A bee in their Barnett: Do cuts hit Wales worst?

25th May 2010

Have the cuts announced yesterday caused the deepest wounds in Wales?

This is the suggestion reported by this morning's Western Mail.  

Under the headline "Wales hit hardest as coalition reveals first wave of cuts" claims are made by Plaid Cymru that the Welsh Assembly's spending power has taken a proportionately larger hit from the coalition's proposals.

However, in the same piece the assertion is challenged by the Westminster government. A spokesman for the Wales Office claims that when compared to reductions imposed on Whitehall departments, the Welsh assembly fares relatively well.

So how badly is Wales being hit?

The Claim

The Western Mail report quotes Plaid  MP Jonathan Edwards as saying: "These cuts announced by the Con-Dem government this morning will have a disproportionate effect on Wales as they are 33 per cent greater on the Welsh budget than the UK as a whole."

Yet how does this square with the assertion from the Wales Office spokesman that "the percentage cut to the Wales DEL [Departmental Expenditure Limit] is less than the average percentage cut for total UK DEL"?

Full Fact decided to investigate.

Analysis

Plaid's claim that the cuts to Welsh Assembly are 33 per cent higher than to the rest of the UK comes from the £187 million cut in money to Wales, which amounts to a 1.2 per cent reduction.This is compared to the £6.2 billion total reduction in Government spending, which from a total budget of £704 billion, gives a 0.89 per cent reduction.
From these figures Plaid Cymru are able to claim the percentage spending reduction in Wales is roughly 33 per cent higher than that for the UK.

However the Wales Office is right to point out there are grounds for viewing this calculation as incorrect.

This is because the figure from which the percentage cut to UK spending is calculated does not make for a fair comparison with funding to Wales.

The number used for the cuts relating to Wales is based on the

Departmental Expenditure Limit (DEL) for Wales. The figure used for the UK is for Total Managed Expenditure (TME), which includes not only the DEL for every department but a range of other things such as social security payments — things largely unaffected by yesterday's announcement.

Full Fact was told that since the cuts apply to DEL spending, calculating the percentage reduction in spending from a total that includes more than DEL spending was not the most accurate way of representing the total percentage change in spending.

As a Treasury spokesperson explained: "That's not quite right because it includes annually managed expenditure and the only reductions we're talking about are to DEL. You would need to use the total DEL figure."

The spokesperson explained that rather than calculating the cuts as a percentage of £704 billion they should be considered as a percentage of the £390.4 billion total DEL spending. In this case, the percentage reduction is 1.58 per cent.

Furthermore, the Institute for Fiscal Studies (IFS) has produced its own calculation showing how the yesterday's cuts will affect this years budget in percentage terms.

They actually exclude the figures for Wales as the administration there has the option to defer the cuts until next year.

The IFS show that in the coming financial year, total departmental spending by the Government will be reduced by 1.7 per cent relative to the year before.

When looking at DEL reductions in specific areas, it appears that as a percentage Wales was not particularly severely hit.

The Guardian's data

blog has figures provided by the Treasury on the percentage reduction to each department's budget as a result of yesterday's announcement. These numbers show that a  1.2 per cent cut to Welsh funding would be at the lower end of the scale. The statistics also show that when considering only the total DEL for those departments affected, the savings announced yesterday accounted for 2.6 per cent of DEL spending. Carl Emerson of the Institute for Fiscal Studies told us that while gauging an accurate picture for Wales it did not appear that Wales was particularly severely affected by the cuts.

"If the budget of Wales is to be reduced by 1.2 per cent then it feels like the Welsh hit is around average," he said.

Thus the comparison made by Plaid Cymru was one that appears to exaggerate the relative position of Wales to the rest of the UK.

We put this to Plaid Cymru, and a spokesman told us that accurately assessing the impact on the cuts on Wales was difficult. So the party had used a figure which was straightforward to explain, even if it was not a strict like for like comparison.

"Our basic line was one that made sense in terms of people understanding it. Which is that total UK budget was being cut by 0.89 per cent and Welsh Assembly budget was being cut by 1.2 per cent - those are pretty indisputable. Once you go beyond that then you're getting into economic geek territory and it's very difficult to explain it to people without going into the way the Barnett formula works."

This is the formula used to work out the share of government funds that go to the devolved administration based on population but also the notoriously complicated 'comparability factors' for different areas of spending.

The spokesman insisted that because of the complexities of the formula it was not simply a case — as the Wales Office spokesman had suggested - of comparing the DEL for Wales with the rest of the DELs to establish how badly the cuts affected Wales.

This is because there will be cuts to other departments which will effect the level of spending in Wales either by altering the Barnett Formula calculation or having a direct impact on Wales.

"It's not necessarily fair to do a comparison between the Welsh DEL and the TME as a whole as they don't deal with the same issues.

"But on the same basis you then can't really compare the Welsh DEL with the other DELs because of the relationship they have with each other as a result of the operation of the Barnett Formula," he said.

He added: "I'm perfectly happy to say if you just look at the DELs then Wales isn't half as badly off but when you start there, you've gone beyond what is just the Welsh Assembly budget (which is the Welsh DEL) and you have to say what the effect on Wales of all the other cuts in the DELs will be." Conclusion

The calculation quoted by Plaid MP Jonathan Edwards should not be taken as the only or necessarily the most accurate way of assessing how yesterday's spending cuts affect Wales relative to the rest of the UK.

While the calculation adds up, the comparison made is based on an understatement of the percentage cut to total departmental spending in the UK.

It is counterbalanced by both the IFS figures and those from the Treasury, which seem to suggest the cuts doled out to Wales are not particularly worse than the rest of the country.

Yet arriving at a full and accurate assessment of what the cuts means for Wales is fraught with complexity — a situation not recognised in the original report.