Coronavirus: An early Second Supplementary Budget

Published 23/10/2020   |   Last Updated 27/05/2021   |   Reading Time minutes

On Tuesday 20 October, the Welsh Government published an early Second Supplementary Budget 2020-21. It shows the additional £1.5b allocated in response to the Covid-19 pandemic, reflecting changes over the last four months since the First Supplementary Budget (published 27 May) (‘FSB’). This equates to an increase of 6.9%.

Compared to the Final Budget 2020-21 of £19.9bn, the funds directly managed by the Welsh Government (departmental spending) have increased to £23.5bn in this newly published Budget, an increase of 18.3%.

1. Why a Second Supplementary budget?

The Welsh Government usually publishes two supplementary budgets a year, one around June and another around February.

The Welsh Government’s aim in publishing the Second Supplementary Budget at this point in time is to consolidate decisions made since the FSB, due to the considerable number of Coronavirus-related announcements made in the intervening period . As such, it generally accounts for allocations previously announced.

Rebecca Evans MS, Minister for Finance and Trefnydd told Plenary that this Budget would allow the Supplementary Budget normally published in February to “concentrate more on the reconstruction effort”.

As well as allocating an additional £1.5bn, the Budget shows over £1.0bn of new unallocated funding.

2. How is the money being allocated?

The graphic below shows the increased allocations which have been made to Welsh Government departments, known as Main Expenditure Groups (‘MEG’s’) since the First Supplementary Budget:

The three biggest changes (including reallocated and reprioritised funding) are the additional allocations of;

  • £901.5m for Health and Social Services, an increase of 9.8% from the FSB.
  • £348.9m for Housing and Local Government, an increase of 6.7% from the FSB.
  • £130.5m for Economy and Transport, an increase of 4.7% from the FSB.

The majority of the additional funding for the additional £1.5bn allocation comes from ‘consequentials’ associated with UK Government spending decisions in England that are in devolved areas, including the guarantees made by the UK Government, as specified in the Budget.

3. Health and Social Services

The Welsh Government’s Health and Social Services MEG is due to receive a net increase in funding of £901.5m. This means over £10bn is available to be spent in this area in 2020-21.

The increased allocation includes an £800m ‘stabilisation package’, announced in August. It is designed to support NHS organisations in the build-up to a possible ‘second wave’ of the virus during Winter by assisting them to acquire suitable PPE and to fund Wales’ “largest ever flu vaccine campaign”.

The Budget also has additional allocations of;

The Welsh Government also wrote off £470m of historic NHS Wales debt, relating to “strategic cash support” that had been provided to local health boards since 2014 by Welsh Government.

Wales’ Local Health Boards reported an aggregate deficit of £89m in their accounts for 2019-20, with an estimated £450m deficit forecast for 2020-21, based on published information at the time of writing.

4. Local authority services

This Second Supplementary Budget shows £306.6m for the Local Authority Hardship Fund, including additional funding of £264m for local authorities (announced on 17 August), with an additional £27.4m for adult social care (including £22.7m for adult social care) and £15m to support the general element of the fund.

£50m has also been allocated towards the Welsh Government’s Phase 2 Homelessness plan, of which £9.5m of revenue and £30m of capital has been provided in the Budget. £2.9m has been allocated to reflect the impact of the COVID-19 council tax reduction scheme and the consequent decrease in council tax revenue.

5. Economy

The First Supplementary Budget almost doubled the Welsh Government’s budget for Economy and Transport, allocating funding for business support and grants.

The majority of the increased in allocations in this Second Supplementary Budget (£130.5m) relates to transport. It includes £113m for train services, which includes £65m of funding announced in May. It also allocates an additional £94.7m to support bus services, comprising of two sets of funding announced in August and September.

6. Support for businesses during the firebreak

As a consequence of the “firebreak” lockdown, non-food retail, hospitality businesses, close contact services and events and tourism businesses will be required to close from 6pm on 23 October until 9 November.

The Welsh Government confirmed that financial support of “almost £300m” would be made available for businesses, which is not reflected in the Budget, including;

  • A doubling of the latest round of the Economic Resilience Fund (up from £140m to £290m);
  • £1,000 payments for businesses eligible for Small Business Rates relief (subject to conditions);
  • £5,000 payments for eligible retail, hospitality and leisure businesses;
  • A discretionary top-up grant of £2,000 for businesses closed or materially affected by the lockdown period;
  • A further discretionary £1,000 grant for businesses materially affected by local lockdown measures for 21 days or more prior to the start of the firebreak lockdown;
  • £20m for business grants, with the condition for companies to co-fund the grants removed.

Welsh businesses will also depend on the Job Retention Scheme (‘JRS’), colloquially referred to as the furlough scheme, which ends on 31 October and its successor scheme, the Job Support Scheme (‘JSS’).

The Welsh Government has “pressed the Chancellor (Rishi Sunak MP)” for the JSS to be brought forward, in the hope of avoiding a situation where businesses are dealing with two separate wage support schemes during the firebreak lockdown with the Welsh Government offering to “make up the difference” for each employee in funding the two schemes.

To coincide with the publication of the Budget, the First Minister wrote to the Chancellor of the Exchequer to request a waiving of the criteria that employees claiming JRS must have been on furlough for at least three weeks prior to 30 June, saying that this would leave businesses who were newly affected by the “firebreak” lockdown outside of the scope of the Scheme’s support.

7. Reconstruction

The Welsh Government has also started to talk about ‘reconstruction’. On 6

On 6 October, the Welsh Government announced a £320m ‘post-covid pledge’, published alongside a ‘Covid Reconstruction – Challenges and Priorities’ paper. However, while the Second Supplementary Budget shows over £1.0bn of new unallocated funding, arguably more than enough to cover the economic support for the firebreak and the post-COVID pledge, it’s unclear how reconstruction may have been complicated by the resurgence in Coronavirus cases and deaths in Wales and the firebreak.

As the pandemic continues to develop, funding announcements are likely to continue. The details of any future consequentials will be confirmed in UK Supplementary Estimates, albeit the Minister for Finance and Trefnydd has stated that there “remains uncertainty” about the level of funding the Welsh Government will receive this year.

The UK Government has also announced that it intends to conclude a Spending Review in late November, although this will set resources and capital for 2021-22 rather than the current year.

8. What next?

The Finance Committee will scrutinise the Minister for Finance and Trefnydd on 2 November and will publish a report of its findings. The report will then be debated in Plenary on 17 November. You can watch the proceedings live on Senedd TV. The Minister has confirmed that a further third Supplementary Budget will be published towards the end of the financial year, with a focus on funding allocated toward reconstruction post-pandemic.

Article by Owain Davies, Senedd Research, Welsh Parliament

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