3. Statement by the Cabinet Secretary for Finance, Constitution and Cabinet Office: Context for and approach to the next Spending Review period

– in the Senedd at 2:41 pm on 11 June 2024.

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Photo of Elin Jones Elin Jones Plaid Cymru 2:41, 11 June 2024

(Translated)

The next statement will be the statement by the Cabinet Secretary for Finance, Constitution and Cabinet Office on the context for and approach to the next spending review period. And therefore, I call on the Cabinet Secretary to make the statement. Rebecca Evans

Photo of Rebecca Evans Rebecca Evans Labour

Thank you. I am pleased today to outline the Welsh Government's preparations for the next spending review period and to reflect on the challenging economic and fiscal context, as we try to set our plans for the next few years. We cannot underestimate these challenges. Fourteen years of economic mismanagement by successive Tory UK Governments have led to austerity budget after austerity budget. We’ve had to deal with the fallout of Liz Truss and Kwasi Kwarteng’s disastrous mini-budget, which crashed the economy and sustained double-digit inflation in recent years, which has taken its toll on our already stretched public services.

Overall, our budget is worth £700 million less in real terms than expected at the time of the last UK spending review in 2021. Additional factors, such as the continuing impact of COVID, the war in Ukraine and the cost-of-living crisis have had a huge impact, forcing us to address short-term crises. And the past few years have been characterised by crisis after crisis, and this has limited the opportunity to consider longer term opportunities, which maximise the impact of our available funds. 

We won’t know detail of the next UK Government’s spending plans until after the general election. However, given that our current multi-year funding settlement will end after this financial year, work has begun to develop our plans beyond April 2025. It is in this challenging context and taking stock of the lessons learned, I want to implement a new approach, which will support a medium to long-term fiscal strategy and inform how we decide to spend and raise money in Wales, an approach that includes our statutory responsibilities, drives future budgets and aligns with our priorities as a Government. We want to take a collegiate approach to this work, and, as ever, I welcome ideas and proposals, from wherever they come, in this Siambr and beyond, where there is a clear benefit to Wales. As part of this work, I want to hear from diverse voices, right across our communities. And it's in that spirit that I make today’s statement.

It's important that we recognise the wider context within which we are undertaking these preparations. The challenges we face are significant. Public sector net debt in the UK is currently nearly 100 per cent of gross domestic product, its highest level since the 1960s. At the same time, the overall UK tax burden is higher than at any time since 1950, and is forecast to continue rising over the next few years, because of the UK Government’s changes to the personal allowance, for example. Options for whichever party forms the next UK Government will be constrained by this legacy of 14 years of chaos and mismanagement by the Conservatives in Westminster. It's clear that there is a very challenging fiscal backdrop as we start to look ahead. Whilst the economy is forecast to grow over the next few years, the average growth rate of 1.7 per cent is historically low.

The current shadow chancellor, Rachel Reeves, has bold and ambitious plans to deliver growth and jobs across the UK after more than a decade of low growth. I very much hope that the general election affords us the opportunity to work with her to implement these plans in Wales. Faster economic growth would help to alleviate these pressures, and the Welsh Government will, of course, be doing whatever it can to improve the prospects for growth and more and better jobs here in Wales. However, we cannot plan on the basis of optimistic scenarios for the UK economy in the short term. It is more important than ever that the Welsh Government ensures that it's making the most of the resources available to it and deploying those resources in the most effective way possible. We will learn of the next UK Government’s plans over the coming months, but we must be prepared for difficult decisions and trade-offs in our planning.

In 2021, we set three-year spending plans and undertook a zero-based capital review. This enabled us to provide a multi-year settlement covering the period 2022-23 to 2024-25. We continue to be dependent on the overall settlement from UK Government, but this new approach will enable us to construct longer term solutions to the challenges that we face. The Welsh spending review will drive our annual budgets, extending beyond short-term priorities to focus on the key medium to longer term challenges and opportunities that we face, setting the foundations for longer term settlements and embedding a whole-Government approach to identifying priorities and supporting delivery of outcomes for Wales. This significant and wide-ranging work will enable robust and fully informed decision making regarding future fiscal policy for the Welsh Government and ensure that our spending continues to align with our priorities over the medium to long term.

At the forefront of this work will be an emphasis on this Government’s five key priorities for Wales: reducing NHS waiting lists; support for children in early years and educational excellence in our schools; better, greener jobs; secure homes; and improved transport links across the country. To echo the words of the First Minister when he made this statement on these priorities to the Senedd in April, we will find 'Welsh solutions to Welsh problems', which goes to the heart of what devolution is all about, setting out an ambitious future for a fairer Wales.

