Joe Rossiter takes a closer look at the Spring Budget 2023 and its likely impact on the lives of people in Wales
On Wednesday 15 March, our director Auriol Miller was invited onto Wales Live to discuss the impact of the newly announced Spring Budget on Wales and give a short analysis.
On the show Auriol set out that the UK Government’s announcements would be insufficient to give people much comfort as significant numbers of people in Wales are already struggling to pay for everyday essentials. She commented on the stealth tax hike coming in April as personal tax thresholds won’t be rising but people will creep into higher bands for the first time as their pay and inflation increase. This will mean an additional annual £500 of tax payable by a basic rate payer, and £1,000 for a higher rate tax payer. With Wales having no ability to amend tax brackets to make them more appropriate for its tax base, it is powerless to limit the impact of these changes.
The Office for Budget Responsibility (OBR) forecasts accompanying the budget soften some of the economic predictions they gave in November, with inflation and the size of the economy looking marginally better than previously forecast. Yet the OBR figures show that real household disposable incomes are expected to fall by 6.1% between 2021-22 and 2023-24. Households across the UK are thus still looking at the largest fall in living standards since records began. Not only that, but they won’t reach pre-pandemic levels until 2028 at the earliest. We are therefore still looking at more economic pain over the medium term.
Now, into the specifics.
The Spring Budget puts money into the hands of well-off high earners, increasing the amount which can be saved tax free in private pensions in a single year. At a time when so many people across the UK are struggling to pay their bills and feed their families, it represents a political priority at odds with the needs of the country.
The IWA wants to see much more ambition: ambition to tackle the long-term, systemic challenges in Wales and across the UK. This budget does not do this, offering short term fixes to decades-long problems.
There are also short term fixes to long-term, systemic problems. Take the three-month extension to the energy price guarantee. This will be a relief to many households in Wales who are struggling to pay their energy bills. However, it represents a short-term fix to a much larger problem. Here in Wales, we have a disproportionately ageing and energy-inefficient housing stock, which keeps Welsh households paying more on energy than more affluent areas of the UK. Energy is not getting cheaper over the medium term, and using our energy resources more efficiently could be a long-term solution to spiralling energy costs. Yet, the budget makes no allocation for stimulating public and private investment in improving our key infrastructure, such as our housing stock. In three months time, the debate on energy bills will rear its head once more, and a new solution will be suggested. The IWA wants to see much more ambition: ambition to tackle the long-term, systemic challenges in Wales and across the UK. This budget does not do this, offering short term fixes to decades-long problems. Not only this, but the cost of not acting will lock us into higher bills for the foreseeable future.
Another key part of the budget is the UK Government’s new childcare offer. The offer outlined in the Spring Budget will clearly put pressure on Welsh Government to bolster support for working families with children in Wales, where parents are currently able to apply for up to 30 hours of childcare and early education a week. The current childcare offer in Wales forms a key plank of the Cooperation Agreement between Welsh Labour and Plaid Cymru. UK Government proposals now match the 30 hours offer, yet lower the age from which they currently apply to nine months, the point at which statutory maternity/paternity leave ends. This is substantially younger than when the Welsh childcare offer begins, when a child reaches three. With Barnett consequentials incoming from this new spending in England, Wales may have headroom to match this offer and provide more support to those with young children. Yet question marks remain over the long-term impact of the new policy, particularly whether childcare settings have the capacity to meet demand and whether this policy will boost the economy by enabling young parents to return to work.
The Spring budget also includes a range of targeted support measures aimed at getting those over-50 back into the workplace. Whilst this is welcome in a stretched labour market and with an ageing population, Westminster is failing to act to ensure that those already in work are fairly compensated. Public sector workers across the UK continue to strike in order to improve their pay and working conditions, from ambulance workers, to teachers, these are key planks of the foundational economy. Whilst the rate of inflation is forecast to fall from its heights of 2022, it will remain a part of the picture until the middle of this decade. This means living standards will continue to fall over the medium term. Prices aren’t just going to fall back to where they were before all this. Public sector pay will continue to be a problem across the UK, and with a Government in Wales unable to fund pay rises without Barnett consequentials from spending in England (remember it needs to be ‘new money’ from HM Treasury, not savings found from other budgets), we are in a period of stasis.
This issue goes beyond the public sector, with its high levels of union membership in Wales. The IWA has recently advocated for targeted Welsh Government support in the form of a Union Renewal Fund to help unions reach people who are not already in unionised support. In light of this, Welsh Government should consider setting up this fund with some of the consequentials derived from this new budget.
The Spring Budget makes a number of political decisions, which presents a direction of travel up to the next General Election in 2025.
The forecasted fall in living standards is part of a long term picture of wage stagnation over the past 15 years, which has seen workers in the UK falling further behind our continental counterparts. The Resolution Foundation has found that workers in the UK are £11,000 worse off a year than 15 years ago, with the gap between ourselves and comparable countries, like Germany, continuing to widen. This budget does nothing to change the state of UK and Wales’ stuttering economies, and offers few solutions which will lead to long-term, sustained, and inclusive growth.
The Spring Budget makes a number of political decisions, which presents a direction of travel up to the next General Election in 2025. Tax breaks for high earners, cuts to fuel duty and pints in pubs totalling over £6 billion. As Paul Johnson of the IFS has pointed out, such a figure could help to make an improved pay offer to striking public sector workers. These are political decisions, which tie Welsh Governments’ hands behind its back, unable to allocate funding to public sector workers in Wales.
Our broader view is that the Spring budget remains detached from the needs of people in Wales, and will continue to constrain Welsh Government’s actions for the coming months, as Welsh Government’s budget remains determined by decisions made in Westminster. Our Fiscal Firepower report argues UK Government should be focusing on providing long-term solutions by accepting the insufficiencies of the Welsh Government’s fiscal framework and accept the Welsh Government’s case for prudential borrowing powers that would give it capacity to invest in strategic structural reforms. This budget will fall short of providing the conditions for effecting radical change.
We await the news of the Freeport(s) decision in Wales. The three applications display interest in the project from coastal areas across the nation. Two successful Freeport bids would be a good signal to Wales, especially as highlighted above, it would represent a rare example of Welsh Government and UK Government working together in partnership towards a shared goal. We need far more of that. Serious investment into offshore wind in the Celtic Sea is but one further example.
We need bold, long-term thinking to create the successful, green and fair economy the people of Wales deserve. Whilst some of the tools for such change lie here in Wales, the Welsh Government’s hands continue to be tied behind its back when budgets like this are put forward. Only transformational change will meet the scale of the challenge. The time for such change is long overdue.
If you want to support our work tackling Wales’ key challenges, consider becoming a member.