Eurfyl ap Gwilym challenges myths with facts about public spending in Wales and the rest of the UK

Because of the recent confidence and supply agreement between the UK Government and the DUP, which included a commitment to an additional £1bn of funding to Northern Ireland over the next two years, there has been much bandying around of figures purporting to show the relative public funding of the various nations and regions of the UK. It is regrettable that some, either through ignorance or misunderstanding, have made misleading claims regarding relative funding levels. One of the commonest claims is that ‘for every £1.00 of public spending in England, £1.20 is spent in Wales.’ As will be shown this is wrong.

What are the facts? In July 2017, the Treasury published its annual Public Expenditure Statistical Analyses (PESA) report which set out in detail the levels of identifiable public expenditure in the countries and regions of the UK. Identifiable expenditure is defined by the Treasury as ‘expenditure that can be recognised as having been incurred for the benefit of individuals, enterprises or communities within a particular country or region’. Such expenditure covers spending both on devolved and non-devolved functions but excludes non-identifiable expenditure such as: defence; international development; and foreign affairs. The latest years for which figures are published are for the period 2011-12 to 2015-16 together with forecasts out to 2019-20.

Public Spending Trends Across the UK

Since the onset of the financial crisis in 2008 public expenditure has been cut in real terms. Table 1 shows the level of identifiable public expenditure per capita in real terms (i.e. after taking into account inflation) over the five years since 2011-12.

Table 1: Total identifiable public expenditure per capita in real terms (£) and indexed (UK=100)

2011-12 2015-16 change UK 9,225 ( 100 ) 9,076 ( 100 ) -1.6% England 8,949 ( 97 ) 8,816 ( 97 ) -1.7% Scotland 10,624 ( 115 ) 10,536 ( 116) -0.8% Wales 10,348 ( 112 ) 9,996 ( 110 ) -3.4% N. Ireland 11,328 ( 123 ) 10,983 ( 121 ) -3.0%

Real terms are the nominal figures adjusted to 2015-16 levels using GDP deflators, based on the June 2017 National Accounts figures from the ONS.

Across the UK public expenditure per capita has fallen over five years in real terms by 1.6 per cent. As can be seen Wales and Northern Ireland have experienced the deepest cuts and Scotland the least. Given that England accounts for 83 per cent of the UK population the England and UK figures track each other closely.

Within England, the Treasury report shows that in 2015-16 London was the most generously funded region at 112 per cent of the UK average. This compares with Wales’s 110 per cent.

Some Country Comparisons

Relative identifiable expenditure per capita (index numbers in italics in Table 1) has remained fairly stable over the past five years and as can be seen Scotland and Northern Ireland continue to fare well and continue to be overfunded when compared with Wales. If Wales had received the same level of funding per capita as Scotland this would be worth an additional £540 per person or £1.67 billion in total in 2015-16. In practice given that Scotland has a relatively high level of GVA per capita (93 per cent of the UK average) and Wales languishes at 71 per cent, the difference in funding is even more striking. Given the attention being paid to the public funding of Northern Ireland, that country receives £987 per person more than Wales even before the recent deal between the UK Government and the DUP.

One of the potentially useful by-products of devolution is that it enables a comparison to be made of the changing spending priorities in the various administrations. The two most material areas in terms of devolved spending are health and education.

Health Spending

Table 2 shows the spending per head in real terms on health.

Table 2: Identifiable public expenditure per capita on health in real terms (£)

2011-12 2015-16 change UK 2,020 2,121 +5.0% England 1,992 2,106 +5.7% Scotland 2,212 2,258 +2.1% Wales 2,109 2,127 +0.9% N. Ireland 2,127 2,178 +2.4%

These data show the very different priorities in terms of spending trends between the UK government which is directly responsible for health spending in England, and has increased spending by 5.7 per cent, and the devolved administrations. The Welsh Government has overseen a real terms growth of 0.9 per cent. It is true that spending per capita on health remains marginally higher in Wales compared with England but given the unfavourable demographics of Wales the change in relative spending over the five years is remarkable.

Education Spending

Table 3 shows that Wales is spending materially less than Scotland on education and is now on a par with England having seen greater cuts in real terms over the period in question. Education is another area where spending is completely devolved to the Welsh government which has cut such spending more than the UK government has in England (note that the population being used by the Treasury in its analysis is the whole population and not that of school attending age). Nevertheless, it is striking how much lower expenditure is in Wales compared with Scotland and Northern Ireland and how much deeper have been the cuts in Wales compared with England.

Table 3: Identifiable public expenditure per capita on education in real terms (£)

2011-12 2015-16 change UK 1,448 1,291 -10.8% England 1,435 1,266 -11.8% Scotland 1,509 1,470 -2.6% Wales 1,538 1,320 -14.2% N. Ireland 1,553 1,461 -5.9%

Given that the Welsh government, which is responsible for expenditure on health and education, has chosen to cut these programmes more deeply than has been the case for England and Scotland, it follows that some other areas of expenditure have been cut less. The principal area of lower cuts is in local government which has been subject to severe cuts in England. Given the adverse comment on the performance of health and education in Wales, the Welsh government is under pressure to protect these programmes from further cuts and local government is likely to be the principal sufferer due to this change of course.

The data in this latest PESA report once again underline what a poor funding deal Wales gets compared with Scotland and Northern Ireland. When Labour introduced the Barnett formula in 1978 it did so knowing from Treasury estimates made at the time that compared to relative need Scotland was overfunded and Wales was underfunded. In 2009 the Holtham Commission came to a similar conclusion and this conclusion has been echoed by the House of Lords Select Committee on the Barnett Formula and more recently by the European Union Committee of the House of Lords. There is no indication that the current, relative funding position of Wales will change materially in the coming years even after the new fiscal framework comes into force in 2018.

The outlook for public spending

Table 4 shows the outlook for Wales’s Departmental Expenditure Limits (DEL) in real terms out to 2019-20. As can be seen in real terms capital expenditure is planned to increase materially but current expenditure will continue to fall. The total DEL will fall by an additional 1.2 per cent in real terms by 2019-20.

Table 4: Departmental Expenditure Limit for Wales in real terms (£’000s)

2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 Current 14,286 14,124 13,070 13,035 13,151 12,986 12,843 Capital 1,380 1,541 1,573 1,485 1,578 1,635 1,714 Total 15,666 15,665 14,644 14,520 14,729 14,621 14,556

Table from Public Expenditure Statistical Analyses. HM Treasury. Cmnd. 9467. July 2017.

The forecast DEL set out here will almost certainly change when the UK Budget statement is made in November/December of this year. Although the current UK Government has eased the pace of austerity at each successive budget it is unlikely to abandon its goal of eliminating the current account deficit by 2025. Faced with the slowdown of the UK economy and the corresponding deterioration in the state of the public finances, there will be little scope for increases in public spending unless the UK Government decides radically to change its fiscal strategy. The forthcoming UK budget is an opportunity to revisit the austerity strategy but given the travails of Brexit this is unlikely to happen.

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