Wales is preparing for severe austerity, after the Assembly Government laid out the toughest draft Budget since devolution.

Total spending will fall by 9.9% in real terms (after inflation) over the next three years. This means the Welsh Assembly Government faces real-terms loss of £860 million next year alone.

Total health spending is to be cut by 7.6% in real terms, being frozen at around £6billion until 2012-13. Hardest hit are the economy, transport and environment, down by more than 21% over three years. Investment in Welsh universities will be cut by 9.3%. Spending on big infrastructure projects will also be cut by 40.6%, suggesting the days of major new hospitals and schools are over.

The Minister for Business and Budget, Jane Hutt, said the 40% cut to capital in Wales was particularly problematic. “29% is the kind of level that UK government and other devolved administrations are experiencing, so we are going to be hit the hardest in terms of the capital cuts, in addition to being bypassed and sidelined in terms of all the other infrastructural investments that are being made by the UK coalition government in other parts of the UK.”

The draft Budget is one of the most important political events of the year for Wales. It allocates around £14.5bn of expenditure across the public sector, covering devolved areas like health, education, agriculture, and economic development. Each minister will set out the details of cuts to their departments over the coming weeks.

The draft Budget is especially important because of May’s assembly elections – many voters will base their decision on who to vote for on this Budget. It is also likely to spark the mother of political debates in Wales, as the Conservatives and Liberal Democrats criticise the cuts and put forward their alternatives.

Ms Hutt claimed that although the Budget is framed against the toughest era since devolution, it will build “resilience” in Wales.

“We will continue to stand up for the people of Wales,” she said. “All evidence shows that the funding levels are below the level of need and we will continue to fight for a fair funding settlement.

“This is a government that is clear about its priorities but is taking its responsibilities seriously and offering a budget which will help build resilience – resilience in our economy and in the provision of the vital services on which people depend.”

The capital budget for the NHS has taken a real hit, falling from £283.3 million this year to £205.2 million in 2013-14. This makes the building of major new hospitals extremely unlikely.

Welsh Conservatives say they would have ring-fenced health spending, and argue that by failing to do so, Labour and Plaid are putting frontline services at risk.

Last night on BBC Wales Today, health economist Professor Marcus Langley said: “There will be a gap of three quarters of a billion by the end of this period. We will see defensive moves – minor casualty departments closing and so on, but the big money has to come from shifting hospital care into the community, that’s the big prize really.”

A serious blow has also been dealt to capital investment. By 2014-15, the capital budget will be almost half 2009/10 levels in real terms, and its lowest level since devolution. The 40.6% fall in capital funding, amounting to a loss of around £307 million, will halt investment in roads, schools, hospitals, roads, and flood defences. “The capital settlement is so poor,” said Ms Hutt. “We are moving into a period next year where it is very difficult for ministers to decide in terms of profiling their capital programmes.”

She did, however, confirm projects funded by Skip were ongoing, and will continue through until next year. Ms Hutt also pointed out the WAG has retained funding of £50 million a year for capital.

The budget for environment, sustainability and housing is down 5.8%, amounting to a loss of £35.9 million over three years.

The department of rural affairs takes the third biggest hit in percentage terms, 14.3%. This means a loss of £19.2m

So what, if anything, has avoided the chop? Universal benefits such as free prescriptions and school breakfasts will not be scrapped – in fact, they will experience a 3.7% rise by 2013-14. Funding for schools will also increase from £1.83bn to £1.9bn. It is worth nothing that while education and skills spending are relatively protected, they will still fall by 8% in real terms by 2013-14.

Education Minister, Leighton Andrews, said: “Budgets for schools – both within the education department and through the revenue support grant – have been protected by 1% above the rate of change in the Welsh Budget.”

Ms Hutt, said: “If you look at the priorities we’ve set it is for schools and for skills and advance of education, but also, as I’ve said, we’ve been able to protect post-16 education.”

It remains to be seen where exactly the axe will fall in terms of specific services. Ministers will be outlining the details of cuts to their departments over the coming weeks. There will be two months of intense scrutiny by assembly committees before and after Christmas, followed by a debate of all AMs in mid-January. The assembly government will then draw up its final budget and put it to a vote of members following another debate in the second week of February. In the mean time, expect to see an intense political debate unfold. Liberal Democrats have already attacked cuts in economy and transport, and CBI Wales said the budget “largely failed” to use government spending to support economic growth.

I asked Cardiff what they thought of the spending cuts:

Matthew, a student in Cardiff, said:

John Williams, retired, from Cardiff, said:

Alan Evans, retired, from Cardiff, said:

Sarah, from Southampton, living in Cardiff, said:

Ilirjan Allamani, a builder living in Cardiff, said:

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