Will the Cabinet Secretary provide the figures that support the Welsh Government's estimation that its funding settlement for 2024-25 is worth £700 million less than when it was first set at the spending review of 2021?
The Welsh Government’s settlement for 2024-25 at the time of the Spending Review in 2021-22 was £21.2 billion. (This is the sum of the Fiscal Resource and Capital Departmental Expenditure Limits before block grant adjustments.) The Office for Budget Responsibility’s (OBR) Consumer Price Index (CPI) forecast at the time showed prices in 2024-25 would be 8.3% higher than in 2021-22. On that basis, the settlement for 2024-25 was expected to be worth £19.6 billion in 2021-22 prices. As of the March UK Budget this year, the equivalent cash figure (before adjustment for inflation) for the Welsh Government’s settlement in 2024-25 had increased to £22.3 billion, £1.1 billion higher than at the time of the 2021 Spending Review. However, because of the recent inflation shock, the OBR’s latest CPI forecast for 2024-25 is now 18.1% higher than in 2021-22. As a result, the 2024-25 settlement is now worth £18.9bn in 2021-22 prices, which is £0.7 billion less than expected at the time of the Spending Review in 2021.
It is conventional to use the GDP deflator, a broad measure of price change in the economy, for this sort of calculation. However, there are concerns that this measure does not fully capture the price pressures that public services faced over this period. For that reason, the CPI has been used in this instance. However, other price metrics are available, so it is stated that the funding settlement in 2024-25 is worth up to £700m less in real terms than expected when it was first set in 2021.