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The State of the State in Wales

Welsh devolution takes a big step forward in 2019. From April, the Welsh Government will be able to adjust income tax rates by up to ten pence in the pound as part of devolved powers announced four years ago. Some 13 per cent of the Welsh budget will come from income tax as Wales joins Scotland in a new era of fiscal devolution, autonomy and responsibility. And importantly, this move creates a clear connection between the health of the Welsh economy and the wealth of its public finances.

These developments take place against a backdrop of political renewal, with First Minister Carwyn Jones set to stand down as Labour leader, and both the Conservatives and UKIP having installed new leaders in the Welsh Assembly.

The shift in fiscal self-reliance is one of a number of factors that has raised concerns over the sustainability of public spending among public sector leaders in Wales. Those that we interviewed for The State of the State described the same pressures as felt in England – and specifically that continued growth for health spending and a return to growth in public sector pay would continue to squeeze spending in other areas. 

The Institute of Welsh Affairs has put forward four options that the Welsh Government could consider to make its spending more sustainable: withdraw from some areas of public sector activity; boost public sector productivity to do more with less; increase its revenue by charging for public services or raising taxes; or find ways to quickly ramp up economic growth. None of those options are easy and most would be contentious, politically, but the Institute concedes that tax rises may be inevitable.

Inevitably, public sector leaders in Wales told us about their concerns over Brexit. Those we interviewed were specifically worried about the potential loss of European funding. Wales currently receives £680 million of support from the EU every year, which includes £200 million of funding from the Common Agricultural Policy to subsidise 16,000 Welsh farms and a rural development programme that is providing £957 million from 2014-20 to businesses, farms and communities. Of course, the people we interviewed are conscious that these levels of investment did not deter the Welsh electorate from voting to leave the EU in the 2016 referendum, alongside English voters. But all of the people we spoke to were concerned that such funding might not be available beyond the UK government’s guarantee to maintain levels until 2020.

As in the rest of the UK, the population of Wales is ageing – but the trends are more pronounced. An OECD report found that in fifty years, the over 75s will be the biggest proportion of all age groups in the country. To add to that pressure, health issues related to drinking, smoking and obesity are higher in Wales than the rest of the UK except Northern Ireland.

However, the Welsh Government appears to have pressed ahead in terms of its debate on the future of health and social care. Informed by a report by economist Professor Gerald Holtham, the Welsh Government is examining the future funding of social care, including options for tax rises to fund future needs. A senior figure in social care told us that the political will to find a sustainable, fair system of funding exists in Wales.

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