Frequently Asked Questions
This page contains key information relating to Welsh Government finance and funding.
If you are unable to find what you are looking for please check the wider research service publications or our blog inbrief.
1. How is the Welsh Government funded?
The UK Government provides a large proportion of annual funding for the Welsh Government, known informally as the 'block grant'. The block grant is unhypothecated, meaning the Welsh Government has discretion how it allocates this funding.
When setting the UK budget the UK Government treats the devolved administrations in a similar way to the way it treats UK governmental departments.
UK spending reviews outline funding available for Welsh Government from the UK Government. The UK Government decides a detailed Autumn Budget each year that sets out any adjustments to spending and tax and borrowing requirements including information relating to previous budget initiatives, the Government's financial position and potential future budget proposals. Any changes to departments with responsibilities devolved to Wales will likely result in a change to funding provided to the Welsh Government.
The Welsh Government is also able to raise funding through devolved and local taxes.
2. How much public money is spent in Wales?
The Welsh Government controls approximately £16 billion annually . The total estimated public expenditure in Wales is at £38 billion (around 5% of total UK public expenditure).
Although many public services have been devolved the UK Government still controls over half of public money spent in Wales e.g. welfare spending. Some UK Government spending, such as that on Defence and Foreign Affairs, is difficult to allocate to one geographical area.
3. How much does the Welsh Government spend on things like Health and Education?
4. How does the Welsh Government allocate money to public services?
The Barnett formula is used to calculate the annual change in the block grants of the three devolved administrations. If the UK Government makes spending changes in England to areas that are fully or partially devolved, the block grant for Wales will change. This is often referred to as a "consequential". .
The Fiscal Framework introduced a needs based factor to the application of the Barnett formula in Wales. From 2018-19, increments passed onto the Welsh budget from the Barnett Formula will be 5% greater than they would have been under the previous formula. In 2017, it was calculated that relative funding per person in Wales is around 120% of that in England. If, in the future, this falls below 115%, then the needs based factor will be changed to 115%.
5. What is the timetable for tax devolution to Wales?
Currently the UK Government collects the majority of tax raised in Wales (e.g. income tax, national insurance). The Welsh Government receives an indirect share of monies raised through the block grant.
Responsibility for Stamp Duty and Landfill tax is devolved to Wales in April 2018, Income tax will be partially devolved, meaning that from April 2019, the Welsh Government will set and receive a proportion of income tax.
The chart below shows the impact of devolution on the block grant.
6. How will the block grant be adjusted to account for tax devolution?
Following devolution of around £2.5 billion tax revenues by 2019, the Welsh Block grant will be cut by a corresponding amount. Looking forward, how the block grant is adjusted will change each year depending on changes to equivalent tax revenues in England and Northern Ireland. So the relative performance of Welsh tax revenues will have a direct impact on how much the Welsh Government can spend in the budget. The block grant adjustment model is set out in the fiscal framework for Wales.
7. Can the Welsh Government borrow money?
The Welsh Government has limited borrowing powers for capital investment and for managing the volatility of tax receipts. There are limits on the amount that can be borrowed each year. The overall borrowing limits until 1 April 2018 are:
- £500 million for capital spending; and
- £500 million to resource to account for tax revenue volatility..
The Fiscal framework increased capital borrowing powers:
- £1 billion for capital spending; and
- £500 million resource to account for tax revenue volatility..
Additionally, local authorities have access to a system of prudential borrowing for capital projects, under Section 3 of the Local Government Act 2003. Since 2004 local authorities have an obligation to follow the Prudential Borrowing Code for Capital Finance in Local Authorities, developed by CIPFA.
NHS trusts also have borrowing powers, although NHS Health Boards currently do not. A consultation was undertaken in the Fourth Assembly regarding extending the powers of health boards in this respect.
8. When and how does the Welsh Government set its budget?
The Welsh Government sets its budget annually in a multi-stage process. Budget setting involves three elements:
- Draft budget proposals (Oct): set out the Welsh Government's spending plans and allows for scrutiny and amendment by the Assembly.
- Final budget and Annual budget motion (Dec-Jan): seeks the Assembly's formal authorisation for the use of resources during the financial year.
- Supplementary budget motion (Feb & Jun): seeks authorisation for in-year changes to the annual budget motion.
The Welsh Government usually presents its draft budget in autumn each year. Committees and other interested parties scrutinise the draft budget. The Welsh Government then present a final budget, the annual budget motion is voted on by the whole Assembly.
There are occasions when a late UK Spending Review or Budgetary announcement means the Welsh Budget has to take place later in the year.
How the Welsh Government’s budget is scrutinised in the Assembly changed in Autumn 2017. The graphic below shows the key dates in 2017.
9. How is local government funded?
Local Government comprises a number of different organisations, including local authorities, Police forces, Fire services and National Park organisations. The UK and Welsh Government are the primary source of funding for these organisations.
Local authorities receive funding through the annual local government settlement. This is calculated using a needs based formula. The three main aspects of funding for local authorities are Revenue Support Grant (RSG), council tax and business rates.
Police Forces receive funding through a combination of Home Office, Welsh Government and a council tax precept.
Fire services receive some Welsh Government funding but receive most of their funding from local authorities.
10. What is the Assembly’s role with regard to Welsh Government finance and spending?
The Welsh Government is accountable to the National Assembly for the way in which it allocates funding, raises and spends tax income in Wales and manages borrowing.
The overarching role of budget scrutiny in the Assembly is undertaken by the Finance Committee, with subject committees scrutinising their own subject areas of responsibility.
Committees also have a role in holding the Government to account for policy decisions with financial consequences and any changes to budgetary allocations made in-year.
The Public Accounts Committee has a role to ensure proper and thorough scrutiny is given to Welsh Government expenditure. The Committee considers reports prepared by the Auditor General for Wales on the accounts of the Welsh Government and other public bodies, and on the economy, efficiency and effectiveness with which resources were employed in the discharge of public functions.
The National Assembly is able to scrutinise in the Chamber through member's questions or debates.
11. What does the terminology in the Welsh Government’s budget mean?