The tough choices facing Wales’s next government

We've kind of got a similar issue that we had with the general election back in 2024, a conspiracy of silence, if you will, whereby both are kind of ignoring the inherent trade-offs of delivering policy and delivering a devolved budget in what is a fiscally tight, tight, tight environment. Hello, and welcome to the IFS, Susan. I'm Helen Miller, Director of the Institute for Fiscal Studies. In a few short weeks, people in Wales will be heading to the polling stations to elect the next Welsh Government. If you believe the opinion polls, it looks like Labour will not only lose control for the first time since the creation of the Senate in 1999, but will not even win enough votes to be the official opposition. So today, we are looking at the important public finances backdrop to the upcoming Welsh elections. We'll look at Welsh funding, including how the grant from the UK Government has changed over time and how Wales has chosen to use, or not to use, its powers over taxes. We'll take a health check on the state of the Welsh public services and discuss whether more powers over tax spending or borrowing should be devolved to Wales. We'll highlight the tough funding outlook for the next parliament and discuss what we can learn about the political dividing lines from the party's manifestos. And to do all that and more, I'm very delighted to be joined by Joe Rossiter, who is co-director of the Institute of Welsh Affairs, and by our very own David Phillips, who is head of all things local and devolved Government finances here at the IFS. Welcome to you both. So look, let's start Big Picture. Wales has had devolved powers now for over a quarter of a century, and those powers have grown a bit over time. So today, Joe, what is it that Welsh politicians control? A huge amount, especially when it comes to public service delivery. So you've got a 27.5 billion pound budget and overseeing huge areas of public spending, health and social care, education, local government, parts of transport and also parts of environment and agriculture, economic development, albeit with their hands tied behind their back, which maybe will come onto and housing and culture as well. So a lot to do with 27.5 billion. So that is the majority of spending in Wales. Yep. And how do they pay for it? Well, 80% of it comes from the UK government block grant, which rises and falls as per a Barnett cons quenches coming from English spending on English equivalent services, albeit there's lots of tussling about the Barnett formula itself, but also how accurately it transfers across to Welsh services. Oh, they have some tax-racing powers? They do. Or be it, they haven't used them very much today, which David, do you want to come into that? Well, yes. So the Welsh government has some income tax powers. So the rates of income tax charged by the UK government in Wales on income other than from savings and dividends, so earned income, self-employment, pensions and so on. They have reduced by 10 percentage points. And the Welsh government then sets its taxes on top of those. It set taxes of 10%. So in effect, made no change to Welsh income taxes since the powers were devolved in 2019, 20. That doesn't actually means we know impact on the Welsh budget. The vagaries of the way the powers are devolved and the sort of fiscal arrangements around them, combined with the fact that there's been free- Sisters tax thresholds of UK-wide, that's actually dragged more people into tax and pushed up income tax on use more in Wales than in the rest of the UK. So despite making no change to tax, the Welsh government's actually raising about £300 million extra through its devolved income tax powers. So that's quite a good deal. No more tax being paid and getting to keep extra extra revenues from the Welsh government's perspective. It also has powers over what's called lands transactions tax and we're also at Stapjy land tax. It has made some changes there. This is a bit more progressive. There's a higher tax free threshold but then higher taxes on high value properties. And of course, local taxes are devolved to the Welsh government. Council tax and business rates. Business rates, it's basically done what the UK government has done, including all those silly one-off repeated reliefs that just go on out of the infanitum. Council tax, it's been a bit bolder. I'll just come back to that a bit later because I think there there's less and it's not just for the next Welsh government but for governments across the whole of the UK on how to actually make reforms to council tax. Public Council tax for now. One thing I think we should mention in passing for our regular listeners, we dealt with Scotland last time. People might be surprised to hear that the sort of devolution settlements for Scotland and Wales are actually quite different and Scotland has more powers than Wales. Wales has not got as much say over its taxes as Scotland does. So both on the spending side and the tax side, there is less devolution to Wales and Scotland. So in Scotland for example, at one time the services that Joe mentioned, policing and justice is devolved. That's not the case in Wales. There's also more substantial devolution of transport. So rail investments to vote with Scotland, not in Wales. That's been a huge bone of contention in Wales in recent years. Consumption is not getting its fair share of the UK's part of rail investment funding. Scottish Government also has control over some parts of the benefit system. Disability benefits, it's introduced new benefits like the Scottish char payment, those powers aren't devolved to Wales. And on the tax side, Scotland has much more control over income tax. It can't just kind of like just change the rates, it can also introduce new bans and change officials to bans and you've seen it make use of those powers. And in fact when the Welsh government has said, "You know why it's not used in income tax powers", it said, "Well the only way to use it to really raise much money is to increase the basic rate and that has to apply to even the lowest income tax payers. If we had the power to change thresholds or to introduce new bans, we might have done so." So yes, much more