Challenges Facing the Next First Minister

Editorial in the Winter edition of the IWA journal Agenda, 2009

If Rhodri Morgan will be remembered as the man who embedded the National Assembly in the minds, if not altogether the hearts of the people of Wales, then the legacy of his successor as First Minister will be defined by how he or she deals with three looming challenges. The first is spending cuts. Second is the intractable problem of Welsh economic performance. Third is negotiating the referendum that will be the next step in the unfinished business of creating a proper Parliament for Wales.

In this issue we analyse prospects for the Welsh budget. The outlook for the next three years presents a sharp contrast to the relative largesse of the first decade of devolution. The Welsh Government’s budget will fall from £15.38 billion to £14.18 billion in real terms, after taking account of inflation, a cumulative reduction of around 9 per cent. What this will mean for individual departments can be gleaned from the 2010-11 draft budget which we also publish in summary. In terms of the big spending departments this shows Environment and Housing, the Economy and Education taking the biggest hits, with cuts of 10.2 per cent, 4.6 per cent and 3.4 per cent respectively next year. Meanwhile Social Justice and Local Government have a 2.25 per cent rise and Health and Social Services 0.2 per cent.

The Health and Social Services budget is by some measure the largest and has consistently risen over the past decade at rates well above inflation. In the same period education spending has consistently fallen in relative terms. The time has come to alter this balance. It is a tough call, but it is time for rigorous controls of health spending to allow education to catch up. In any event much of spending in the acute hospital sector is merely dealing with the consequences of unhealthy lifestyles resulting from obesity, smoking, lack of exercise and much more. Spending on education is the best option for dealing with these underlying causes of Wales’s poor health.

At the same time the next First Minister should champion the case for replacing the Barnett Formula that calculates changes in the Welsh block grant, with one based on need rather than population. Three authoritative reports have made this case in recent months – from the House of Lords Select Committee, the Calman Commission in Scotland and our own Holtham Commission. Estimates vary but unless a change to a needs-based formula for calculating our block grant takes place, Wales is set to lose out by at least £300m in the coming year and more thereafter.

The Welsh Government’s levers on the economy are restricted. In the current recession it has shown some fleetness of foot in developing the £48m ProAct scheme in which companies on short time working can receive up to £4,000 per employee to keep them in employment. Elsewhere, however, the Government has tended to be more aspirational rather than effective in developing the ‘knowledge economy’ in key sectors such as the bio-sciences, renewable energy and the creative industries. Much of this points to a need for more spending in higher education, yet this has been falling in relative terms in recent years. Again there tough decisions are needed to recalibrate the economic and education budgets.

Finally, there is the constitution. The next First Minister should make the case for more powers for the National Assembly in terms of the arguments listed above. We need more effective governing institutions to give us the tools for improving our education and economy, and tackling our unacceptably high levels of morbidity. We need a Parliament for Wales, endorsed by a referendum, to give us the clout to make the case for a fairer share of resources from London.

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