What the Conservative and Liberal Democrat manifestos could mean for Wales

Mixed messages on tax, welfare and net increases in resource spending underlie significant differences in the Conservative and Liberal Democrat manifesto pledges of key relevance to Wales.

This is our second posting on the implications of the party manifestos for public spending and public services in Wales. Last week we covered UK Labour and Plaid Cymru, today we look at the Conservatives and Liberal Democrats.

The Conservative manifesto and Wales

Overview

Commentators have drawn attention to the marked change in tone in the Conservative manifesto and the break with the Cameron years. Eradicating the deficit is no longer front-and-centre, the commitment now being a balanced budget by ‘the middle of the next decade’ as opposed to Mr Osborne’s final target of 2020. The reaffirmation of the more flexible fiscal rules previously set out by Mr Hammond helps as does the greater wriggle room on taxation.

How far this means an end to public sector austerity is less clear, especially given that the Conservatives have not released a costing document alongside their manifesto. Existing welfare plans will stay in place, apart from replacing the state pension triple lock with a double lock in 2020, and the implication is that the public sector pay cap will stay in place until 2019-10. But what about commitments on public service spending?

Day-to-day spending

The controversial (albeit ‘clarified’) proposals for charging for domiciliary and residential social care do not apply directly to Wales which, under devolved powers, has already capped home care charges and currently applies  its own level of  capital disregards for residential care. Whether there would be any ‘Barnett’ consequential from a possible cap on care costs in England would depend on details as yet unknown. By way of illustration, the cost to government of the £35,000 cap proposed in the Dilnot report would be around £1.9bn at today’s prices,[1] generating a potential a consequential of around £100 million. If the cap was set at a higher figure, the cost to government would be expected to be less.

How far the commitment to a £4 billion increase in the schools budget by 2022 (more than real terms) will benefit Wales will depend on how much is an internal reallocation within the UK education budget from the commitment to ending free lunches for infant pupils in England (£650 million a year). On this basis, it could mean an extra £80 – 100 million a year for resource spending in Wales by the end of the next Parliament, which is marginal given that local authorities in Wales allocated £2.6 billion to school budgets in 2015-16.

The biggest domestic spending commitment is increasing NHS spending by a minimum of £8 billion in real terms over the next 5 years, an increase in real funding per head. The Health Foundation estimates[2] that this would represent an annual average of 1.2% a year between now and 2020/21, the same rate of NHS funding growth as under the coalition government (2009/10 to 2014/15). As a share of GDP, health care spending would decrease from 7.3% in 2016/17 to 7.2% in 2020/21. The benefit for Wales would grow to around £450 million a year after 5 years.  For comparison, core NHS resource spending in Wales is about £6.5 billion a year.  We will look at the NHS proposals across the parties in another blog.

There will be a question about the potential impact on costs of doubling the Immigration Skills Charge (ISC) levied on companies employing migrant workers, to £2,000 a year by the end of the parliament, using the revenue generated to invest in higher level skills training for workers in the UK

On Brexit, the Conservatives commit to using the structural fund money that comes back to the UK to create a United Kingdom Shared Prosperity Fund, specifically designed to reduce inequalities between communities across the four nations. How far this would replace EU structural funds in Wales is not clear.

Capital spending

The manifesto includes a continued commitment to the Welsh city regions, including a North Wales Growth Fund, and ending the Severn Bridge tolls, along with a wide range of UK capital investment proposals. Few of these are costed and it is not clear how much is new money on top of the £23 billion National Productivity Investment Fund announced in the Autumn Statement 2016.

The Liberal Democrat manifesto and Wales

Overview

The Liberal Democrats commit to eliminating the deficit on day-to-day spending by 2020 then borrow only to invest. They also set out a commitment to reducing national debt as a proportion of GDP year-on-year. However, they propose to borrow more than current plans in 2018-19 and 2019-20, in order to fund public services. After 2019-20, they say they will keep public service spending in line with GDP growth (but potentially below inflation, according to OBR 2017 forecasts).

The Liberal Democrats propose spending a £30 billion package for day-to-day spending in 2019-20. Half of this would be financed by tax increases: £6bn would come from a 1p income tax increase across the board, and the rest would be gained from the reversal of recent reductions in corporation tax (£4n) and capital gains tax (£2bn), inheritance tax threshold £1bn, and introduction of cannabis tax. The other half would be financed by borrowing.

Day-to-day spending

On public services, the Liberal Democrats propose a number of spending increases.

There would be a reported £280 million a year for Wales as its share from the proposed 1p income tax increase for health & social care. The manifesto includes a big emphasis on integration, public health, mental health. It also includes a commitment to capping social care costs. The Lib Dems have separately provided for the cost of ending the public sector pay cap and enabling wages to keep pace with inflation.

Wales would receive its share of £1.1 billion for the devolved administrations for its priorities resulting from a commitment to increase spending by £5.8 billion on schools and colleges in England.  We estimate the Wales share at around £300 million a year. Tuition fees would not be scrapped (the Lib Dem 2015 manifesto did not advocate scrapping fees either) but maintenance grants for low income students would be re-instated.

There are proposals to devolve policing and justice powers to Wales, along with a separate Welsh legal jurisdiction. Wales would presumably have a share of £300 million extra for community policing. Other Wales-specific commitments include ending Severn crossing tolls and supporting the Swansea Bay barrage.

A number of welfare cuts would be restored, the triple lock maintained, and benefits would be uprated in line with inflation (young people aged 18-24 would see Jobseekers’ Allowance and Universal Credit uprated in line with the minimum wage). The proposals on childcare have been seen as relatively cautious: 15 hours per week free childcare for all 2-year olds with a long-term goal of 30 hours per week for 2-4 year olds. While childcare is a devolved issue, Wales would benefit from its Barnett share of any increased spending on this policy area.

The Lib Dems have made their position on Brexit one of the main policies of their manifesto: they would run a referendum on the terms of Brexit for the best deal for the UK, including a ‘remain’ option.

Capital spending

The Liberal Democrats propose a £100bn infrastructure investment fund, which equates to £20bn a year over five years. Capital spending plans include £2 billion on flood prevention and directly funding 300,000 new homes a year.

Summary

With all three main parties having published their manifestos, we will next look at the big overall messages and issues coming through for public spending and specific public services in Wales.

[1] Authors’ calculations based on (http://webarchive.nationalarchives.gov.uk/20130221130239/http://www.dilnotcommission.dh.gov.uk/files/2011/09/Technical-Briefing-Note.pdf

[2] http://www.health.org.uk/news/conservative-manifesto-pledge-will-deliver-extra-money-nhs-leave-%C2%A312bn-funding-gap-202021

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