power on both the spending side and the tax side. And again, that is to make sense, a bit of an accident of history. There was a much stronger kind of push for devolution to Scotland back in 1999. I think the vote there went somewhere like 80/20 in favour of devolution. In Wales, I think it was 51/49 or even closer. So it was a very close call. And that history of there being, if you like, a bit more skepticism at some points in Wales and in Westminster about devolution two Wales has meant less powers. So we'll come back to whether Welsh have more powers in a minute, so see some people argue that they should. But just thinking with the status quo for now, Joe, you mentioned that the sort of 8% of the funding comes from this block grant from the UK government. We talked last time about how Scotland has more higher level of funding per head relative to people in England. I think that's true in Wales too. Yeah, this is actually in Wales. You've also got generally speaking and David, you've recently written upon this public service spending in Wales. And broadly speaking, public service spending per head of population in Wales is 115 odd percent of the 100% that you get on English spending on public services in Wales. And that is to recompense for Welsh need essentially. So we've got an older population, we've got a poorer population, we've got a more geographically spread population. And importantly, we've also got a less well population. And that all comes out in the wash of which we might come on to, bigger need and bigger spend as a result of that. When you look at the kind of figures, you actually get slightly different figures, you look at different different bits of data. So using the official treasury methodology, which tries to compare the funding given to UK government departments for England to them are given to the Welsh government. If you kind of follow that through, that suggests that the Welsh government at the moment are we getting about 22% more per person than is spent in England on comparable sort of UK government services. If you track through different data, looking not at the funding but the kind of spending side, you get maybe more like 17-18% more. Now that might still sound not a big difference 22 versus 17. But in the grand scheme of things in a Welsh budget of £27 billion, that's a fair chunk of money. And it also changes the picture to some extent about how Welsh funding compares to Welsh needs. So there's not been a full needs assessment for Wales for, well, almost 20 years now, I think it was back in 2010 using data from about 2007. That suggested Wales needed about 15% more per person to spend to deliver the same kind of quality services given its older population, sicker, poorer, you know, more sparse and so on. If it's 17% more per head, that's pretty close to that figure. If it's 22% more, that's a much sort of bigger funding advantage for the Welsh government. So this has sort of come up in the election campaign with some saying, you know, well, as no, you know, it gets a lot of funding, why is service is not doing so well? Others saying, well, no, actually we're not being funded more than need, you know, and we're struggling because of that. You know, I think there's a real need to actually not only update the needs assessment, but to actually work out why is there a difference between what's happening when you've got funding, we're spending. Like that just doesn't add up really. So, you know, it's a big question, I think it's one that both the next Welsh government and the UK government needs to get its head around because knowing, you know, how much funding it Wales is really getting is not just important if you like for policy wants like us, but for voters as well because it's one thing knowing your services are sort of, you know, not doing what you expect. But then is that because Wales is not getting enough money or is it because it's not spending it right, that's a key question when you're trying to judge your government. You're not in long-legged Joe. Just that when you talk about the political sense, we're going to see in manifestos the calls for reform of the Barnett formula and a needs-based formula and really, you know, looking at some of the data, we're around about where Welsh need was decided to be in the Holtham Commission back over a decade ago. So, if you are calling for reform, what is it you are proposing is a fair share and how are you going to spend it differently? [BLANK_AUDIO] kind of giving half an answer to what is quite a complex question. Yeah, so I guess more information needed, as David said, on exactly what the situation is. I want to talk about politics as a performance. But first, let's just talk about council tax briefly before we sort of forget to David, because Wales does a pattern back here for its moves on council tax. Exactly. We know from across the UK that council tax is a pretty prickly issue that sort of politicians are a bit loath to sort of grasp. Wales has grasp that issue. So they let's say it's for a revaluation of council tax in 2028, and then for revaluations every five years thereafter. At the same time, there might be some changes to the structure of council tax. We all know that council tax as it stands is a sort of much higher share property value for low value properties than it is for high value properties. Now, we're not sure what the Welsh government will do on that, but it has in the past sort of consulted on kind of changes to not only be value, but to make it less regressive as well. And what I say, you know, there's genuine debate about how progressive the taxes should be. If you are going to try to make it more progressive, actually council taxes are kind of a pretty good place to start. You know, it's a progressive tax. Come and leave, you know, property taxes less easy to sort of avoid and evade than things like income tax. So yeah, I think, you know, it really is, you know, a, um, an area where it's leading in the UK and other parts of the UK follow. And we talked about this in a recent debate. Why has Wales done this? I think it's leadership. What we've seen in Scotland is a call for consensus around a unified position. I think anyone who can tax knows you never get