The Welsh economy is not immune from the major challenges facing the global economy, and while the UK Government has set out significant ambitions to boost prosperity, this Budget does not meet the scale of those ambitions. On the face of it, the measures announced lack the boldness needed to make it easier for Welsh businesses to invest, hire and grow.
Fiscal discipline matters, and the Chancellor is navigating a difficult set of circumstances. With exceptional geopolitical pressures continuing to create uncertainty, using some of the available fiscal headroom to absorb genuine short-term shocks is preferable to placing additional permanent costs on businesses, particularly when doing so risks weakening investment.
There are measures in the Budget that Welsh businesses will welcome, including the announcement of £450 million in Barnett consequentials for devolved public services. This follows last year’s record Spending Review settlements for Wales, and local firms will now be looking to the Welsh Government’s draft Budget announcement on November 17 for further detail on how that funding will be spent.
One of the most pressing priorities remains getting more young people in Wales into education, training and employment. The NEETs crisis is affecting young people’s mental health while also making it harder for local businesses to address skills shortages. The National Living
Wage will rise by 3.9% to £13.21 an hour from April, adding to the pressures on Welsh employers who are still absorbing last year’s 28% increase in employer National Insurance contributions. Raising the employer NICs threshold in this Budget would have done far more to help businesses create the entry-level jobs that these young people need.
There is, however, a welcome opportunity to strengthen Wales’ position in defence. As a former Defence Secretary, John Healey understands the sector’s importance to Wales, where it supports thousands of jobs, from RAF bases and major aerospace businesses to the many SMEs operating throughout the supply chain. The £50 million Wales Defence Growth Deal brings the prospect of a Welsh defence industry cluster a step closer and paves the way for a Defence Technical Excellence College. This could become a beacon of collaboration between government and the further education sector, helping to close skills gaps in advanced manufacturing, engineering and digital capabilities that are essential to the UK’s defences.
Wales also has a growing network of financial services firms, making the Chancellor’s decision to introduce a temporary 3% Corporation Tax surcharge on UK banks a concern. The measure makes Wales, alongside the rest of the UK, less attractive to investors, with the cost ultimately falling on people through higher borrowing costs. It is important that the banking levy remains time-limited and that the government works with the sector to ensure the UK can remain competitive internationally.
Energy costs are another area where the Budget offers some relief but leaves significant challenges unresolved. Welsh households will be grateful for support with energy bills, particularly the 105,000 households still relying on kerosene for heating. The 3.7p reduction in red diesel duty will also provide support to farmers and other haulage firms across Wales.
For most Welsh businesses, however, there is nothing concrete that provides the breathing space they need. Firms are already facing energy bills a third higher than those paid by their European counterparts, with prices expected to rise further next year. The government’s commitment to future action on business energy costs must therefore be delivered through its forthcoming 10-year plan.
There are more encouraging elements within the wider taxation and investment measures. The government’s decision to maintain its corporation tax roadmap provides reassurance, while support for start-ups that helps innovative businesses scale and grow in the UK remains important to long-term economic growth. Additional funding through the British Business Bank is also a welcome step, with the potential to unlock private investment and provide growing businesses with the backing they need to invest, innovate and create jobs throughout the Welsh economy.
The next important test will come with the Welsh Government’s draft Budget next month, when the Chancellor’s commitment to what he described as “the biggest wave of devolution in a generation” will come under scrutiny. Mr Healey must use the UK Government’s regional devolution agenda to empower the Welsh Government to reduce the cost of doing business in Wales and establish a more effective regulatory framework that unlocks economic potential and drives growth.
The UK Government has set out its ambitions for prosperity, and there are elements of this Budget that offer welcome support and opportunities for Wales. But the central challenge remains whether those ambitions are matched by measures that genuinely make it easier for Welsh businesses to invest, employ people and grow.
On the face of this Budget, that ambition has yet to be fully realised.
