Public spending levels in Wales, Scotland and the UK

At the end of July the Treasury published its annual Public Expenditure Statistical Analyses (PESA) report[1], which set out in detail the levels of public expenditure by UK government departments and by the devolved administrations in Scotland, Northern Ireland and Wales. Identifiable expenditure covers spending both on devolved and non-devolved functions but excludes non-identifiable expenditure such as defence, international development, and foreign affairs. One of the drawbacks of the PESA reports is that they do not readily provide information that facilitates comparisons between England and the three devolved administrations.

Since the onset of the financial crisis in 2008 public expenditure has been cut. Table 1 shows the level of identifiable public expenditure per capita in real terms (i.e. after taking into account inflation). The first column of figures is for 2009-10 because this was the year of peak public expenditure.

Table 1: Total identifiable public expenditure per capita in real terms[2] (£) and

 Indexed (UK=100).

	2009-10	2012-13	change
UK	9,407 (100)	8,940 (100)	-5.0%
England	9,169 (97)	8,676 (97)	-5.4%
Scotland	10,618 (115)	10,327 (116)	-2.7%
Wales	10,225 (110)	9,877 (110)	-3.4%
N. Ireland	11,335 (123)	11,064 (124)	-2.4%

Across the UK public expenditure per capita has fallen in real terms by an average of 5 per cent. One of the principal reasons for the differences in the level of cuts lies in non-devolved Social Protection expenditure, an area which encompasses: personal social services; incapacity, disability and injury benefits; old age pensions; and family benefits, income support and tax credits. Non-devolved Social Protection accounts in Wales for approximately 36 per cent of total identifiable public expenditure and 88 per cent of non-devolved expenditure. These benefits are needs related and are paid directly by the central UK government to recipients irrespective of where they live.

Real terms expenditure on social protection increased in all the areas as would be expected given a combination of ageing populations, the protection of pension increases and increased unemployment during the financial crisis and its aftermath. The increased cost was particularly pronounced in Wales. If the change in non-devolved Social Protection expenditure is allowed for then the remaining identifiable public expenditure per capita in Wales declined by 7.3 per cent in real terms over the four years from 2009-10 to 2012-13. This is a rough and ready measure of the decline in spending by the Welsh government and local government in Wales given that Social Protection is by far the most significant element of non-devolved identifiable public expenditure.

Relative identifiable expenditure per capita (index numbers in italics in Table 1) has remained stable over the past five years and as can be seen Scotland continues to fare well and continues 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 £450 per person or £1.4 billion in total in 2012-13. In practice given that Scotland has a relatively high level of GVA per capita (94 per cent of the UK average) and Wales languishes at 72 per cent, the difference in funding is even more striking. It is against this background that the failure of the UK parties to address the fair funding issue needs to be viewed.

Table 2 shows the spending per head in real terms on health. (Given the preponderant weight of England in terms of population one would expect the UK figures to be close to those for England).

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

	2008-09	2012-13	change
UK	1,932	1,970	+2.0%
England	1,898	1,945	+2.5%
Scotland	2,168	2,151	-0.8%
Wales	2,040	1,988	-2.5%
N. Ireland	2,055	2,145	+4.4%

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 2.5 per cent and the Welsh Government which has overseen a real terms cut of 2.5 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 noteworthy. If spending in Wales had kept pace with that in England then and additional £315 million or just over £100 per person would have been spent on health in Wales in 2012-13.

Table 3 shows that Wales is spending materially less than Scotland on education and is now on a par with England. 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. Of course 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 how much deeper have been the cuts in Wales compared with England. If changes in spending in Wales had tracked those in England then an additional £135 million would have been spent on education in Wales in 2012-13.

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

	2008-09	2012-13	change
UK	1,488	1,397	-6.1%
England	1,471	1,383	-6.0%
Scotland	1,604	1,466	-8.6%
Wales	1,524	1,389	-8.9%
N. Ireland	1,585	1,585	–

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 recent, 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.

Much attention has been focussed on capital expenditure following the Welsh government’s announcements regarding the M4 relief road and the UK government’s response to the Silk Commission’s first report which form part of the Wales Bill currently passing through parliament. Table 4 sets out the capital spending in Scotland and Wales, respectively. Scotland with a population of 1.7 times that of Wales is allocated twice the capital budget. (The Treasury does not set out in PESA the corresponding figures for England.)

 Table 4: Capital Investment Departmental Expenditure Limits in real terms[3] (£ ‘000s)

	2009-10	2010-11	2011-12	2012-13	2013-14	2014-15
Scotland	4,237	3,453	2,809	2,990	2,883	2,839
Wales	2,085	1,841	1,425	1,385	1,326	1,424

The planned £1bn expenditure on the M4 relief road represents about 70 per cent of the total capital budget in any one year. Of course the M4 expenditure will be spread over a number of years and the Welsh government is being allowed to borrow up to £500 million for the M4 scheme. The Welsh government has also announced that it may seek other sources of borrowing.  Nevertheless the M4 relief road will absorb a material proportion of the capital budget.

All three UK political parties are committed to further austerity after the general election next year. The Institute for Fiscal Studies[4] has estimated that by the end of this year 55 per cent of the planned tightening will have occurred leaving 45 per cent to the next parliament: almost all this future fiscal tightening will be through spending cuts rather than tax increases.

In the shorter term Table 5 shows the outlook for Wales’s Departmental Expenditure Limits in real terms out to 2015-16. As can be seen capital expenditure is planned to increase modestly but current expenditure will continue to fall

Table 5: Departmental Expenditure Limit for Wales in real terms (£’000s)[5]

	2009-10	2010-11	2011-12	2012-13	2013-14	2014-15	2015-16
Current	14,104	14,071	13,605	13,476	13,697	13,420	13,179
Capital	2,085	1,841	1,425	1,385	1,326	1,424	1,449
Total	16,189	15,912	15,031	14,861	15,022	14,843	14,628

The data in this PESA report once again underline what a poor funding deal Wales gets compared with Scotland. Labour has committed not to change the Barnett formula in the case of Scotland should there be a No vote in the independence referendum. In the case of Wales the Conservatives and LibDems have simply said that they will review the position as and when there are indications that the ‘Barnett squeeze’ restarts. More recently the Chief Secretary to the Treasury, Danny Alexander, has defended the Barnett formula and stated ‘Within the UK there is no prospect for changing the Barnett formula’[6]. When Labour introduced the Barnett formula in 1978 it did so knowing from estimates made at the time by the Treasury that Scotland was relatively overfunded and that Wales was underfunded. In 2009 the Holtham Commission came to a similar conclusion. The pattern of underfunding Wales has continued for over thirty-four years. Given the pronouncements of the three London based political parties in the context of the forthcoming Scottish independence referendum, if there is a No vote, there appears to be little likelihood of Barnett reform and fair funding for Wales after the next UK general election.