consensus around a unified position on tax. That's not a strategy to push forward a form. That's a blocking strategy. Actually, if you want to kind of push forward a form on tax, you need leadership sometimes. Not everyone will agree, but I think at least, you know, you know, even if you don't agree on the full nature of any reforms, having it based on up to date values. So it reflects circumstances now, not circumstances in Wales back in 2003. And in the UK in 1991. Yes. In the, in the dying days of the Soviet Union, you know, I think you can all agree that, you know, any tax that is actually quite a big part of people's bills now, that actually based on current circumstances, not circumstances, you know, 20 or 30 years ago. Should say as well that Wales has dipped its toe in land value taxation. They've commissioned a bunch of researchers to go and look at how that could be practically applied in Wales. And from my reading of it, incredibly complex in a Welsh contact whereby we don't have enough data to really, you know, it's got to be quite explorative the way that we do that, especially because not over 90 percent of Wales is rural as well. And I can't do that. Some parties have actually talked about land value tax in Wales just actually on the day we were recording. So, you know, an app to kind of like mention there, but you know, good in principle, maybe difficult in fact is. Yeah, but for Wales, Gold Star for actually, grossed the nettle on counts tax and doing something and yet not letting the tax system be horribly out of date. Okay, so the Wales has got control. Most of it is spending. It hasn't used its tax powers much, but it has got some tax powers in pretty other income tax. It's making some change on council tax. Let's talk about the sale public services. I mean, Joe, you mentioned that most of them are controlled by Wales. How they're doing? Not great if we look at outcomes, which I guess is what voters are going to be caring about. So health, health and social care outcomes, for example, pretty poor. We've got a longer waiting list for both procedures, but also A&E than in England's in the English services in equivalent education performance. If you judge it by piece of rankings, we're not doing well and the distance between England and Wales actually seems to be growing further. So yeah, those are the kind of two big public service areas that get most of the money when it comes to the Welsh government budget. So changes needed. I mean, we can come onto the health area specifically about what that might look like politically. Before we start the changes, what do we know about why that's happening? I mean, obviously, every country wants to do better and there's a once you've got a very close neighbour that is really doing better and in some sense, they could have the system that England's got. What's going on in Wales? How much of it is a funding issue versus a policy choice issue versus a, we don't know? Exactly. It's a balance of both ultimately. It might be higher need that is more expensive to deliver health services, for example, in a Welsh context whereby people are more spread out. This population is more spread out. It's older and as I said before, less well and therefore is the waiting list issue or the general health of the population, healthy life expectancy between the poorest households and the richest households in Wales are continuing to grow. For example, is that a governance issue whereby we're not managing services in the best possible way? Or is it just a reflection that it's quite expensive to do the type of healthcare that we're offering at the moment? That is a lot of money pumped into secondary healthcare sayings, i.e. hospitals. I was going to say, so we did a little look at this in part of our analysis of the elections. When you look at funding, that could be part of it and certainly absolute levels of funding do matter for health and school systems. But when you compare funding in Wales for health and schools, the combined amount actually is higher than all regions of England, Bar London, obviously where wage costs and property costs are substantially higher. It's higher than the northeast of England, which has a similarly the deprived population. It's higher than the southwest of England, which has an even older population. So I think what's there could be some role for funding? I don't know that's probably the biggest element of it. What it is though is is less clear. I think it's probably different things for different parts of the public sector. So I know on health, for example, one kind of fact that kind of struck me was that the average hospital stay in Wales is 40% longer than the average hospital stay in England for elective treatments. Now that could mean people are getting kind of like booted out, not before they're you know ready to, but it also can potentially slow down the kind of throughput of patients through hospitals. If you have a given number of beds and people are staying in for longer on average, that means you can get fewer patients through. And I know on the school side of things, I'm not an expert on education but colleagues at IFSR and they have suggested that you know there's less sort of data sharing, unless benchmarking a performance across schools in Wales. And that makes it hard and not only to kind of monitor performance, but also to kind of share lessons about what's working well and what's not working so well. And recently the Welsh Government has also sort of gone down the same route that the Scottish Government did in terms of curriculum reform moving from a sort of a knowledge based system where you kind of care about the facts and figures and dates and so on to what's called a skills based approach. Sounds good in principle. I think there's some evidence actually that lots of you, particularly those perhaps you know not quite flying in education, they learn skills partly through knowledge acquisition. And there is some debate actually whether you know the route that Wales has taken in Scotland took previously, whether that is actually going to help improve education or might actually make things a little bit more challenging. So I think actually looking at the experience of Scotland where