The UK Government’s narrative has been that austerity is ending. The reality is very different. Even taking into account announced increases to health spending, real-terms spending on public services per head across the UK will be some 10 per cent lower in 2023-24 than in 2009-10. Make no mistake, the UK remains firmly in the grip of austerity. The Welsh Government has made very clear that health will continue to be our priority for available funding. But the stark reality is that, unless the UK Government takes steps to end austerity, protecting health will mean very, very tough choices for other vital areas of public services.

Based on the Office for Budget Responsibility’s published figures for the spring statement in March this year, we estimate that, if the Wales resource budget increases in line with UK resource departmental expenditure limits and NHS growth in England is matched in Wales, then the rest of the Wales budget would fall by around 1 per cent in real terms between 2019-20 and 2020-21. This would heap further pressure on our hard-pressed public services, which are still facing rising inflation and unfunded pay and pension costs.

But the frightening reality is that the public spending context could get even worse. It's worth remembering that the spring statement forecasts assume a relatively benign Brexit. Unbelievably, we still have no clarity about how the UK will leave the EU and what the future holds. The next few years will crucially depend on the form of any Brexit deal and any transitional arrangements. And that, of course, assumes that there will be a Brexit deal.

Wales receives some £680 million annually from EU funds, and the Welsh Government has made it clear that we will look to the Treasury to maintain our spending at current levels post Brexit. At present, the consultation on the proposed UK Government shared prosperity fund, which threatens to sweep power away from Wales, has not even opened. We will continue to hold the UK Government to the promise that we will not be a penny worse off. Our message is clear: not a penny less, not a power lost.

We are already seeing the impact of Brexit uncertainty on our economy. The Office for Budget Responsibility, the Bank of England, the Organisation for Economic Co-operation and Development and the International Monetary Fund have all highlighted that Brexit uncertainty has pushed the economy onto an even lower growth path. Business investment decreased in each quarter last year—an unprecedented development outside of a recession. GDP decreased by 0.4 per cent in April compared with March. A disorderly Brexit would risk recession in the short term.

The Office for Budget Responsibility has also noted that the losses of tax revenue due to slower growth are more than offsetting any savings that result from reduced contributions to the EU budget. This damage is not only a matter of abstract economic statistics. The UK Government’s own analysis suggests that each person in Wales could be well over £1,000 per head worse off than otherwise each year over the long term. This will be reflected in lower pay, worse job prospects and poorer public services as a result of weaker tax revenues. This uncertainty is damaging the economy and directly impacting our ability to plan and provide the longer term certainty for the Welsh public services that people rely on. We start this year with our current revenue settlement not extending beyond the current year, 2019-20, and a capital budget only until 2020-21. Based on current policy, we can only assume that the net impact of growth in devolved tax revenues and growth in the block grant adjustment between 2019-20 and 2020-21 will not have a substantial effect on growth in the overall Welsh Government budgetary position between the two years.

Public sector pay makes up around 50 per cent of the Welsh Government's spending. So, developments that impact on public sector pay bills are key when developing spending plans. The UK Government’s policy of austerity has resulted in a long period of restraint in public sector pay since 2010. While this has helped mitigate some of the worst impacts of austerity, we think that public servants should be properly rewarded for the important and difficult work that they do. Having seen the UK Government agree the teachers’ pay and the three-year NHS 'Agenda for Change' pay deals, we now expect that pay per head will rise more quickly over the next few years, but this will also mean an increasing pay bill. Coupled with increased pension costs at a time when budgets are not rising, meeting these costs will prove particularly difficult.

Having confidently stated that it would set budgets for three years through a comprehensive spending review, the UK Government is now indicating that because of the chaos it has created it is increasingly likely at this stage it will be forced instead to play for time and roll forward revenue plans for one year only. We've always sought to provide the earliest possible certainty on budgets to our partners. I've now written to the Chairs of the business and finance committees signalling that this uncertainty has left us with no choice but to plan on the basis that we will publish a draft budget on 10 December and the final budget on 3 March. While this might be the normal budget timetable in Scotland, I'm aware of the impact that this timetable will have on the Assembly and our partners. It remains possible that the UK Government could publish an earlier budget, and in that scenario, I'll be looking to bring forward our budget timetable as much as possible, and I'm grateful for the Business Committee’s support with this.

We're determined to maximise the impact of the resources we have. We're focusing our budget preparations on our eight priority areas of early years, social care, housing, skills and employability, better mental health, decarbonisation, poverty and biodiversity. These priority areas are integrating activity across Government in the areas where we can have the greatest impact over the long term. As part of this work, I'll be undertaking visits over the summer in relation to these areas to gain an insight of the challenges and the opportunities that wider partners see in each of these eight areas. So, in closing, our Government remains committed to doing everything it can to meet the very real challenges we face today and in the future.