I want all of us to have a greater understanding of both the current and potential future profile of Wales, enabling us to adapt and react to changing circumstances whilst creating the conditions for more informed and continuous fiscal planning. We're in the very, very early stages of this work, and I anticipate that it will continue throughout 2024 and into 2025. But, I wanted to start the debate in the Siambr early so that I can listen to and work with all colleagues and ensure that there's an opportunity for early engagement. I look forward to hearing colleagues' thoughts.

(Translated)

The Deputy Presiding Officer (David Rees) took the Chair.

Photo of Peter Fox Peter Fox Conservative 2:48, 11 June 2024

Can I thank you for the statement, Cabinet Secretary? We are at that time of political challenge, we know. Obviously, the first half of your statement was the predictable political diatribe that seems to be the default position to take away the focus from the Government's incompetence in running this country. Let's not forget, you've been running this country for 25 years. The last budget you received was the largest settlement you'd ever received. The fact is that the Government here, their incompetence is easy to see. 

And, let's not forget that Wales does get £1.20 for every £1 spent in England. But we saw knee-jerk budgeting last year, although advice was in place months before, advising of inflationary issues at play. This year's budget was poorly handled, seeing local government being given a massive real-terms cut, forcing councils to push up council taxes. We see continued decline in our health service, the longest waiting lists in the UK, education languishing at the bottom of performance tables, we see an underperforming economy with the lowest pay levels in the UK. Your Government isn't supporting businesses but is stifling growth. Your Government's focus and choices have been in the wrong places, and we know what those areas were and I won't rehearse them, but one obvious one would be the £120 million we're planning to spend on new Members here, let alone the 20 mph and the £9 billion hit on the economy over the next several years as a result.

Short-term thinking will get us nowhere, Cabinet Secretary. You need to have a plan, and it's something Labour haven't got, and what you've admitted today is that there isn't a plan. It's your Government's short-term thinking that has led to the reduction in business rates relief that will raise you some cash in the short term but will harm businesses throughout Wales and, no doubt, lose you future revenue in the longer term. It's your Government's short-term thinking that will hammer tourism businesses with the dreaded tourism tax and the 182-day regulations that will leave the sector in Wales less competitive and worse off. It's your Government's short-term thinking that has saddled the Welsh economy with up to a £9 billion hit, as I mentioned earlier, due to the 20 mph policy. When you look at all of these punitive policies together, it's clear that the Labour Welsh Government has given up on growth. Leading the way in research and development, and investment in technology, to boost our energy in green sectors is an area where you should be focusing. Just look at the UK Government's plan to deliver a new gigawatt power plant in north Wales or to electrify the north Wales main line with £1 billion-worth of investment, or the levelling-up, shared prosperity or community ownership funds. Where is Welsh Labour's vision? What does the Labour Welsh Government have to offer? Nothing, sadly.

However, all of that said, I welcome your invite to work collegiately, and you know I will do, and I'm pleased you will listen to the things that we might bring forward. I'm pleased there will be a cross-Government spending review, because I think that something that is fundamentally missing in this place is a holistic view of the whole gamut of services that we deliver here; hence we see portfolio governance and Governments not talking to each other, and one side fighting another, instead of us coming together to solve some of the major issues, like the health service in Wales. So, I thank you for your statement, Minister. We look forward to what happens in future. I certainly hope it's not Rachel Reeves who will be dictating what our financial situation will be, going forward, because I'm afraid I do not have much faith in her. Thank you.

Photo of Rebecca Evans Rebecca Evans Labour 2:52, 11 June 2024

I'm very grateful to Peter Fox for his comments this afternoon. I do understand, of course, that we're in a general election period, but I think my opening remarks, when I set out the economic and fiscal context within which we're undertaking this spending review, were just a simple assessment of the facts, and those facts are having day-to-day impacts on the lives of people across Wales. Some further facts were to be found in the 'Ending Stagnation' report from the Resolution Foundation, which I absolutely commend to colleagues if they want to find out a bit more about the context in which we're living. In that report, they talk about the impact of poverty, and benefit levels that have failed to keep pace with prices in 10 of the 15 past years. Alongside wider cuts since 2010, this has reduced the incomes of the poorest fifth of families in Wales by just under £3,000 a year. That's really, really significant. Around a quarter of households with disabled adults are in poverty and more than two fifths of families with three or more children are also in poverty. Inequality hasn't fallen, despite the rise in the minimum wage and progressive employment gains over the period. So, we are facing, I think, a significant range of challenges as we undertake this work.