they started to reassess their curriculum a little bit, that could be an important thing for the next Welsh Government. And we've seen some of the parties start to talk about education in that sort of way. Listen to you think one of the things people always talk about with devolution is that if you have lots of areas doing different things you can learn from each other, you can try different policies out, you can try different ways of doing things and you can see if they work or they don't work, it does look like the Welsh and Scottish cases of education looks like they've tried some things that aren't working so well and they can maybe learn from each other and do some things that are different. And learn also from England and I think it's not saying that England is always doing things well. There are some services I think which are performing somewhat better in Wales. I think social case when we haven't seen quite the same challenges in Wales and we have in England, also local government, we've not seen the kind of same extreme financial distress at some councils in England have seen, although it's not Rosie for councils in Wales, but any stretch of the imagination. So you know there's learning kind of across the UK, not just kind of one direction there, but one thing I think would make learning easier is actually that sort of sharing of data and collecting data in ways that is more consistent, not just within Wales but between Wales, Scotland and England. There can always be reasons if you're trying to do things differently, you might need to collect data in somewhat different formats and ways, but as it stands so much of the data on education and health, it's just not comparable across country and it almost looks like the definitions are sort of chosen to be a little bit different so they aren't comparable. That can kind of avoid difficult questions to politicians in Westminster or in Wales, but it doesn't actually make it so easy for voters to hope people to count or for that learning by teachers and doctors and so on. And when we chunk up Wales, you know, we're a nation that is quite small with a size of greater Manchester, for example, but we chunk that up to 22 local authorities for that size of population and that's past nature of the population. Seven health boards, for example, and in often ways when you talk to practitioners in these different public services, they don't talk to each other, they don't share data. You can't take a patient's data and some will move across border and it doesn't go with them and you see all these kind of governance issues that underpin maybe poor performance, as well as like regional differences in performance in health, for example, north Wales is incredibly poorly underserved by Betsy Cudruller to health board and doesn't seem like Welsh Government have the kind of the sticks to bash it into shape when it comes to performance. Yeah, I mean, again, I'm sort of, you know, going and I get here a little bit, forgive me, IFS, I know it's not what we normally do here, but I do have the sense having grown up in Wales, having observed some of this. I think just kind of, you know, there's some extent a sense that, you know, well, we were poor for country and therefore whenever too many things are going to be less good in terms of health and education, and that needs to be the case. We've seen in parts of England where you have, you know, really quite high levels of deprivation, like, you know, London, for example, where education performance way outpaces that in Wales. I think a bit more ambition, perhaps, on people's achievement, but also the standards of schools and hospitals that could go a long way in sort of changing the culture of public services in Wales. And actually, we're talking this podcast quite a lot, it turns out, about the need for more data and knowing more about things, but actually it really is true that if you have good data and you can better understand what's currently happening and the performance and why things are happening, you can usually design better policies. So the really is a serious point there. John, let's go back to health and social care. So it's all about things aren't looking great at the moment. But I think it's also true that there's been more of a focus on prevention or a desire to focus more on prevention. Is that right until it's about that? Yeah. So, you know, Welsh government have been saying, and not just Welsh government, also opposition parties have all been saying, you know, what we need to do to tackle these long-term issues because health is a long-term systemic challenge for Wales. And also looking at the demography of Wales over to the next 10, 15 years, the work in age population is going to get smaller. The older age population is going to get bigger. And those out of work and economically and active as also seems like it's in a upward trajectory, which means that we've kind of got this demographic time bomb waiting to happen in, you know, not that far away really, when you think about 10 years, it kind of goes by like that. So, Welsh government have kind of got this aspiration to become a Marmott nation whereby we think of our health system in a different way. We think about how we can transition to a more preventative health system whereby we shift spending away from secondary care that is hospitals and towards creating healthier communities and healthier lifestyles. The problem with that is that means moving money away from health and social care, which is over half of Welsh government's budget as it is, let alone before we get into manifestos where certain parties have pledged a lot of capital investment into hospitals themselves. So how do you make that shift to a preventative health care model? Well, ultimately it means moving money away from health and social care part of the budget towards, you know, not just towards other elements that aren't secondary care, but also out of the health and social care budget altogether, whether that means giving local authorities more money so they can build things like leisure centres, cycle lanes, all that kind of stuff. But we're not doing that because health and social care keeps eating the rest of Welsh government's budget. And