The Welsh Government has secured an additional £190m of funding for its next financial year budget, including £40m for the NHS and a £20m capital fund designed to back SMEs in the hard-pressed hospitality, leisure and retail sectors.
Having set out a £23bn draft budget for its 2024/25 financial year in December, Finance Minister Rebecca Evans said the additional money for its final budget settlement starting in April has come as result of Barnett Formula consequentials from spending by the Ƶ Government in departments where responsibilities are devolved to Wales.
It is also adding £66.5m to its financial transactions capital, a funding mechanism from the Treasury which the Welsh Government doesn’t pay interest on, but has to repay the capital back over the long-term. It uses the facility to provide capital investment and to partly fund the lending activities of the Development Bank of Wales, which then lends it to companies with interest priced at commercial rates.
The increase in financial transactions capital will see £20m go towards a £30m funding package for the refurbishment of the Holyhead Breakwater, £7.7m to Transport for Wales to help commercialise excess capacity of its rail fibre network and £10m for the semiconductor sector While details have yet to be published a £20m fund for SMEs is expected to require a element of matchfunding for capital projects, including those linked to reducing emissions and driving productivity.
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The final budget says; “ The fund will aim to support around 2,500 eligible small to medium sized businesses in the retail, leisure, tourism, and hospitality sectors, to invest in measures to future proof their business. However, while having a proportionately larger SME sector than in England, there is no funding to address a now less favourable business rates relief regime for firms in the hospitality, retail and leisure sectors than in England."
Ms Evans said that “one in five” businesses will not pay business rates next year. She added: “We have been providing temporary relief support for businesses in the retail hospitality and leisure sector since the pandemic with £1bn, but that was always intended to be temporary. We understand the disappointment of some businesses... it was a tough decision to ensure the NHS can keep going.”
She said that the NHS will next year receive a 4% funding uplift on 2023/24, compared to a rise of 1% in England. The additional NHS funding is for essential maintenance and includes £10m targeted at preventative spending and measures to "support the NHS to become more sustainable into the future."
While there can be some technical changes from draft to final budget, their financial impacts are usually limited.
Ms Evans said: “Typically, we do not make many changes between draft and final budgets. Sometimes we make technical changes, or make changes to reflect the issues raised in scrutiny. But this time we are making more changes than usual because in the last couple of weeks, the Ƶ Government has finally given us further details about the funding consequentials we will receive as a result of decisions it has made to increase spending in devolved areas in England in this financial year. Alongside the financial transaction capital allocations that I had planned to make at the final budget, it means we can make almost £190m of extra allocations in the final budget.
"And it also means I can provide for a very modest in-year reserve, which will provide more scope to respond to urgent issues as they arise next year. In making new allocations in the final budget, we have listened to the key messages coming through in the scrutiny process. The additional allocations we are making are focused on those areas where pressures are most severe, or where reductions would not have been made at the draft budget, had we been aware of these intended consequentials."
As well as an additional £40m for the NHS, the final budget provides £14.4m extra finance for local government to help it meet the pressures of social care and schools, including restoring £10.56m to the Social Care Workforce Fund.
Following widespread criticism from apprenticeship learning and educational providers, there is an additional £5.25m for the Welsh Government’s flagship apprenticeship programme. However, it will only marginally improve on the 24% cut set out in the draft budget.
There is also an additional £4.75m for its various employability programmes, including ReACT+ to providing training and support for redundant workers to find new work. With Tata currently set on ending its blast furnace operation at Port Talbot and replacing it with a less labour intensive electric arc furnace one. Ms Evans said the money was being committed in the event of Tata not changing course. As part of its co-operation agreement with Plaid Cymru a further £20m has also been earmarked for housing.
The minister called for greater flexibility in its budget funding mechanism from the Treasury with an increase in the amount it can borrow and the carry over to the next financial year (the £350m reserve). She said both needed to be indexed linked to inflation. If the Welsh Government exceeds its reserve the money is clawed back by the Ƶ Government as was the case for the 2020-21 financial year.
However, while the Welsh Government, under the Wales Act 2014 and 2017, can borrow up to £150m for capital investment each year, it has, until very recently, not used its borrowing powers, while the Scottish Government has consistently maxed on its facility. Ms Evans said it was an unfair to describe the Welsh Government’s record on the use of its borrowing powers since the Wales Act as “patchy as best.”
She added: “Every single year the Welsh Government, since it has had the ability to borrow, has planned in its published budgets to borrow to the maximum. In those years where we have planned to borrow and where he have a big slug of capital at the end of the financial year with supplementary estimates normally in February, you cannot spend capital very quickly so that money means we don’t have to borrow in those years. This speaks to the unpredictability of it all.”
She said in recent years the Welsh Government, anticipating close to year end consequentials from the Ƶ Government, has been over profiling its capital spending by around £100m.
As is the case for Ƶ Government departments, the Finance Minister said the Welsh Government should be allowed to freely move monies from its capital to its revenue budget. A request to move £200m in capital to revenue in its current financial year was rejected.
She added: “We were facing the most difficult financial situation since the start of devolution when we set that draft budget. The impact of persistently high inflation meant that our budget was £1.3bn less in real terms than it was at the point at which it was set by the Ƶ Government in 2021. We also face rigid limits on our ability to carry forward or draw down funds from our reserves, which hamper our ability to plan ahead and respond to changing circumstances. There is something fundamentally wrong with the Ƶ funding arrangements which allow this to happen.
"I have repeatedly called for increased budget flexibilities to enable us to manage our funding more effectively, in line with Wales’ needs. This includes indexing our borrowing and overall reserve limits to inflation and removing the limits on the amount we can drawn down from our reserves in any given year. These flexibilities are available to Scotland.
"And recent increases agreed to Northern Ireland’s annual capital borrowing limit are far more generous than our own. It is about ensuring we have the tools and the autonomy to use the money we have in the best possible way, in line with the needs and priorities of the people we serve. The Ƶ Government can do this overnight, as they have done in Scotland and Northern Ireland, and I think it is a bit stark that Wales is being ignored on these important fronts.”