The whole point of this work is that we reflect on the years that we've been through, through the pandemic and then through the cost-of-living crisis, which almost by their very nature have led us towards making some of those tactical decisions that, inevitably, are more short term. This is more about having a strategic view and looking at the work of the Organisation for Economic Co-operation and Development, and many OECD countries also have medium-term expenditure frameworks, which are, essentially, what we're talking about today. The coverage and the design of those really does vary significantly, but I think it's important that we learn from what's happening in other countries and take inspiration from where we see examples that we think are really positive.

The OECD, for example, says that some of the potential benefits of a medium-term expenditure framework could be that it can underpin fiscal discipline, and that's, of course, to the extent that the forward ceilings are framed by reference to fiscal limits and available resources. They can improve the effectiveness of public spending by harmonising public expenditure with national priorities. They can signal the direction of policy and funding changes, thereby giving greater assurance about resource demands and availability over the multi-year horizon, and, in turn, promoting effective forward planning. They can also facilitate the planning and resourcing of multi-year policies that may require an extended time horizon for implementation, such as large capital projects, for example, or new programmes or organisational restructuring. So, what we are talking about here today is that longer term planning, looking ahead five years, 10 years, to understand the dynamics of Wales into the future and the challenges that we know are coming down the line towards us, and how we go about addressing them.

I think that we are entering what's going to be a really exciting piece of work, and that offer to be collegiate is absolutely genuinely there. As I set out in the statement, this piece of work will be undertaken through 2024 and into 2025. So, once the dust has settled on the general election, I'm sure that we'll be able to have some of those more collegiate discussions in terms of this piece of work, because it's definitely something that I think that, as a Senedd, we will all be interested in working on. The door is very much open to have those discussions.

Photo of Heledd Fychan Heledd Fychan Plaid Cymru 2:55, 11 June 2024

(Translated)

Thank you, Cabinet Secretary, for your statement today. This is my first opportunity to speak to you as the party's spokesperson for finance, and I'm looking forward to collaborating with you, and scrutinising you, of course, Cabinet Secretary, and I do welcome the invitation in terms of collaborating.

Photo of Heledd Fychan Heledd Fychan Plaid Cymru 2:56, 11 June 2024

I have to be honest, I am slightly perplexed and disappointed by parts of the statement today. There were two Bs that were definitely missing, which were Brexit—the impact of Brexit; surely we have to acknowledge the devastating impact Brexit has had on our communities and the funding available to our communities—and also Barnett. We're all agreed here that it's an outdated model. What about fair funding for Wales? We're in a middle of a general election campaign, and there were plenty of political points scoring in your statement in terms of promoting Rachel Reeves, but fair funding for Wales has to be at the heart of our calls to the next UK Government—the reform of Barnett, ensuring that we have that HS2 consequential to Wales, ensuring also that we have devolution of the Crown Estate. These are musts for the next Government, and I would like to see that reassurance from you that you will be fighting for Wales, fighting for fair funding and fighting for that ambition. Because let's be clear, as you outlined, of course, the impact of austerity—14 years of Tory austerity—it's not just devastating for our institutions and organisations, but also for people in our communities. We know the impact that poverty has on people's health, that people have been living in damp homes and the impact that then has on health. People have died because of cruel policies, and that's something that has to be taken into account.

The only point I will share with Peter Fox is that I think there are things that the Welsh Government needs to reflect on in terms of the past 25 years in terms of policy decisions, so I do welcome the approach in terms of that long-term commitment. Obviously, other Governments across the world are taking that kind of approach. But one thing that I don't understand is, as we do have a Well-being of Future Generations (Wales) Act 2015 here in Wales, that it wasn't referenced at all in your statement. It's been in place since 2015. In that, it places a duty on Welsh Ministers to consider the long term. I've been reminding myself of the well-being of future generations Act and, as it states there, it's about

'improving the social, economic, environmental and cultural well-being of Wales', and the purpose to make public bodies listed to think more about the long term by providing a framework. You have a duty under that Act to be doing much of what you've outlined today already. So, can you please explain to me how this is supposed to work with those duties in terms of the well-being of future generations Act, and is it an admission today that Welsh Ministers haven't been doing what's required with the well-being of future generations Act, or that, actually, you're stepping away from that? It's just not very clear to me at all, given that these are outlined quite clearly. I have been concerned and have mentioned numerous times since being elected here that I have been concerned by the Welsh Government's approach to siloed budgets, rather than thinking cross-governmentally in terms of how we can be investing in culture, investing in sports as part of the prevention agenda. So, I do welcome that you're stating this, but I do question why this isn't already happening, and that you're mentioning a new approach, rather than actually working within the frameworks of that Act. But, more than anything, I do hope that we have a commitment from you today that it has to be a priority to have that fair funding for Wales from the next UK Government, of whichever colour that is, and that we're not just admitting defeat.