when you look at the fiscal picture looking forward, if we continue on the plan, on the normal plan we've had over the last few years of 3.6% real-terms increase every year into health and social care budget, then that means you're going to have to get over 2% cuts from either over a part of Welsh government. So, you know, this is the kind of difficult conversation that we're having in Wales is we aspire to be this nation that is a standard bearer for preventative health care, but all of our investment choices and where we choose to put money says the exact opposite. We're just putting lots of money into secondary health care settings and ultimately that's just, you know, pouring money into a leaky bucket because people are stuck in hospitals and can't get out because the primary care isn't as strong as it should be. Along that, I'd be very surprised if we saw political politicians cutting frontline services and putting it into leisure centres, as you said, but sort of holding inside the politics, how much do we know about the returns we might expect from that more preventative care? Because in some sense, people like me hear that and say, of course that's right, that sounds great. Of course, you get people having healthy, good-life styles and that takes pressure off of hospital services. That isn't necessarily true. You could build a lot of cycle lanes and leisure centres and still have unhealthy populations and not get the kind of returns or people can have chronic conditions that you can't do through community-based care. So, to what extent do we have even the evidence based, necessarily, to be able to say to a politician, if you did this and you, you know, stole your fixture bucket, then it would have worked. Well, I think the evidence is kind of piecemeal in that you kind of assess individual projects and go, okay, well, this saved X amount, you know, by X metric, but is putting together what would be a suite of loads of different types of investment and hoping that that gets you in another place. And that would be a massive gamble because ultimately we have viewed success of our health system by seeing how long our waiting lists are, at least in the last five years in the world context. And that means moving away from that. And ultimately, if you're going to move money away from that, then the waiting lists aren't going to go up and you're going to get an even larger increase in divergence between what when people can access service in England and when they can access them in Wales. But broadly speaking, it seems to suggest that, you know, secondary care is by far the most expensive way of delivering health care because it means that you're dealing with more complex needs by the time they get into hospital, rather than treating them either before they happen or when they're at the early stages, I, you know, cancer care, that kind of stuff. So on that as well, I think kind of it'll very much depend on the particular interventions you're doing on some of these things. So it's good evidence that certain things have actually had sort of like positive cost benefit ratios. They save more money than they cost. So colleagues have looked at sure start in England. It's not just improving health, it also has education and so on. When you account for all of those things, it seemed like that was a good measure. You know, on the other hand, looking at the impact of adult social care in England, other colleagues found that when they cut adult social care, that did lead to an impact on the NHS. But the impact wasn't as big as to sort of offset the savings and social care. So I think when you're kind of like making the case a sort of more focus on community care, social care, you know, the wider determinants of health, some of the interventions, they'll be so powerful they actually will not only improve lives, but actually save money for the NHS. Others, the case is not so much about save money for the NHS, but it's about making the case that this is just better for people's lives. So, you know, you spend more on social care, that might not improve the NHS's finances, but it does have a impact on people's quality of life and the quality of life of their family looking after them. So, you know, there's no one size kind of fits all here and it comes to looking at kind of the shift to prevention and the shift to sort of community-based care. I think it's kind of a combination of some of the things that will save you money, others that are more about the kind of quality of life. But of course, you know, as Joe was saying, in the context of a budget which is already strained, where, you know, they are kind of like, you know, your headline targets, but also I think a real desire to become a population to get improvements in those sort of waiting times and waiting lists. In order to actually bring those down and at the same time invest in some of the things that can be saved you so many in the long time or at least improve quality of life, that means spending more now, which all the Welsh government can do if they want to do that, is tax more. And that's the kind of thing that none of the parties really want to kind of mention. Yeah, well, on that, would it come back to the manifestors in a minute? Is that the only option? So there's also mutual investment models. I've got in my notes. Joe, do you about mutual investment models? Well, mutual investment models, I kind of have to touch on the manifestos because ultimately they're filling in a gap in people in parties manifestos whereby they're not talking very much, they're talking about spend or they're talking about tax cuts, but they're not talking about revenue raises. And therefore, to fix that gap, what some of the parties have done, and this is on both the left and the right, they've said either we're going to get private finance, which is kind of to deliver large scale capital investment of which Welsh government aren't capable of delivering at the moment, or they're going to use the mutual investment model, which is essentially, well, is version of PFI. I.e., you get a private sector to deliver the infrastructure or whatever the capital investment is, and then you pay it back by service charges over, say, a decade. And