What Wales’ revised Budget will fund – and why the money won’t stretch as far

Mark Mansfield

Extra funding for the NHS, childcare, housing and schools is at the centre of a revised Welsh Budget that returns to the Senedd next week after months of political disagreement.

The Second Supplementary Budget brings together spending commitments from the new Welsh Government’s first months in office and a £60 million agreement with Welsh Labour on additional learning needs.

But the debate is taking place against a worsening financial outlook. Higher inflation is eroding the value of public spending, leaving Ministers facing difficult choices even after this week’s UK Budget.

An analysis by Božo Lugonja of Senedd Research examines the revised allocations and the negotiations behind them. Separate work by Cardiff University’s Wales Fiscal Analysis team shows why securing agreement on this year’s spending will leave much harder decisions for the next Budget.

Health, childcare and housing

A supplementary budget adjusts spending plans during the financial year. This one changes the budget inherited by the Plaid Cymru administration from its Labour predecessor.

Among the allocations are £145 million for NHS Wales: £100 million for waiting lists, £25 million to begin delivering surgical and diagnostic hubs, and £20 million to address maintenance backlogs.

The distinction between those allocations matters. Day-to-day funding pays for running services, including staff and supplies. Capital funding supports buildings, equipment and other assets. A new treatment facility can expand capacity, but it also needs staff and operating funds.

The childcare package similarly combines the two types of spending. Its £55 million includes £20 million to expand provision to two-year-olds, £25 million to meet demand for the existing Childcare Offer, including an increased hourly rate, and £10 million in capital funding.

Schools would receive £40 million for building maintenance. Another £15 million would extend free school meals to more secondary pupils, with £10 million of that intended for kitchens and dining areas.

Other commitments include £20 million for social housing and £5 million through the Community Facilities Programme for local buildings and shared spaces.

Transport allocations include £8 million to continue the £1 bus fare pilot for young people and £2 million for the north–south bus service. A further £2 million would support school swimming, with another £2 million to begin piloting the Cynnal child payment.

These measures were included in the Government’s first supplementary budget and have been retained in the revised plan.

Why the first Budget was rejected

The earlier proposals were defeated in the Senedd on July 14, with funding for Additional Learning Needs, or ALN, central to the disagreement.

A significant source of additional money was £322 million arising from the UK Government’s Spring Statement. Much of that followed decisions relating to Special Educational Needs and Disabilities spending in England.

Under the Barnett formula, funding reaching Wales because of spending in England does not have to be used for the equivalent service here.

Welsh schools were already facing substantial ALN pressures. The Welsh Local Government Association had highlighted the strain on budgets, while Audit Wales described the system as “under strain”.

Before July’s vote, Ministers offered an additional £40 million for ALN in the current financial year and each of the following two years. Welsh Labour considered that insufficient.

The second supplementary budget, published on October 13, followed an agreement between the two parties.

What changed for ALN

The revised plan provides an additional £60 million for ALN in the current financial year.

Of that, £56 million will go through the Education Reform strand of the Local Authority Education Grant. Schools will receive £44.8 million directly, with £11.2 million allocated to local authorities.

A further £1.5 million will support a long-term sustainability plan, while £2.5 million will go to Medr for further education.

School leaders’ union NAHT Cymru acknowledged the improvement in direct funding but expressed “deep disappointment” at the overall allocation.

It described the agreement as a “missed opportunity to deliver the transformative investment that learners, schools and families were promised”.

Wales Fiscal Analysis called it a “stopgap rather than a settlement”, warning that wider budget pressures remained unresolved. Future ALN allocations have yet to be settled.

Inflation changes the calculation

The supplementary budget predates this week’s UK Budget. Although the Chancellor announced additional funding for Wales, higher costs have weakened its spending power.

Wales Fiscal Analysis researchers Owain Cynfab and Ed Poole illustrate the effect through NHS spending.

When they examined the supplementary budget agreement, core NHS spending was set to fall by roughly 0.4% in real terms, even after its £100 million uplift. Updated inflation forecasts deepened that projected reduction to around 1%.

The funding had not disappeared. It would simply buy less than anticipated.

Their analysis estimates that around £280 million of day-to-day funding remains available for allocation this year after the UK Budget and other adjustments. That calculation includes money already unallocated, rather than representing £280 million of entirely new funding.

Putting all of it into the NHS would turn the projected reduction into real-terms growth of around 1.3%, they estimate – still well below its historical annual average of 3.6%.

The November test

For 2027–28, Cynfab and Poole project that total day-to-day financing will remain broadly flat after inflation.

On their calculations, giving the NHS its historical average growth would require cuts of around 3.8% across the rest of the budget. Even half that NHS increase would mean average reductions of roughly 1.9% elsewhere.

MSs will debate the supplementary budget on November 3. The Draft Budget follows on November 17, when Ministers must set out next year’s priorities and seek enough support to get them through the Senedd.

As Cynfab and Poole put it: “By leaving departments to absorb the cost of inflation, it has handed the difficult decisions to Cardiff Bay.”

This feature draws on analysis by Božo Lugonja, Senedd Research, Welsh Parliament.