You do mention as well in your statement about—if I can find it here—raising money in Wales. Well, obviously, that's something we've called on, for you to use those powers, so I welcome that approach. But, obviously, we did have a chance to reform the council tax, for instance. So, is this also an admission that we haven't gone far enough in the past?

So, I hope you'll take those comments in the spirit that they're intended, about ensuring that we have the resources available here in Wales. But I would like to understand how are you fighting for us to have what we need here in Wales to deliver those public services as well.

Photo of Rebecca Evans Rebecca Evans Labour 3:00, 11 June 2024

I'm very grateful for the comments this afternoon, and I'd like to welcome Helen Fychan to her new spokesperson role. I look forward to what I know will be plenty of challenge and scrutiny, but also just to say I'm really keen to find those areas of common ground that we can work on together as well. And just to say ‘thank you’ to Peredur Owen Griffiths as well for his work as spokesperson, and I know he will continue in his role as finance Chair as well, so we will continue to work together in that space as well.

I think there's so much that we agree on in your contribution today. Brexit: I think my views on Brexit are quite well known, but I'm happy to put on the record here that I have deep concerns about the way in which the exit from the union was undertaken in the first place, but then also the impacts that it's having on our economy and on our lives much more widely beyond that. I was really pleased that Rachel Reeves has talked about closing the holes in the Brexit deal at least, and cutting the red tape that's hampering some of our leading industries that we have here in Wales, and also really pleased to hear the FM reiterating the discussions that he'd had with Keir Starmer previously about powers and funding coming back to us here in Wales when they've been removed as a result of Brexit, despite the fact that we were told that we wouldn't be a penny worse off and that powers wouldn't be removed from us. So I think those things are positive, but the ongoing impact of Brexit will be here with us for a very long time yet.

In terms of Barnett, and reforming the way in which the United Kingdom is funded, I didn't go into too much of that, or didn't go into that, this afternoon, because we did have quite a good debate on that in the Senedd very recently. Again, there's a lot of common ground. We believe that Barnett does need to be reformed. The view of the Welsh Government is that we should look to have a UK-wide system that is needs based, where we have independent adjudication, so that we have those opportunities to be convinced of the fairness of whatever might come out the other side of that. We'll continue to press those arguments, as we set out in ‘Reforming our Union’. I'm really pleased with the work that has come through and the views that have come through the commission on the future of the constitution in Wales as well, which supported the Welsh Government's views on those fiscal flexibilities. Again, actually, that's something that we have cross-party agreement on in the Senedd, which is really, really positive.

In terms of the well-being of future generations Act, absolutely, this will be at the heart of the work, but it is also at the heart of the budgets that we undertake in any case. So, this work will be—. We see this as the longer term fiscal framework in which we will be undertaking our annual budget. So, we have the 2025-26 budget ahead of us, for example, so that work in terms of setting the immediate priorities will commence in line with the usual timetable. So, we have the debate that is led by the Finance Committee ahead of the summer. That will take place, and then we will be undertaking the formal budget process as we normally do. But that will happen then for future years within this wider context.

So, the wider context will consider things such as the demographics in Wales, what we know about productivity and how we can go about improving that in Wales. And I think one of the things that is really important is the trajectory of health and social care spend. So, one of the key challenges that we do face across the budget—we all know; we talk about it all the time—is we have to divert funding from elsewhere in the Government to ensure that health has the funding it needs, and it's taking up a growing share of the resource budget all the time. So, it's currently close to 55 per cent now; based on current trends, it could be up to 60 per cent by 2028-29.

So, the Welsh spending review is a really important opportunity to consider how we can best manage that future trajectory, in parallel with considering a range of other key strategic fiscal challenges and opportunities that also face us, and the health Secretary and I are considering what work we need to do or commission externally to better understand this. It's been a long time now since the King's Fund work, for example. A lot has changed since then, so we're considering what we should be doing together on that as well. And, of course, our normal budgets will continue to have the strategic integrated impact assessment and so on. 

