Joe Rositer unpacks the UK Autumn Budget and what it may mean for the people of Wales.
Budget Overview
On Wednesday, the Chancellor Rachel Reeves unveiled her first budget, and the first UK budget from a Labour Government in 14 years. In it, she attempts to rebuild Britain’s stagnating economy through increased investment, increased borrowing and public spending, and tax rises, to the tune of some £41 billion, on employers and wealth.
The budget reflects the UK Government’s overarching mission – of achieving economic growth. Indeed, the mantra for this budget was that the only way to achieve growth is to ‘invest, invest, invest’.
Decisions to unleash public spending come for two reasons:
- To increase investment to create growth
- To start to fix overstretched public services.
Increased borrowing and taxation both represent the two big ‘gambles’ of this budget according to the Institute for Fiscal Studies (IFS). Whether investing in public services results in an increase in performance, and whether borrowing to invest will lead to growth, will dictate whether we look back on this budget as a turning point, or a failed gamble. The outcome of neither will be immediately apparent in the short term.
The Office for Budget Responsibility’s (OBR) initial forecast that this budget fails to move growth during this parliament from what was already expected pre-budget will come as a disappointment for the UK Government. They will hope that their wider reform agendas over planning, energy and that public capital investment unleashed from changing the Treasury’s fiscal rules will result in outsized economic benefit.
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This budget thus comes at a potential cost to the Welsh Labour party in government in Wales, which are facing a Senedd election in 2026. In this timescale the costs of this budget will be felt, but it may not be long enough for the potential benefits to be felt. It’s important to also note that increases in public investment are frontloaded in this budget, leaving budgetary challenges for public services three-to-four years ahead.
Broadly speaking, the budget attempts to reverse the UK’s position of having the lowest investment in the G7. Increasing the ability to invest, both in revenue and capital terms, is much needed, to support improved public service delivery and enable government to invest in the grand challenges the UK economy faces: climate change, regional inequalities, improving infrastructure as a few examples, all aiming to raise living standards over the long term. Whilst the OBR, rather worryingly for the UK Government, suggest that by the end of the parliament private investment will fall, it is certainly the case that increased investment in public services and infrastructure will help to make Wales (and the UK) more attractive to investment, through improving areas which have been in decline, like education, skills, health and infrastructure.
People want public services that work, they want NHS waiting times (across the UK) to fall, they want Local Authorities which can improve their communities.
We can also identify a third gamble in this budget, and that is a gamble on public trust. Prior to the General Election, it was stipulated that the next UK Government would likely need to borrow more and tax more. That Labour failed to articulate this, and ruled out raising the three largest taxes, was at the time noted by the IFS to represent a ‘conspiracy of silence’ between both Labour and the Conservatives in public debate about taxation. Both higher taxes and borrowing are the cost of attempting to revive the economy (and public services) through increased spending.
Increases in investment and public sending have to be paid by someone, and indeed they are worth paying for. People want public services that work, they want NHS waiting times (across the UK) to fall, they want Local Authorities which can improve their communities. But failing to have that honest conversation ahead of the General election will come at the cost of decreasing public trust. Few politicians are bold enough to make the argument that whilst this budget represents the highest rise in taxes in decades, which is significant and notable, it also continues to see the UK placed near the OECD average of tax levels as a percentage of GDP.
Likewise, the pledge that there will be no increased taxation on ‘working people’ whilst directly true, clearly fails to acknowledge that 75% of the national insurance rise for employers is likely to be passed on to workers according to the OBR. People will feel this.
But what does the budget mean for people in Wales?
Welsh impact: more money, but where?
Increased spending on education and health outlined in the budget is, of course, for English services. This means that, as a result of this spending, Wales will see a £1.7bn top-up in Barnett consequentials coming to the Government’s budget to support increased spending in Wales.
This represents the largest top-up in real terms in the history of devolution, according to the Wales Office. Last year’s Welsh Government Budget was £23.6 billion, so this new funding represents an almost 6.5% rise in the total budget, breaking down as £1.5 billion for day-to-day spending and £250 million for capital investment.