this is what Welsh Labour are doing with their four billion headline pledge for infrastructure investment into the hospitals. And yeah, this is kind of filling a gap in the manifestos in some way. And ultimately, what that will lead to is, yes, you get the investment built, you get the hospital built, which is badly needed. But you're saddling the next generation or, you know, younger people in the current generation with the cost of servicing that and the actual cost of delivering the infrastructure is more expensive than if Wales had the ability to do things like borrow money. So we've historically seen the Welsh government use it because it's the only way of them getting enough money to deliver these things. And it's an expensive way of doing it. So, you know, it's, I can understand why they've used that model. I can understand why it's fixing a whole in some of the manifestos. But what in my view would be a better option is to give Welsh government some borrowing powers in a way that is maybe in a line with at least local authorities across England and Wales. But briefly, I mean, the, I mean, PFI didn't have a great reputation in the UK in context. I think it's worth saying that it isn't necessarily stupid to use those models sometimes, right? You might think there are cases where having some interaction with the private sector and some kind of payback model of sorts could be a good way to go. But I think what you're saying, Joe, is if the only reason you're doing it is because you can't borrow and they feel you're doing it and it ends up being an expensive way to invest. It's not a good outcome. But David, it would be tricky to, well, it's too thin, it'll be tricky, maybe in practice to give Wales more borrowing powers. But also, there's a separate question about how much the UK should borrow overall and then how much should be borrowed and sort of directed by a Welsh government versus setting Westminster. So, I think Joe is right that, you know, the mutual investment model, you know, apart from a few kind of edge cases, only really makes sense if you can't find cheaper ways to borrow because when the Scottish government looked at this, it thought the borrowing via the mutual investment model might cost perhaps 50% more over kind of a 30 year term than borrowing via traditional ways. So, that's huge. It's a huge amount. Yeah. The easy answer, I think. say is to say, well, actually the Welsh Government should have additional borrowing powers. And the Welsh Government has in the past made that case some of the opposition parties have kind of made that case quite forcefully. The Scottish Government makes similar case as well. I'm a little bit dubious. So people in Wales and Scotland, please don't hate me. And the reason I'm dubious, I'd say, is twofold. First, I think under the current constitutional settlement, there is no England only borrowing. So if you grant additional borrowing powers to Scotland and Wales, and for example Northern Ireland, the other nations of the UK would have not only local government borrowing, UK government borrowing on their behalf, but also a third source of borrowing, you know, devolved government borrowing. I never hand for England when the UK government borrows, either borrows for things that are UK-wide, like defence and pensions, or to cut sort of like UK-wide taxes, or it borrows to things that are England only, but because of the Barnett formula, then generate additional funding for Scotland Wales and Northern Ireland. So if we were to move to system where there was substantial, you know, sort of unrestricted borrowing for the Welsh Government and Scottish Government, a little bit like councils who kind of set their own borrowing limits, that could, you know, lead to a sort of a bit of an asymmetric situation where the devolved nations have substantially more sort of borrowing firepower than England, because England can only really borrow if the UK government is willing to borrow, you know, and get the extra bit of borrowing, you need to give the same money to Scotland, Wales and Northern Ireland too. I think the other kind of issue is that we know to something that the UK's public finances the whole that the deficit is being high, debt is high, and in fact, you know, with the new fiscal rules, even though, you know, they're meeting the sort of, you know, fiscal rule of getting net, public sector financial liabilities on a slightly falling path by the end of the rising. If you really squint at the chart. If you really squint at the chart, yeah, you know, if you look at the old definition, net debt, that is on the upwards trajectory. So I think we're in a situation where if you were to devolve more powers to Wales and Scotland and perhaps say the regions of England so that it wasn't so, you know, do you got any unbalanced? I'm not sure if any freezer more borrowing, I think it just really kind of like shifts way of borrowing, got to take place from the UK level down to the more devolved level. So, you know, well, it's like, I can see in principle, you know, the case, you know, the argument that, you know, Wales is only doing this on mutual investment because it has no other options. Given where we are, I'm not sure there really is huge scope for additional borrowing in general, you know, UK wide or well, specifically. I think only it makes sense for those really, really high sort of return investments, which all governments should always look at, you know, if an investment is so high return, it can sort of, you know, pay for itself, do those. But more generally, I'd be aware you're about kind of loosening the sort of, you know, the borrowing per strings. So what should I take on that, Joe? I think the borrowing, the context of the lack of borrowing powers also sits on top of other challenges that Welsh government have in terms of, you know, providing a budget every single year. One of those is lack of flexibility of the budget, whether that means carrying money over from financial year to next financial year, or whereby, they also can't move capital and revenue expenditure as easily as you might want. So, you know, without that, you're asking Welsh government to fix these really long term systemic challenges with one hand tied