At the heart of the well-being of future generations Act is working in collaboration, and that's what is absolutely going to be at the heart of the spending review. We want to try different things now in terms of the spending review in terms of engagement. We have our normal engagement with the commissioners, including the future generations commissioner, for example. We have a whole range of other things that we do to try and engage on budgets, but, actually, we want to open this wider and hear from different and diverse voices across Wales. 

As I say, today is very much about just letting the Senedd know that I'm keen to kick off this piece of work and trying to have that early conversation to hear the first views, but very little has actually been set in stone yet in terms of the next steps. 

Photo of Jenny Rathbone Jenny Rathbone Labour 3:06, 11 June 2024

I note your five priorities. On behalf of the Equality and Social Justice Committee, I wonder if you can say what weight will be given to the equality impact statement and how will it differ from last year's or the year before's, because I think that there's genuine concern that this isn't being considered front and centre of the Government's decision making. 

I also would like to ask you what attention you will be paying to moving more resources into prevention, because it's so much cheaper to nip problems in the bud rather than let them develop and then become much more expensive later down the line, and there's just so much that we need to do on this.  

Photo of Rebecca Evans Rebecca Evans Labour

So, in terms of the strategic integrated impact assessment, we have commissioned—. Or this year we are undertaking a review of the strategic integrated impact assessment, so that we can reflect on the views of the committee but also the views more widely that have been expressed in the Senedd as we undertake the annual budget. So, the impact assessment will be part of our normal budget. The work that I'm describing today is that kind of longer term, more strategic look. So, we see the fiscal strategy as that five to 10-year outlook. Within that then, there'll be a series of what we're just referring internally to as episodes. So, an episode might be the one-year budget or it might be a three-year spending review, but all of that is within that wider umbrella of the longer-term look, which will look at things like demographics, what we expect to happen in the health service and so on.

So, it allows that kind of decision making over a longer term, and responds to what the Senedd has been very keen on in terms of that greater and more evidenced shift towards prevention, which is absolutely something we have to do. I've just talked about what we expect, based on current trajectories, the health spend might be in future years, and that—. It is a huge challenge, so that's one of the reasons why we're undertaking this work, to try and move things more towards prevention, but to do so over a long term.  

Photo of Cefin Campbell Cefin Campbell Plaid Cymru 3:08, 11 June 2024

Thank you for your statement. Cabinet Secretary, were it not clear to me before, the range of meetings I've begun to have with stakeholders across the education sector has really driven home to me the scale of the crisis resulting from the underinvestment in education in Wales. From primary right through to secondary, further and higher education, the impact of this underinvestment is clear to see. Now, indeed, as we all saw yesterday, figures published by School Cuts Cymru show that 922 schools in Wales have faced budget cuts, with real-terms per pupil funding falling by £343 for primary schools, £388 for secondary schools and £411 for special schools. 

Now, we also know from public letters from headteachers in Denbighshire, Blaenau Gwent and elsewhere that they are facing unprecedented financial pressures, with knock-on impacts on staff morale, mental health and their ability to do their jobs. At the same time, both higher and further education are facing—[Interruption.] Sorry? 

Photo of Cefin Campbell Cefin Campbell Plaid Cymru

Sorry, I'm coming to that. Right, okay. So, can you confirm that you are doing everything in your power to ensure that our education system is receiving the level of investment it needs?

Photo of Rebecca Evans Rebecca Evans Labour

I'm very grateful for that, and Cefin Campbell and I were both at an event this afternoon at lunch time, talking to representatives from the University and College Union, hearing about challenges facing the higher education sector as well, and so we're aware of the pressures right across education.

So, education, clearly, will be key to the work that we're talking about this afternoon, which looks across that five to 10-year period going ahead, and you'll have seen the way in which we've tried to prioritise local government through our budget processes in recent years has given the best possible protection that we could to education, but absolutely we recognise the huge pressures that education is under at the moment.

In terms of the work for the spending review period, I think what I should take from this, really, is a request that it is a key plank that we look at as part of the spending review process, because what I'm talking about this afternoon isn't anything that allocates money; it's more about the process of understanding what the challenges might be in the years to come, to ensure that we take that strategic approach to those challenges, rather than having to respond in a kind of short-term way. But the demographic challenges that we're facing, I think, will play into that as well, and that will be an important part of our research.

Photo of David Rees David Rees Labour 3:11, 11 June 2024

(Translated)

I thank the Cabinet Secretary.