Chancellor George Osborne is due to outline the Spending Review at lunchtime Billions of pounds in public spending could be cut in Wales when details of the UK coalition government’s Spending Review are announced later.
The Welsh Assembly Government will learn by how much its budget will be cut, and the impact on benefits in Wales will also become clear.
And there could also be updates on S4C’s future and the electrification of the London to Swansea railway.
The coalition is making £83bn in cuts to UK public spending over four years.
The UK government wants to eliminate the country’s £109bn structural deficit by 2014-15.
However, the Labour Party has said such cuts will risk the UK’s economic recovery and has instead proposed halving the deficit in the same time period.
The spending review will lay out the Assembly Government’s annual budget for the next four years in cash terms. But it’s important to remember that inflation eats away at a government’s spending power in exactly the same way that it does for individuals.
The Assembly Government’s planning assumptions are for a 3% a year cut in revenue (day to day) funding and a 10% cut in capital, or infrastructure, spending.
They’ve confirmed these are cash estimates, which indicates they’re planning for even more severe cuts once inflation is taken into account.
And although Welsh ministers are braced for reductions, unlike Whitehall departments, they’ll have to wait until the moment the Chancellor gets to his feet to deliver his spending review speech before they find out what their budgets are.
Then the race will begin to publish the draft budget for next year in mid-November, which will lay out where the cuts will fall in devolved areas.
The assembly government has said the Spending Review is “profoundly important” for Wales and “undoubtedly the most important since devolution”.
First Minister Carwyn Jones, together with the leaders of devolved governments in Scotland and Northern Ireland, has said the proposed cuts are “too fast and too deep” and will “have a significant and lasting impact on the economy”.
The Spending Review will make clear how much money the Welsh government will have to spend in the coming years. Under the Barnett formula, any decrease in public expenditure in England on matters that are devolved will be reflected in how much money Wales will get.
UK Government departments are in line to have their budgets cut by an average of 25%, while some departments are reported to have to make cuts of as much as 40%.
A spokesman for Wales’s finance minister Jane Hutt said: “As previously announced, we have made prudent assumptions in starting to prepare next year’s draft budget, but it would be inappropriate to speculate on any impact the UK Government’s Review may have on public services in Wales.”
The assembly government has been planning for overall cuts to its budget of 3% a year in revenue funding and 10% in capital funding.
If those planning assumptions are correct, it would mean the Welsh Assembly budget will be £2.8bn a year less in real terms in 2013/14 compared to 2010/11.
The effect on areas such as health, transport and education which are devolved to the Welsh Assembly Government, will not be known until mid-November when the budget is set.
However, First Minister Carwyn Jones has pledged that cuts in education spending in Wales will be 1% less per year than cuts in other departments. The Welsh Assembly Government has also said it will protect universal benefits, such as free prescriptions and concessionary bus fares.
Cuts to the welfare system as a whole in the UK will also have a big impact in Wales because of the higher levels of benefits claimants compared to many other areas of the UK, explained Professor Brian Morgan, from the Cardiff Management School at the Universty of Wales Institute, Cardiff.
He said radical change in the relationship between people and public services in Wales was needed.
“What we have done in the past is now unsustainable in the future,” he said.
Prof Morgan, the former chief economist for the Welsh Development Agency, said cuts to the assembly government’s funding would see a return to the kind of spending levels seen in 2006.
He said it was important that any new funding settlement went hand-in-hand with a review of spending efficiencies.
Colin and Kelsey Hughes, on benefits in Blaenau Ffestiniog, Gwynedd, say what the cuts could mean to them
“Over the last 10 years a lot of money in Wales has been spent in areas that have not been very effective.
“We need to look at the effectiveness of universal benefits. The assembly government spends more on free prescriptions, bus passes and car parking at hospitals than it does on the trunk road system in Wales.”
He added: “Universal benefits just make people think governments have unlimited funds.”
There are also fears that cuts in public services will hit Wales disproportionately hard because of a higher proportion of public sector staff in the overall workforce.
According to the Wales Local Government Association (WLGA), 26% of Wales’s working population is employed in public services, compared with the UK average of 21%.
Steve Thomas, chief executive of the WLGA, said that three to four thousand public sector jobs could be lost in Wales over the next two years.
He said: “It’s going to be incredibly tough, even if we are talking in the most optimistic terms.”
He said that he was expecting the Welsh Assembly Government to be told that its revenue grant was being cut by less than 3% but the capital grant would be cut by more than 10%.
“That’s the optimistic view. But it still means a lot of pain for many parts of Wales,” he said.
The WLGA has said local authorities in Wales could be facing a deficit of £600m over the next four years, but councils will have to wait until the end of November to learn what grant they will get from the Welsh Assembly Government.
“Some councils are going to suffer very badly with their settlements, because they are already runing overspends,” said Mr Thomas.
‘Radical reduction’
S4C is hoping to learn what its future funding model will be, although it is understood the BBC will be contributing to the cost of the Welsh language broadcaster.
The channel currently receives £100m from central government, which has already said it would break the inflation link to funding increases at S4C.
That could could lead to cuts of between 20 and 30% to its funding. The channel has warned that a “radical reduction” in its budget would create a “high level of risk to the service and call into question the existence of the institution itself”.
Wales is also waiting to hear about the future of the planned £1.1bn electrification of the line between London and Swansea.
If the scheme is scrapped, it will follow decisions on cost grounds to axe a proposed £14bn defence training academy in the Vale of Glamorgan, to drop plans for a 10-mile barrage across the Severn eastuary to generate renewable electricity and to close the Passport Office in Newport.
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