pressures throughout the year. However, we have concluded that providing additional support for essential public services is necessary to minimise the impact on Welsh citizens who rely on these services.”
