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Report warns of difficult financial climate for Welsh politicians

Published 14/09/2016

More tough choices will face Welsh politicians
More tough choices will face Welsh politicians

Wales could lose £500 million a year after Brexit - and ministers will face even tougher choices about what to spend their dwindling budget on, a new report has warned.

Research by The Institute for Fiscal Studies said the Welsh Government's pot could be cut by 3.2% in real terms over the next three years - given forecasts set out in the UK Government's March 2016 budget.

And the study predicts the largest cuts will come in 2018-19 and 2019 - with local government especially facing a particularly tough time.

Among the IFS's key findings include: i ncreases to the NHS budget of 2% a year, while protecting funding for councils' education and social services responsibilities, would lead to "unprotected" areas facing cuts averaging 18% over the next three years.

If income tax were to be partially devolved, increasing rates across-the-board by 1p in the pound could offset almost half the overall cuts to the Welsh Government's budget.

However, a cross-the-board 1p in the pound cut in income tax rates would increase overall budget cuts from 3.2% to 4.7% by 2019-20.

The report, published as part of the Wales Public Services 2025 programme hosted at Cardiff Business School, also looked at the possible impact to Wales once Britain leaves the European Union.

Despite receiving hundreds of millions of pounds of EU funding, voters in Wales voted in favour of Brexit 52.5% to 47.5%

Welsh Labour leader and First Minister Carwyn Jones has previously called on Tory UK ministers who were in the Leave campaign to keep their promises and make sure Wales does not lose even a single penny.

The IFS's research examined the costs the Welsh Government may face if the EU funding Wales receives is not fully replaced.

It said if no additional funding is provided, ministers in Cardiff Bay would have to find over £500 million a year from their existing budget if they wanted to continue to fund regional and rural development projects.

And the report also said council tax bills in Wales may have to increase by an average of 4% a year in each of the next three years.

Polly Simpson is a research economist at the IFS and an author of the report.

She said "This research highlights the difficult budgetary trade-offs facing the Welsh Government.

"Protecting such large areas of spending as health, social care and education would require substantial cuts to other areas of spending that have often already had to absorb seven years of real-terms cuts. "

Michael Trickey, director of Wales Public Services 2025 said tough times for public services in Wales were far from over.

He said: "Austerity still has some way to run and further cuts seem unavoidable.

"This will intensify the pressure on public services to increase the scale of change and mitigate the impact on communities."

The Welsh Government said the IFS report showed that Wales would be much worse off thanks to the "UK Government's ongoing cuts to public finances and programme of austerity".

A spokeswoman added: "We have worked hard to protect public services in Wales from the full impact of these cuts.

"We are currently developing our Budget for 2017-18, which will be published on 18 October, and are looking at the long-term outlook and how the pressures identified by the IFS can be managed."

However, a Treasury spokesman said the UK Government's 2015 spending review saw the capital budgets available to the Welsh Government for infrastructure investment rise by over £900m through to 2020-21.

He added that how future funding was allocated was a matter for the Welsh Government.

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