Oral - Statement from the Welsh Assembly Government on UK Government spending cuts

Yesterday, the UK Government set out how it will be securing and distributing £6.2 billion in public spending cuts in 2010-11. The details provided so far are limited and there are areas where clarification is needed. Nevertheless, the figures that the Treasury has provided so far indicate that the proposed cut to the Welsh budget is £187 million, although this is partly offset by £24 million in positive consequentials from additional spending in some areas. This is equivalent to around 1 per cent of our total budget.

The Welsh Assembly Government has made it clear that we will be responsible partners in contributing to the reduction of the deficit over coming years. Wales will play its part in the difficult adjustments that need to be made. However, we have also made it clear that if public expenditure is cut too early, we risk jeopardising the economic recovery. The deficit needs to be reduced, but only as quickly as it can be without threatening the recovery and without incurring massive damage to public services.

Since the Assembly Government was established, we have maintained a focus on achieving efficient services that can deliver for the people of Wales in the most effective way possible. For some time, we have flagged up the economic challenges that we face and the prospects of reduced budgets, and we have made significant changes to ensure that we are structured to deliver more efficiently. To give this work an added pan-public service dimension, earlier this year we established the Wales efficiency and innovation board, which I chair. It is pleasing to see that the Chancellor of the Exchequer announced yesterday that he is following our initiative and will be setting up a similar group. The board is driving a national programme to transform operational efficiency, to catalyse innovation in the way that public services are designed and delivered and to promote collaboration. This will build on the Team Wales approach that was adopted by the economic summits and that has helped Wales through the recession. It is only through this sort of innovative, collaborative approach that we will be able to manage the next few years without damaging the public services that so many in Wales rely on.

We have also led the way in other matters that the Chancellor now extols. For example, we have merged our larger arm’s-length bodies—our quangos—into the Welsh Assembly Government in recent years. We have already made changes to ensure that we are using our offices across Wales in the most cost-effective way possible, by co-locating with partner organisations, as appropriate. Also, we have already taken firm action to limit civil service recruitment and to bear down on all areas of administrative spend, including reducing consultancy, travel and allowance costs. I am pleased to see that the UK Government is now following our lead on this. However, these are savings we are already making in Wales, and the scope for administrative savings in Wales is simply not the same as it is in England. This is something that the new UK Government has not taken into account when deciding the size of the cuts imposed on us.

If we are to protect services to the best of our ability over the next few years, while managing with fewer resources, we need to undertake careful preparation. All parts of Welsh public services must work together to shape our response. Despite the cuts announced yesterday, the Assembly Government will not be rushing into knee-jerk, unplanned reductions in budgets that could damage public services and threaten the recovery. In the current year, we are already managing a budget that is reduced in real terms. Taking out an additional 1 per cent—six months after budgets were agreed by the Assembly and service delivery across Wales is well under way—without damaging services, would be very challenging. The Chancellor has offered us the opportunity to defer some, or all, of the cuts until next year. However, before we decide on our approach, we need further details from the Treasury. We need greater clarity in three areas.

First, we need to know the capital/revenue split of the cuts. The Treasury has indicated that it will be up to two weeks before it has enough information about where the cuts in England are being found to give us this split. Clearly, knowing whether we need to make reductions in capital or revenue budgets is an important factor in determining our response. Secondly, we need to secure the flexibility to transfer savings that were made this year into next year via end-of-year flexibility. If the Treasury will guarantee access to EYF, that will help us plan more effectively. Thirdly, we need more information about the size of the budget reductions that we are likely to see in the autumn comprehensive spending review. If the reductions that we will be subject to next year turn out to be bigger than our current planning assumptions, deferring the cut of £187 million to next year may not be helpful.

Also, we seem to have been given a consequential of cuts in the Olympics budget. As Members will be well aware, Wales did not receive consequentials from the Olympics budget when it was established in the last CSR. Clearly, we should not be subject to cuts to budgets that we did not receive in the first place. I will have an initial discussion on these and other issues with the Chief Secretary to the Treasury later this week, and I will be having a more detailed meeting with him in London on 9 June to press our case.

The other key issue that I will be raising with the Chief Secretary is fair funding for Wales. The publication of the first report of the Holtham commission in July 2009, followed by its unanimous acceptance in the Assembly last autumn, provided clear evidence that Wales is already being underfunded by around £300 million annually, and that the relative underfunding is increasing over time. Not only Gerry Holtham, but other acknowledged experts have reported that the Barnett formula is not fit for purpose. It is unfair to Wales and should be replaced with a new needs-based formula to ensure fairer funding. The reform of Barnett will take time, but my immediate concern is to ensure that Wales does not become further disadvantaged.

There are a number of smaller steps that the UK Government could now take to move towards fairer funding for Wales, so I will continue to press for the immediate implementation of a floor to prevent Wales from becoming even more underfunded than we are currently. I will also continue to press for flexibilities, for example in the use of end-year flexibility, to enable us to manage our finances effectively.

The Government is committed to taking a responsible approach to reducing the deficit over the coming years. Wales will play its part and consider the most responsible way to achieve that. Reductions in budgets need to be properly planned and managed, and action needs to be taken to deliver fair funding for Wales.