The COVID-19 pandemic continues to pose significant challenges for Wales as we begin the Sixth Senedd. The previous Welsh Government made significant financial allocations to help Wales cope with the impact of the pandemic, with spending announcements made throughout the year. What changed during the year?
The three Supplementary Budgets in 2020-21 increased discretionary resource and capital allocations for Welsh Government departments from £17.7bn in the Final Budget 2020-21 to £24.6bn, an increase of £6.9bn (39.0%).
By comparison, the budget for 2019-20 increased from £16.4bn at the Final Budget 2019-20 to £17.5bn following the Second Supplementary Budget 2019-20, an increase of only £1.1bn (6.7%).
The First Supplementary Budget 2020-21 (1st SB) allocated an additional £2.5bn to departments compared with the Final Budget 2020-21, the Second Supplementary Budget 2020-21 (2nd SB) £1.5bn and the Third Supplementary Budget 2020-21 (3rd SB) £2.9bn. The Supplementary Budgets increased discretionary allocations to departments by 14.1%, 8.5% and 16.4% respectively, in comparison with the Final Budget 2020-21.
As expected, significant additional resources were allocated to Health and Social Services. At the Final Budget 2020-21 £8.7bn of resource funding was allocated to this area, increasing to £10.2bn by the time of the 3rd SB. These allocations, along with those for some other departments, reflected additional resources but also adjustments arising from realigning Ministerial portfolios, announced in October 2020. These included the creation of the new role of Minister for Mental Health, Wellbeing and the Welsh Language.
The net additional allocations for Health and Social Services alone in 2020-21 (£1.5bn), exceeded the total in-year allocations for all departments in 2019-20.
The Supplementary Budgets included funding for: a stabilisation package for the NHS (£800m), field hospitals (£166m). This also included £57m for the ‘Test, Trace, Protect’ Strategy in the 1st SB and allocations for COVID-19 contact tracing, such as £45m in the 2nd SB and £15.7m in the 3rd SB, amongst other major announcements.
There were significant net increases for a number of other departments, compared with the Final Budget 2020-21, with Housing and Local Government increasing from £4.7bn to £6.0bn (an increase of 27.7%), Education from £1.8bn to £2.7bn (50.0%) and, most significantly, Economy and Transport from £1.5bn to £4.2bn (180.0%).
The large increase in funding for Economy and Transport was down to the significant allocations for business support during the pandemic. Examples include £500m allocated to the Economic Resilience Fund (ERF) and £1.2bn for business rates relief and other grants in the 1st SB, as well as an additional £660m for business support in the TSB..
Other significant announcements over the course of the year included £600m for the Local Authority Hardship Fund and £320m of investment to implement the Welsh Government’s post-COVID reconstruction plan.
Why three Supplementary Budgets?
Typically, the Welsh Government publishes two supplementary budgets a year, usually in June and February. However, the Welsh Government published an additional Supplementary Budget in October 2021, stating it wished to “reflect the further changes that have arisen as a result of the measures taken to respond to the immediate impacts of the coronavirus pandemic”.
The then Finance Minister told the Senedd in October 2020 that the subsequent Supplementary Budget, typically published in February, would “concentrate more on the reconstruction effort”. In response to the Senedd Finance Committee’s report on the Draft Budget 2021-22, the Welsh Government stated:
We are the only government within the UK to have published three updates to our in-year budget and to have provided transparency of our funding decisions in this way.
The Scottish Government published a Summer, Autumn and Spring Budget Revision in 2020-21, published in May 2020, September 2020 and February 2021, respectively. The UK Government published Supplementary Estimates for 2020-21 in February 2021, while the Northern Irish Assembly published Spring Supplementary Estimates for 2020-21 in March 2021.
Borrowing
The Welsh Government has restricted borrowing powers, which allows it to borrow up to £150m of capital each year, up to an overall limit of £1bn. The Draft Budget 2021-22 indicated plans to borrow the full figure of £150m, which was reiterated in the Final Budget 2021-22.
The 3rd SB didn’t set out any capital borrowing for 2020-21, with no borrowing taken in 2019-20 either. This led to criticism from opposition parties who said that the failure to use the full scope of their borrowing powers “could undermine the Welsh Government’s case for current levels being increased”.
The Welsh Government responded by stating that a lack of flexibility in the funding arrangements with the UK Government had caused this, while subsequently calling for a relaxation to their borrowing limits in the future.
By contrast, the Scottish Government has significantly larger borrowing capacity with a maximum of £450m per year for capital, up to a total of £3bn. The Scottish Government’s Spring Budget Revision 2020-21 confirmed its intention to borrow the full £450m during that financial year, with its Fiscal Framework Outturn Report for 2019-20 noting it had borrowed £405m in that year to support capital expenditure.
Reserves
Much like its borrowing powers, there are also restrictions on the use of resources held in the Wales Reserve, which helps the Welsh Government “manage fluctuations in tax revenue and also provides limited ability to carry underspends between years”.
The Fiscal Framework allows the Welsh Government to save surplus revenues and unused block grant funding to the Wales Reserve, up to a limit of £350m. It’s able to draw down a maximum of £125m in resource funding and £50m in capital in any given year.
The 3rd SB for 2020-21 confirmed the Welsh Government’s intention to drawdown £125m of resource funding from the Wales Reserve, consistent with information contained in the 1st SB and 2nd SB. The 3rd SB also included a drawdown of £40.2m in capital funding and £9.8m for financial transactions capital.
Since 2018-19, the total funding held in the Wales Reserve has gradually increased, albeit resource funding held within it decreased between 2019-20. Provisional figures indicate that the Wales Reserve held £232m in resource funding at the start of 2020-21, along with £39m in capital funding and £66m in financial transactions capital.
In February 2021, the UK Government confirmed that any unspent funding COVID-19 funding from consequential funding provided to the Welsh Government could be carried over outside of the Wales Reserve because of the “exceptional circumstances and in response to calls for flexibility”.
The Welsh Government has carried an estimated £498m of consequential resource funding for COVID-19 from 2020-21 to 2021-22.
What’s the outlook for 2021-22?
Analysis from Wales Fiscal Analysis estimates that £2.5bn of COVID-19 funding will be available to the Welsh Government in 2021-22.This compares with a figure of £5.7bn (PDF 837kb) for 2020-21.
The Chancellor, Rishi Sunak, emphasised that work needs to be done to address public finances in the 2021 Budget, with little clarity on whether any additional COVID-19 funding is likely to be forthcoming during 2021-22. This fiscal uncertainty is also framed by the significant challenges faced by the Welsh Government, an example of which is addressing NHS waiting times, which stand at a record high of 568,367, as at March 2021.
For further information about some of the Supplementary Budgets from 2020-21, Senedd Research has published articles on the First Supplementary Budget, Second Supplementary Budget and Third Supplementary Budget, which will provide additional details and context.
Article by Owain Davies, Senedd Research, Welsh Parliament