behind their back. And the argument that Welsh government shouldn't have additional borrowing powers because, you know, potentially they might blow all their money, and then they can't pay it back. Well, you know, we've got to trust the devolved governments to do this kind of stuff because, you know, they've managed this style of budget. For the last 27 years, we've never had any issues with, you know, paying for public services or anything. So in that regard, actually, Welsh government historically has been pretty, you know, conservative with how it spends its budget in that way. You know, you often get this accusation of public bodies in Wales that they choose to under-deliver their on their budget, and then they're trying to spend money by March at the end of one year to try and use the most their spend. Because otherwise, it's quite difficult politically to go back to the electors, the electorate and say, "Oh, well, why did you send back X amount of 100 million to UK government when really, you should be spending it to the max?" This is ridiculous. So that kind of flexibility, lack of flexibility, underpins the call for borrowing powers in my view. So on that, I think, yeah, I think there is a case to say the Welsh government should have some, you know, modest, in my mind, additional borrowing powers. So as it stands, any borrowing powers they have, they have a very constrained capital, you know, part they can borrow for, and they've used that sort of, like, do some extra investment. I think there is a case to increase that a bit. I'm just kind of like reluctant to sort of, like, completely remove the cap, not because I think Wales would, you know, necessarily kind of, you know, go crazy and borrow huge amounts, but just because I think in general, you know, at a stage where the UK is already kind of pushing, you know, physical credibility to kind of, you know, to a bit of a stretch. But I do think that, you know, a bit more borrowing for capital purposes, definitely more borrowing for day-to-day spending. One thing the Welsh government can't do is if it's kind of like a shock that affects, you know, demand for day-to-day spending. So for example, let's say there's real problems in the public set, and they need to kind of spend a bit extra on public sector pay. If that happened in Westminster, so you could go, I could say, well, yes, it's really important we don't have this strike, the NHS is really struggling, we'll borrow to kind of like pay for those deals. The Welsh government can't do that. It would need to kind of either cut back spending elsewhere or not make those deals. So I think there is, you know, a little bit of flexibility to say, look, you know, on top of the existing powers you have, a little bit of flexibility to deal with unexpected events as they arise. You can save more to your reserves. You can borrow a little bit to, you know, fund, you know, it's a pay deal or whether it's to, you know, pay for, you know, the impact of a sort of an in-new crisis. Definitely agree there. I would probably distinguish between, you know, the budgetary management tools, I think there's a strong case to give a well, more power. And then if you like the long-term capital investment, I think it only makes sense doing loads there if you're going to kind of, you know, perform the sort of fiscal architecture of the whole of the UK so that it's actually about decentralising borrowing powers, not ramping up borrowing nationwide. Because I think you're both agreeing on some more flexibility for Wales definitely, but at least some caution in thinking about we don't just increase borrowing overall. I'm going to resist the urge to talk about how we could do a new fiscal framework for time, but there's a serious point there about we would need to think seriously about the interaction between and Joe's nodding along, between, between borrowing at a local government level or a devolved government level and at the national level. Before we wrap up then, let's look ahead to what the parties are offering in their manifestos. I mean, Joe, a big picture. What do you see as the key dividing lines between the different parties? So I think we've got news flush as well to listeners outside of Wales. We've got a new centre of the electoral system whereby we're using the DeHont method to elect people from 16 sets of lists and constituencies. So this is an important context because lots of these manifestos are being developed in a system whereby there's an acknowledgement that you're going to need to work collaboratively in order to run a government effectively. So with that caveat, we've kind of got two blocks of parties that are saying similar stuff, especially when it comes to how they're going to use Welsh Government's budget. You've got one on the right side of the political spectrum which say we're going to have a cut for income tax and some of the other devolved taxes whether that's business rates or other revenue forms of income generation. So you've got what that one side saying, we're going to cut the amount that's coming into Welsh Government budget and we're going to cut the way that we're going to pay for that is by efficiency savings which are not hugely detailed when it comes to those. On the other side, the more progressive side if you like, of which there is a larger number of parties. They're kind of going the other direction. They're saying we're not going to touch devolved income tax powers, we're going to keep them the same. But we're going to increase spending without acknowledging some of the massive trade-offs that will be required if you are going to increase spending. So in that way, we've kind of got a similar issue that we had with the general election back in 2024. A conspiracy of silence, if you will, whereby both are kind of ignoring the inherent trade-offs of delivering policy and delivering a devolved budget in what is a fiscally tight, tight, tight environment. Yeah, I completely agree with what Joe was saying there. You do see these two camps. When we saw before-man conservatives manifesto, he said you might get some deja vu. They really are really quite similar on many levels. Income tax, business streets, the conservatives throw in cuts to LTT land