Welsh public services face £65m black hole due to tax hike, Senedd hears

Welsh public services face a £65 million black hole due to Rachel Reeves’s national insurance tax hike, Mark Drakeford has warned.

The Finance Secretary for Wales has criticised the Chancellor’s decision not to fully cover the cost of higher employers’ national insurance contributions (NICs) for public bodies, saying she is “wrong to do that”.

The shortfall, which Mr Drakeford said could be as much as £65m, is due to the UK government using the Barnett formula to distribute funding intended to help public services meet the increased costs.

Speaking in the Senedd on Wednesday, Mr Drakeford said: “I think that she is wrong to do that, and I have said so in direct terms to the Chief Secretary of the Treasury when he was here for the (Finance: Interministerial Standing Committee) at the end of February, as did the finance ministers for Scotland and for Northern Ireland.”

He quoted a UK Government policy, which said “the body whose decision leads to the additional cost will meet that cost” arguing it meant Westminster should cover the shortfall.

The Barnett formula is used to decide how much money is given to devolved nations.

It has been criticised – particularly by Welsh politicians – for being based on population size rather than need.

“When the UK Government made its decision, it should reimburse Welsh public services for the actual costs of the increase in national insurance contributions, not a Barnett share of the costs in England,” Mr Drakeford said.

“It could be as much as £65 million short of what we estimate that public services in Wales, within the Chancellor’s own definition, will have to pay.”

The government has said the rise in employers’ NICs was necessary to help fund public services.

Labour’s Alun Davies said the Barnett formula was “no longer fit for purpose”, arguing it “ensures that Wales does not get a fair crack of the whip when it comes to the distribution of funding across the United Kingdom”.

Conservative MS Janet Finch-Saunders said there was “cross-party consensus” in the Senedd that the Welsh funding model needed to be reformed.

The UK Treasury has been contacted for comment.

In a statement, Heledd Fychan, Plaid Cymru’s spokesperson for finance, said: “Wales is facing a £65 million black hole in our public services’ finances thanks to Labour’s NIC rise.

“This is yet another example, if we needed one, of the ‘fundamental unfairness’ of the funding formula and how Westminster – and Labour – take Wales for granted.

“England is granted full reimbursement for NICs increases, Wales is not.

“This is a damning indictment of this so-called ‘partnership in power’, as Labour in Wales clearly have zero influence on the whims of their London bosses.”