This significant increase in spending will be welcome news to Welsh Government, who will need to decide what to do with it and where to allocate the spending ahead of their draft budget, published this December.
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The First Minister’s priorities on health, green growth, education and transport suggest where some of this money may well go. With tackling record NHS waiting lists a clear, immediate priority for Welsh Government, we would expect a significant amount of increased revenue funding to go towards NHS Wales.
Yet calls for increased funding are coming from across Wales. As one example, Local Authorities in Wales have argued that their services are facing ‘unsustainable budget pressures’, to the tune of £559 million for 2025-26. As the deliverers of so many vital services, cuts to local services will be felt on the ground across the country.
The scale of investment needed across services in Wales is laid bare, so the decisions on where a welcome extra £1.7bn will be is far from straightforward for Welsh Government.
The budget also allocates £25 million to coal tip safety measures. Whilst this is a welcome acknowledgement of UK Government responsibility for ensuring the safety of former mining communities, this funding must surely represent but a first step. Ministers in Wales suggest that about £600 million will be needed to protect tips from the impact of climate change over the next decade and a half. Mark Drakeford welcomed the news, indicating that more Welsh Government funds will be matched by UK Government to address the problem, but that funding comes out of money allocated for public services and investment, unless further UK direct monetary support is offered.
The budget stays conspicuously silent on Barnett consequentials for Wales as a result of large scale transport projects in England, despite the announcement for further rail investment across England in this budget. As Dr Ed Poole notes, this leaves Wales at significant disadvantage when it comes to transport spending. Indeed, Wales now gains far less Barnett consequentials from English spend on transport, with the percentage of funding coming to Wales in this manner falling in this budget. The designation of large-scale rail projects like HS2 as ‘England and Wales’ projects, despite no infrastructure being delivered in Wales, will continue to frustrate many and will see much needed investment in transport infrastructure from Welsh Government coming from other parts of its budget.
The scale of investment needed across services in Wales is laid bare, so the decisions on where a welcome extra £1.7bn will be is far from straightforward for Welsh Government.
The news that Shared Prosperity Funding, which many Local Authorities and CJCs have come to rely on in Wales, will continue for a further year is useful in providing an update on what happens at the end of the term, when current funding cycles were expected to face a cliff-edge ending. Yet, that this funding is continued as a transitional arrangement ahead of broader local growth funding reforms highlights the lack of immediate priority in ‘levelling up’, in the terms of the preceding government, as the priority. Whilst this provides some certainty, it is only certainty in the immediate term and little beyond that. We will await to see further details on local growth funding reforms, as well as the role of Welsh Government in overseeing priorities for where and what EU replacement funding schemes should look like for communities across Wales.
The rise in employers’ national insurance contributions and the rising National Living Wage will come at a significant cost to businesses in Wales, which will trickle down to workers. Although welcome steps have been taken to protect the smallest businesses, as noted by the Federation of Small Businesses, it will nonetheless have a distinct impact on SMEs in Wales (which make up a large part of our economy).
Likewise, opposition parties have criticised the budget for removing exemptions in inheritance tax for agricultural assets, which will see an inheritance tax rate of 20% on all assets over £1 million. The National Farmers Union and the UK Government clearly disagree over the amount of impact this will have on farmers in Wales. We may, therefore, expect tensions between farmers and government in Wales to continue after protests over Welsh Government’s Sustainable Farming Scheme at the end of last year.
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So, what does this budget achieve? It resets the narrative and recognises the need for increased investment in public services and the need to invest in capital projects to achieve long-term growth. These are positive steps, but there is certainly a long way still to go.
We likely won’t know whether Reeves’ gambles have paid off in the immediate term. This budget seeks to reverse the UK’s failure to invest, but whether a boost to spending over this parliament will result in growth will be the litmus test for whether this has set the UK and Wales on the path to success. Overall, more money for public services was badly needed for Welsh Government’s forthcoming budget, so we will wait and see what they do with it, and whether investment leads to better outcomes.
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