Wales facing brutal cuts whether Labour or Tories win the next election

Prime Minister Rishi Sunak (right) and Labour Party leader Sir Keir Starmer
-Credit: (Image: Jonathan Hordle/ITV/PA Wire)


Wales will be left out of pocket if either the Conservatives or Labour win the forthcoming general election. New analysis byCardiff University’s Wales Governance Centre (WGC) suggests cuts are likely to hit rail, bus, and road transport as well as business support, communities and regeneration, arts, culture, and sport, and housing and homelessness whoever wins the election.

It is hard for members of the public to get an idea of what party manifestos will mean in real terms. This is especially hard for people in Wales because so much of the money we have here is dependent on what is spent in England.

It is clear from the analysis, put together by Guto Ifan and Dr Ed Gareth Poole, that Wales is in for a really tough time regardless of whether Keir Starmer or Rishi Sunak is sat in Downing Street.

These are the key headlines:

  • Both the Conservative and Labour manifestos largely maintain the trajectory of existing UK Government spending plans. If they stick to their manifestos the Welsh Government would face “serious budgetary challenges”. This means it would have to implement further deep cuts to non-protected spending areas to fund increases to health spending.

  • These non-protected spending areas include rail, bus, and road transport, business support, communities and regeneration, arts, culture, and sport, and housing and homelessness

  • Under Conservative plans the Welsh Government budget for day-to-day spending would increase by an average of 0.8% per year in real terms from 2024-25 to 2028-29. Assuming the Welsh Government directly ‘passes on’ consequentials from NHS and schools spending in England a further £870m of funding would be required by 2028-29 to avoid real-terms cuts to non-protected areas of spending.

  • Under Labour's plans the Welsh Government budget for day-to-day spending would increase by an average of 1.1% per year in real terms from 2024-25 to 2028-29. Again assuming the Welsh Government directly passes on health and education consequentials an additional £248m of funding would be required in 2025-26 to avoid real terms cuts to non-protected spending areas. This gap which would grow to £683mn by 2028-29.

  • It is unclear therefore how these plans would fulfil the promise of 'no return to austerity’ under Labour. The additional consequential spending for Wales projected from the 2024 Labour manifesto amounts to just 5% of the consequential spending included in Labour’s 2019 manifesto.

  • Welsh Government capital spending (which funds multi-year infrastructure projects such as building schools, roads, and hospitals) will also be cut in real terms under both parties’ manifesto plans. Under existing plans the block grant for capital spending is set to fall by 7.7% in real terms from 2024-25 to 2028-29. The Labour manifesto contains additional investment spending under the Green Prosperity Plan worth some £60m per year for the Welsh Government. This would still however see the Welsh Government’s capital budget falling by 5% in real terms from 2024-25 to 2028-29.

  • Crucially both parties’ plans are highly dependent on a swift return to economic growth. Neither the Conservatives nor Labour intend to loosen the current chancellor’s fiscal rules and both parties have also ruled out increases to the main revenue-raising taxes. These pledges will seriously limit the next government’s ability to pump additional resources into public services.

  • Moreover the outlook for the public finances is underpinned by Office for Budget Responsibility forecasts for the economy (and for the resulting tax receipts) and these forecasts are significantly more optimistic than those of the Bank of England and the IMF.

The Conservative manifesto

The Conservative manifesto has left existing plans for spending on public services largely unchanged, topping up spending by just £500m by the end of the decade. New spending commitments are made for defence and the NHS funded largely through cuts to the Civil Service, cutting spending on consultants, and making unspecified ‘quango efficiencies’. The precise implications for the Welsh Government of these commitments are unknowable as no detail is provided on where or how these cuts will be made. Assuming that ‘back office’ spending cuts are implemented across all departments equally it's predicted that growth in the Welsh Government budget will be at an average of 0.8% per year.

If the Welsh Government again decided to directly ‘pass on’ the implied increases to NHS England spending in the Conservative manifesto to the health budget in Wales this would result in steeper cuts in non-protected spending elsewhere in the budget, averaging 2.2% per year in real terms. In total, under Conservative plans, the Welsh Government would need some £870m of additional funding to avoid real terms cuts to non-protected spending areas by 2028-29.

The Labour manifesto

The Labour manifesto promises a top-up to existing spending plans of close to £5bn by 2028-29 and these are focused primarily on health and education spending. These commitments would trigger approximately £195m of additional consequential spending for the Welsh budget by 2028-29.

But in the context of the projected £23bn Welsh budget for day-to-day spending this additional spending would not significantly alter the planned trajectory for the total Welsh budget. Compared with the 0.9% per year real-terms increases provided in the baseline assumptions outlined above under the Labour manifesto the Welsh Government budget for day-to-day spending would increase by 1.1% per year on average in real terms, which is just 0.2 percentage points higher than current Conservative government spending plans.

Despite the slight increase in funding compared with the baseline scenario the Welsh Government would still find future budget rounds very difficult. Because of the clear-cut nature of the health and education pledges in the Labour manifesto we again assume that the Labour Welsh Government would directly ‘pass on’ any additional consequentials from above-baseline NHS and schools spending in England.

This would imply that Welsh NHS spending would increase by 3.4% per year in real terms to 2028-29. The budget outlook is so tight in this scenario that all other spending areas would need to be cut by 1.7% per year in real terms.

An additional £248m of funding would be required in 2025-26 to avoid these real-terms cuts to all non-protected spending areas. This gap would increase to £683m by 2028-29. The implied scale of these budget cuts to services outside the Welsh NHS does not align with Rachel Reeves’ pledge that there "will not be a return to austerity" under an incoming Labour government.

In both budgetary and policy terms the Labour 2024 manifesto stands in stark contrast to Jeremy Corbyn's in 2019. This time around Labour is promising additional consequentials for day-to-day spending of just 5% of what they promised in 2019 (without any adjustment for inflation). The pledges in the 2024 manifesto are similar in magnitude to the forecasted consequentials from the 2019 Conservative manifesto.

Capital spending

It is not only in day-to-day spending that the Welsh Government budget faces a difficult outlook. Spending plans for departmental capital budgets were frozen in cash terms over the next five years – implying significant real-terms cuts.

There are no additional consequentials for investment spending in the Conservative manifesto plans. The Welsh Government capital block grant would therefore be set to fall by 7.7% in real terms from 2024-25 to 2028-29 on top of a steep fall this year.

The Labour manifesto contains additional investment spending under the Green Prosperity Plan and the WGC estimates additional cash for Wales of £60m per year from this. But the scale of this investment is dwarfed by the already pencilled-in real-terms cuts to capital spending in the current government’s spending plans. In addition to WGC assumptions of additional NHS capital spending even after Green Prosperity Plan spending the Welsh Government’s capital budget would fall by approximately 5% in real terms between 2024-25 and 2028-29.

Growth to the rescue?

Recall that neither the Conservatives nor Labour have pledged to loosen the fiscal rules imposed by the current chancellor and that both parties have ruled out increases to the main revenue-raising taxes such as income tax, national insurance contributions, and VAT. This means that any scope for changing these post-election spending forecasts therefore largely depend on the outlook for economic growth, which influences tax receipts and affects many areas of public spending such as universal credit.

The Labour party argues that the scope for public spending increases will be improved by stronger economic growth. But the public finances outlook that underpins all these projections is the economic forecasting of the Office for Budget Responsibility. As has been noted elsewhere the OBR’s forecasts are already significantly more optimistic than most other forecasters including the Bank of England and the IMF. Changing the spending outlook without changing taxes or borrowing will therefore require a sharp break from the UK’s dismal growth trajectory since the financial crisis of 2008.

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