Fiscal Framework / Welsh Government’s draft Budget 2021-22 – An Update from the Chair of the Finance Committee

Published 27/08/2020   |   Last Updated 27/08/2020

I’m Llyr Gruffydd, a Member of the Senedd and the Chair of the Finance Committee.

The Finance Committee has a very important remit and is responsible for considering and reporting on proposals laid before the Senedd by Welsh Ministers containing the use of resources.

The Committee can also consider and report on any other matter related to or affecting financing, or expenditure from the Welsh Consolidated Fund.

One of the Committee’s functions is to scrutinise the Welsh Government’s budget which is approximately £18 billion a year. Wales receives its budget allocation from the UK Government which is determined by the Spending Review and any subsequent adjustments through the Barnett formula.

Whilst the Welsh Government is primarily funded by a block grant from the UK Government, in the past four years the devolution of tax powers, including Welsh Rates of Income Tax, Land Transaction Tax and Landfill Disposals Tax has meant that approximately 20 per cent of the Welsh Government’s spending is now funded from tax revenue.

Devolution of tax and borrowing powers to Wales

The Wales Act 2014 provided the legislative framework to devolve tax and borrowing powers to the Senedd and the Welsh Government. Part 2 of the 2014 Act deals with the devolution of financial powers. In order to enable the powers in the 2014 Act to be implemented an agreement was reached between the Welsh Government and the UK Government in the form of the Fiscal Framework.

This allowed the devolution of stamp duty land tax – now Land Transaction Tax in Wales, Landfill Tax – now Landfill Disposals Tax and the implementation of Welsh Rates of Income Tax.

Rows of terrace houses in the UK city of Cardiff

The Fiscal Framework also covers the Welsh Government’s borrowing limits, budget management tools, treatment of policy spill-over effects and implementation arrangements.

Given the Act has been in operation since 2014, it seems a pertinent time for the Committee to consider the Act and the operation and effectiveness of the Fiscal Framework. We have launched our consultation and further information is available on our website. We intend to start taking oral evidence in the autumn term.

Welsh Government’s Budget and the Welsh Economy

The last few years have seen significant uncertainty for the Welsh economy. The 2014 Act has provided the Welsh Government with the powers to vary tax and spending in Wales, which has increased its accountability to the people of Wales. In our report on the Welsh Government’s Draft Budget 2018-19, the Committee highlighted its intention to undertake a piece of work on the financial preparedness for leaving the EU.

At that time Brexit remained the biggest uncertainty on Wales’s economy. In September 2018 we published our report. Last year the Welsh Government’s draft Budget 2020-21 was impacted by the UK General Election and Brexit. The budget was delivered under “exceptional” circumstances, which impacted the ability of both the Welsh Government and other stakeholders to plan how to fund public services in Wales.

The upcoming Welsh Government draft budget will also be delayed as the Welsh Government does not have an indication of the total funding available until the UK Government publishes its Budget or Spending Review. We have not had any indication from the UK Government on when this will be.

I along with my counterparts in the Scottish Parliament and the Northern Ireland Assembly have written to the Chief Secretary to the Treasury, stressing the importance of the timing of the UK budget on the devolved governments’ budgets given that a delay at the UK level impacts the scrutiny process.

The Committee finds itself in a similar situation to last year where there is less time available for scrutiny. The Welsh Government’s draft Budget 2021-22, will inevitably be affected by the outbreak of Covid-19 and the end of the Brexit transition period, therefore the opportunity for robust scrutiny is even more pressing.

Earlier this year we undertook an online engagement exercise to seek views on where the Welsh Government should prioritise its spending, this provided an interesting snap shot of views. With participants highlighting health, education and climate change as being key areas of priority.

The Committee will be consulting on the Welsh Government’s draft Budget 2021-22 in the autumn term. Details will be available on our website and I would encourage you to share your views and fully engage with the scrutiny process to enable us to report in a robust, transparent and effective way.