Procurement consolidation, reduced agency spend, better back-office automation and contract management rarely feature in any political debate
There is a growing gap in Welsh everyday life between what people are being told about the economy and what they are feeling in their own lives. Inflation may be lower than it was and interest rates are decreasing but that does not mean households feel secure and, in many cases, they feel the opposite.
Recent research by YouGov showed that voters are now significantly more pessimistic about their finances next year with 35% believing their situation will get worse over the following 12 months. That is a worrying direction of travel and one that no amount of press releases about positive economic indicators will reverse given voters will judge governments by whether their lives feel more affordable and not by whether inflation is coming down.
This matters because Wales is now entering the final stretch of a Senedd term with a cost-of-living problem that has become structural rather than temporary. Whilst many of the levers are in Westminster, it is only fair to ask, given its £27bn budget, what can an incoming Welsh Government do to address this and whether it will be a priority in each party’s manifestos?
Indeed, it can be argued that something could have been done about one of the most important issues facing the country recently but the budget agreement between Labour and Plaid Cymru meant that the £380m of unallocated funding was instead channelled into health and local government rather than in addressing the cost of living crisis that is the main priority of families across the country.
So if a new Welsh Government is to act later this year, should it focus on this important issue and if so, where will it get the money from to do so given that 80% of the current budget is spent on health, education and councils.
If you strip the debate back to basics, two pressures dominate household budgets more than almost anything else namely energy and childcare. Transport matters too, but fuel bills and the cost of day care hit hardest and fastest particularly for low-income households and families with young children.
So what are the options? To date, Wales has focused on improving the energy efficiency of homes by spending an estimated £100m per annum but that does little for households facing bills they cannot afford now. Instead, some have argued that a targeted energy bill credit is one of the most direct ways to help those under the greatest pressure. If it was focused initially on households on Universal Credit and Pension Credit, this would immediately reduce fuel poverty and could be delivered through energy suppliers with minimal bureaucracy.
Childcare is the other big lever and whilst Wales has made progress through its “Childcare Offer”, the pace has been slow. It has also not addressed where childcare costs are most punitive and support is thinnest namely for children under three years of age.
As a result, it remains a major barrier to work, particularly for women and a drag on economic participation. This could be addressed by providing childcare provision in areas with the greatest need and lowest labour market participation as this would put money back into family budgets while also supporting economic growth.
The question, inevitably, is how to pay for this without pretending there is spare cash lying around and the uncomfortable truth is that few examine the significant amount of public money in Wales that is tied up in the way government operates. Better procurement consolidation, reduced agency spend, better back-office automation and better contract management rarely feature in any political debate because they are hard to see and harder to reform.
Yet this is where the most realistic room for manoeuvre lies and procurement alone is a powerful example with even a small reduction in the cost of what government buys through tighter controls, better data, consolidated contracts and fewer low-value renewals could release tens of millions of pounds. The same is true of central administration and consultancy spend, professional services, duplicated IT licences, travel and corporate overheads which are all areas where firmer controls can free up resources without touching frontline delivery.
This is where technology becomes more than a buzzword and advances in digital systems and artificial intelligence mean that many routine government processes can now be automated or streamlined. That does not necessarily mean fewer services or staff but it means delivering them at lower cost and with fewer errors.
The prize from doing this systematically across government is significant and over time, savings of around five per cent of total spending – over a billion pounds per annum – are entirely plausible over the next five years but only if reform is taken seriously and driven from the centre.
Of course, a credible plan does not promise everything at once but starts with what matters most and what can be funded first. As digital reform and smarter purchasing are embedded, those savings could then be used to address fuel poverty and expand childcare provision further if that is the priority of the next Welsh Government.
There is also a longer-term opportunity here and by scaling up public involvement in renewable energy and pressing for a fair share of the revenues generated from Welsh natural resources, Wales could begin to fund energy affordability from its own assets and whilst that will not solve today’s problem, it could help prevent future crises.
Of course, none of this is easy as it requires political discipline, a willingness to challenge established spending patterns and an acceptance that reform is not painless but at least Wales still has choices on what it can do to address the cost of living crisis and the question is whether those in power are willing to make them.
