What can we expect from the Welsh Government’s draft budget?

Mark Mansfield

Plaid Cymru will set out its first Welsh draft budget on Tuesday, with Finance Minister Elin Jones warning that the money available for day-to-day spending will buy 0.5% less next year.

Her predecessor, Mark Drakeford, promised every department at least the same spending power in the current financial year. Tuesday’s draft will show whether Jones can make the same pledge.

Cardiff University’s Wales Fiscal Analysis team says higher inflation will make that much harder to repeat.

The UK Government announced £450m for Wales over four years in its autumn budget. Welsh Secretary Stephen Kinnock said the money would help fund public services such as the NHS. The Treasury’s figure adds up changes to previously announced plans from 2026–27 to 2029–30.

It combines day-to-day spending and capital funding, which pays for longer-term investment such as buildings and infrastructure. Both are measured in cash terms.

For 2027–28, the UK budget added £165m to planned day-to-day funding and took £19m off planned capital funding. That leaves a net increase of £146m against the Treasury’s previous plans for that year, before accounting for inflation.

The UK budget also offered help with household bills. Chancellor John Healey removed the tariff on kerosene and extended zero VAT on household electricity bills until the end of June 2027.

The Welsh Government confirmed it would match the £100 cost-of-living payment for households in council tax bands A to D. Wales Fiscal Analysis estimates that could cost around £120m this financial year.

The NHS 

Higher energy prices have pushed up inflation forecasts. The Office for Budget Responsibility expects UK consumer price inflation to average 3.4% in 2027, adding to the pressure on public services’ running costs and pay budgets. Wales Fiscal Analysis points out that much of the extra spending announced for UK departments is going to defence, which does not generate funding for Wales through the Barnett formula.

Using the inflation measure applied to government spending, Jones calculates that the UK grant for day-to-day services will buy 1.5% less in 2027–28. Devolved taxes and business rates narrow the projected fall in the Welsh Government’s overall day-to-day budget to 0.5%.

Wales Fiscal Analysis forecasts that devolved taxes will contribute a net £709m next year after adjustments to the block grant and corrections for previous years. That is £184m more than forecast in March. The increase in that forecast is bigger than the £165m the UK budget added to next year’s day-to-day funding.

A 3.6% real-terms increase in NHS spending, in line with its historical average, would require cuts of about 3.8% across the rest of the budget, the researchers estimate. Giving the NHS half that increase would still mean average cuts of around 1.9% elsewhere, leaving ministers to decide how much of the squeeze falls on councils, education and transport.

The Senedd 

Plaid won 43 of the Senedd’s 96 seats in May and needs votes or abstentions from outside its group. Welsh Labour reached an agreement with Plaid on a supplementary budget for the current year, which passed by 54 votes to 39.

MSs will debate the draft on Tuesday. The final budget is due on 16 February, with a vote scheduled for 23 February. The Senedd must agree the Welsh rates of income tax before approving the final spending plans.

If there is no budget agreement by 1 April, the law initially authorises 75% of the amount approved for each service or purpose the previous year. That rises to 95% if there is still no agreement at the end of July. Councils have an earlier deadline. They must set their budgets and council tax before 11 March.