transactions tax. But they've got some tax cutting measures with efficiency savings. Some of those are potentially quite chunky. Others seem very much like totemic or even like tokenistic. One of the things that were former UK say they would cut is the Welsh government's small international aid budget. Basically, some grants it gives to plant trees in some developing countries. That would save £1 million a year or 0.004% of the Welsh government's budget. So that's not going to really eat into the cost of a tax cut costing £400 million a year. Every penny hopes? It does. But I think whilst we didn't see perhaps quite the same extraordinary stream tax cuts proposals that you've seen in some of the Scottish manifestos, on the right we had tax cuts, perhaps not really matched with the full detail on the spending cuts we need to accompany them. On the left side, you're now seeing, I think by the time we're going out, all parties would have come out. And there's substantial expansions of things like childcare proposals for better paying conditions for public sector workers, reduced cost of public transport, so on and so forth. Again, depending on the part you're looking at, everything from a couple of hundred million to several hundred million or even billions of pounds a year in additional spending, without saying where it's going to be coming from. So I think the hope had been when you devolved tax powers to the Welsh Government and the Senate, that would lead to perhaps a more grown up debate about how you pay for stuff. At least so far, two elections post tax division, not yet. You know. Pressing isn't it? We should wrap up soon because we've been going quite a long time now on Wales, which is lovely. But before we go, I mean, people will have different visions for Wales obviously and that is great, that's part of democracy. All the governments are going to face tough choices. I mean, Joe, if you had to just pull out one big challenge for Wales in the next election, sort of whoever wins. And what's the big one that jumps out for you that parties should be talking to the electorate about? I think the broad message I want the parties to take away, or the electorate's take away is there is inherently needs for trade-offs that we are not hearing about. And that might lead to some resentment from whoever forms an ex-government or whichever party or parties form the next government. And they're going to have to face these realities, unless UK government decides to diverge from its fiscal rules, of which Welsh Government have absolutely no ability to influence whatsoever but must respond to it. So really, that's the kind of thing I'd like to take away is that we need to have a bit more of an honest conversation about our fiscal outlook and how we might change in the long term to actually make a meaningful dent into some of these systemic challenges like health or education, for example. But again, their manifestos aren't they? When have manifestos actually been that clear on the really difficult stuff? There's a lot of retail offers as they have been in previous general elections and send us elections. Yeah. Dave, would you want to play out as your big challenge? And yeah, I mean, I don't actually agree there. I think kind of, you know, it's perfectly possible for Wales to have lower taxes, perfectly possible Wales to have a bigger welfare state. But that needs to be paid for in some way. I do think that, you know, whilst we can't expect-- I don't believe in, you know, that they've a fully-costed manifesto. But I do think kind of a, you know, if you're going to have a broad vision of the goodies, you need a bit of a vision of, you know, how you're going to pay for those at the same time. And the second thing I'd say is that, you know, given there's a lot of focus on education and health in Wales, actually, you know, as well as thinking about, well, what new stuff could we do? Actually, a little bit more focused on actually how are going to be going to tackle the problems of the existing welfare state in Wales. And actually, you know, pick your head up out of the sand a little bit. You know, this is a real issue for Wales. You know, if we don't address problems in the health service, if we don't address problems in education, and it's not just schools in a huge decline in higher and further education participation in Wales could be the rest of the UK. You know, the combination of, you know, more people waiting for treatment ill and able to work, children not getting education and need to succeed in the workplace, that could happen, not just the next Welsh government, but governments for generations and Wales for generations to come. And actually, I love the point you made earlier, David, about, people should be, you know, these are my words, not yours, but be ambitious for Wales. We should, you know, Welsh people should expect that Wales could do better. But on that, let me, let's wrap up. Let me say thank you to Joe. Thank you to David. Thank you to all of you for listening. As is no surprise, we've talked about how some of the outlook for Wales, especially on the public service side, is tough. Wales is seeing some of the same kinds of fiscal pressures that are being seen across the UK. It does look like votes will be given a set of different offers in the election, but as has become all too common, parties not really engaging with those trade-offs. You know, we've talked about the fact that you could have lower taxes in Wales. If you also want a small estate, you could have more spending in Wales if you also want higher taxes. What's really disappointing to see as party setting out, as David put it, the goodies without setting out the trade-offs too. As the saying goes, the government is to choose, and it would be great to see party setting out the choices that they would make for the future of Wales. But on that, let me say thank you again. If you have enjoyed this episode, please do show it with your friends. Anybody else might be interested. And if you would like to support this podcast, or the IFS more generally, you can do so by becoming a member for, as it does 10 pounds a month, you can check the link in the episode description. But for now, thank you very much.