Although the political parties are issuing individual policy commitments day by day, Wales Public Services 2025 is concentrating on the published manifestos and their implications for public spending and public services in Wales.
In this blog post we are looking at the two manifestos released on Tuesday 16 May by Plaid Cymru and the UK Labour Party, although we will need to wait for the Welsh Labour manifesto to get a complete picture of Labour’s plan. Both parties have mentioned some large numbers, but what are the implications for Wales?
Labour’s manifesto is accompanied by a policy costings note that outlines costs of the new tax and spending measures. What we know so far is that, in line with its proposed Fiscal Credibility Rule, under which it would only borrow to finance capital spending, Labour has pledged to:
- raise business, high earner and other taxes to cover spending increases of £49 billion on day-to-day services and entitlements, and
- borrow to fund a £250 billion National Transformation Fund over 10 years for infrastructure and other capital.
Labour says that its spending plans envisage a ‘consequential’ of £6.1 billion a year for the devolved nations, presumably as the new spending programmes become fully operational. We calculate that the Wales share would be just under £2 billion a year – roughly a 15% increase in cash terms on the current Welsh Government resource budget, although this amount might be affected by a promised review of the devolution funding formula.
The main elements feeding into the devolved settlement include plans for increased spending in England, for example on the NHS, a National Care Service, childcare, schools, further and higher education – including the abolition of tuition fees – and police (to be devolved, under the manifesto). Not all the proposals are directly relevant to Wales (e.g. Wales never abolished the Education Maintenance Allowance which UK Labour wishes to restore in England) and it will presumably be for Welsh Labour to decide how far it would mirror commitments such as the abolition of tuition fees. Abolishing tuition fees in Wales could cost upwards of £270 million a year, although it should be noted that higher education financing in Wales will soon be reorganised substantially following the 2016 Diamond review.
Labour is probably hoping that its proposals on benefits (ending the bedroom tax, changes to ESA and Housing Benefit, increasing carers allowance, etc.) will improve social justice and ease some pressures on public services (although Labour is also committed to maintaining commitment to the triple lock on pensions, which will likely be a growing cost).
There would also be some offsetting increased costs for public services. The proposed removal of the public sector pay cap would surely lead to new pay negotiations.
“For example, indexing public sector pay in Wales to CPI inflation would add roughly £650m to the NHS Wales paybill and £375m to the paybill for teachers over 2018-19 to 2021-22.”
Although Labour’s policy of increasing the National Living Wage (minimum wage) to align it with the higher, independently-assessed, Living Wage is a welcome policy that could help take low earners out of precarious situations, it is also likely to further increase social care costs. The Welsh government has already announced measures to help the Welsh social care sector meet the costs of the Conservatives’ National Living Wage so a steep increase in the higher minimum wage could require further Welsh government support.
In addition there is also a blanket commitment that the countries and regions of the UK would not lose out from the loss of EU regional funding, but no mention is made of the expected costs of Brexit negotiations and UK withdrawal from the EU.
Labour’s proposed Fiscal Credibility Rule has much in common with previous fiscal rules but it is the scale of the borrowing envisaged under the rule which will attract comment. In crude terms, £250bn for the National Transformation Fund is equivalent to about 12% of UK’s GDP in 2017-18. If Labour borrow £25bn a year over the 10 year period, this is equivalent to about 1% of GDP per year, and is about 50 per cent more a year than is spent on capital at the moment (£47bn in 2016/17 in 2017/18 prices. It is worth noting that this borrowing is in the context of high levels of UK national debt that has accumulated from about two thirds of GDP in 2009-10 to almost 90% of GDP in 2016-17 under previous governments (ONS, 2017). Labour have stated that they are committed to lowering national debt as a share of GDP by the end of the next parliament, similar to the current Conservatives’ supplementary fiscal target, although they have not presented any figures to show how they might achieve this pledge. It is also not clear from Labour’s financial plan how it might finance its proposed renationalisation of public utilities (rail, energy, water, Royal Mail).
Wales would also have its Barnett share of the National Transformation Fund for improving transport, roads, digital communications, housing and other capital, but which it cannot use for day-to-day spending.
The big numbers in the Plaid Cymru manifesto include the demand, with the EU Referendum in mind, that the promised ‘£350m a week’ promised by Vote Leave allegedly saved from leaving the EU be allocated to the NHS – this would add up to around £18bn a year. If this were true, and assuming the £18bn were part of the funding that would go through to Wales, Wales would get around £1bn a year. Whether this would be enough to meet in full the Plaid commitment to training and employing 1,000 more doctors and 5,000 more nurses over the next 10 years, setting up a medical school and to realising its social care rescue plan (few details on the nature of the plan are given), as well as meeting health and social care pressures that are set to rise in the future, remains to be seen. Plaid has not released a policy costings statement and there are few financial details in its manifesto. However, Plaid is also seeking the devolution of further significant tax powers, such as Corporation Tax, as well as a fairer funding settlement, all of which might have a bearing on the funds available to the National Assembly.
Similar to the UK Labour party, Plaid will work towards abolishing tuition fees in Wales, scrapping the bedroom tax, and will also introduce an independently verified Living Wage. Like Labour, Plaid is also maintaining commitment to the triple lock on pensions. The implications for Wales are similar to those discussed above. Plaid also pledge an extra £25m for Welsh police forces.
In contrast to Labour, Plaid is opposed to Trident renewal and wants to reallocate the funds to other purposes, including conventional defence.
Plaid has also demanded that Wales should not lose any funding as result of Brexit, but again, details over the potential costs of Brexit are lacking.
Regarding capital, Plaid is seeking a £7.5 billion investment in infrastructure, through a better share of UK infrastructure funding, to spend on transport, communications and other infrastructure.
The key message on public services provision from both parties’ manifestos is about significant increases in spending, investment and improvement in public services.
Once the other parties have launched their manifestos we shall post a similar analysis of their proposals. We will also pay a closer look to the main parties’ proposals on health & social care and education.
 The £270m figure is taken from the same HEFCW funding allocations document, which estimates fee income to be between £269m and £278m in 2015/16, based on estimates of fee income above £3,810 (max. tuition fee loan in 2015/16 for the HE sector), https://www.hefcw.ac.uk/documents/publications/circulars/circulars_2015/W15%2009HE%20HEFCW%20Funding%20Allocations%202015_16.pdf.
We assume that the cap is lifted in 2017-18. The NHS employee costs were taken from the NHS Wales Local Health Board and Health Trusts summarised accounts, and exclude agency staff. Employee costs to schools were calculated by taking the numbers of teachers and teaching assistants in Wales from the National Education Workforce Survey Research Report April 2017, and multiplying them by their respective average salaries (£26,544 and £16,015 taken from https://www.adzuna.co.uk/jobs/salaries/wales/).
 OBR EFO March 2017, Table 4.16, http://budgetresponsibility.org.uk/efo/economic-fiscal-outlook-march-2017/
 The UK’s contribution in practice is significantly less than this, when taking into account the UK’s budget rebate from the EU and the amount reinvested in the UK through EU grants and payments. See: http://www.europarl.europa.eu/RegData/etudes/BRIE/2016/577973/EPRS_BRI(2016)577973_EN.pdf
This blog was amended on 20/06/2017 to correct the figures for indexing public sector pay to CPI inflation to NHS Wales and to the teachers’ paybills compared to keeping to the public sector pay cap at 1%.