Friday, 23 July 2010

Wales and the public expenditure cuts

The recent emergency budget announced by the Chancellor of the Exchequer was one of the most significant political and economic events in the UK for many years. The Chancellor made many controversial changes to the tax system and the structure of welfare benefits all which will impact on Wales as part of the UK.

The Chancellor also announced huge cuts in public expenditure, over a four year period, which will average some 25% for all government departments (excepting health and overseas aid). Although we, as yet, know little detail (this will come out of the Comprehensive Spending Review in the autumn) it is reasonable to assume that the block grant payable to the National Assembly for Wales will reduce by something of the order of 25% over four years in line with UK government departments.

How then is the Welsh Assembly Government (WAG) going to deal with cuts in public funding of this magnitude? Radical solutions are needed. We can’t just chop 25% of everybody’s budget and hope for the best. There are major issues to consider

• The Economy – the Welsh economy is hugely dependent on public sector employment and the public expenditure cuts will have a massive impact on employment and lifestyles in many communities. There is a need to stimulate private sector jobs in Wales to take up the slack but this is difficult. For too long Wales has tried to replace large corporate public sector industries (e.g. coal, steel) with large corporate private sector industries (e.g. cars, electronics). Foreign direct investment has an important role to play but the key to new jobs is increased rates of small business formation and increased entrepreneurialism. WAG must be in a position to promote and assist small business formation with training, loans, advice etc without getting into a situation of subsidising non-viable businesses. However, WAG also needs to be seen to be more business friendly and to help get rid of a common perception among many in Wales that private business is something that is not really nice.

• Health – the health budget in England is to be given some protection from the cuts although the precise details of this “protection” remain to be seen. Most international commentators argue that this “protection” is a mistake and there is no need for WAG to go down this road. The key issue in the Welsh NHS is root and branch reform which is something that will upset doctors and nurses but the only other alternative is poorer services. In England there have already been substantial cuts in administrative and management staff and there are more to come. In Wales we have recently had a major reduction in the numbers of NHS organisations but, if the rumours are true, there have been little or no job losses and some people had large pay rises.

• Local Government – clearly local government needs to search for efficiencies but it is unlikely to be able to deliver what is needed to deal with the funding cuts. Hence local authorities will need to go back to their core businesses and ask if certain services are really necessary. Do we really need libraries in the digital age with freely available internet? Forty years ago, local authority leisure services were in their infancy but have grown enormously. Do they need to be so large or is leisure not something that can be left to the private sector?

• WAG costs – the UK government is planning huge cuts in civil service manpower across all government departments. WAG needs to do the same. We cannot afford to have cuts of this magnitude being dealt with by cuts in front line services while the WAG bureaucracy remains largely untouched.

Some of the above suggestions will seem shocking to many people but opinion polls show that a large proportion of the UK population have yet to understand what lies ahead. Politicians need to be preparing the public for the future pain not trying to convince them it won’t happen.

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