Key Considerations for the Upcoming Welsh Budget

Mark Drakeford is set to present the Welsh government’s £25bn expenditure proposals, which are designed to cover Wales until 2026. The finance secretary for Wales will release the budget, affecting the economy and certain taxes for individuals and companies, on Tuesday afternoon. However, as Labour lacks an outright majority in the Senedd, an agreement with another political party will be necessary for its approval. The following points highlight key aspects to monitor. First Minister Eluned Morgan recently acknowledged the severity of the situation by labeling the unprecedented waiting times for NHS care as “a crisis.” Addressing the backlog of operations resulting from Covid was the Welsh government’s primary focus following the pandemic. Yet, three years on—a period during which Morgan served as health minister for most of it—the number of individuals awaiting care has reached an all-time high. The health sector is projected to consume half of this budget, which extends until the next Senedd election in 2026. Nevertheless, Mark Dayan, a policy expert from the Nuffield Trust, indicates that improvements require considerable time. He stated, “What I think we’ve seen, both when waiting times improved before in the ’00s and in some of the cautious improvements we’ve seen elsewhere in the UK, is even once you start to turn things around it takes a really long period of time before the amount of weeks the average person will be waiting is really significantly changing.” In October, Chancellor Rachel Reeves allocated an additional £1bn to the Welsh government for expenditure within this budget. Drakeford commented that this places them in “a different world” following an extended period of financial constraints and elevated inflation. Analysts at Cardiff University suggest this allocation should facilitate an increase in NHS spending without necessitating cuts to other governmental departments. However, the outlook appears less favorable beyond 2026, potentially leading to challenging choices for public services in the near future. The majority of these services are managed by Wales’ 22 local authorities, several of which have expressed serious concerns regarding their financial stability. Councils, which receive most of their funding from Drakeford, are responsible for providing social care, schools, refuse collection, libraries, and swimming pools. Significant shortfalls have emerged in their budgets, and the method by which some will achieve financial equilibrium remains uncertain. Their leadership contends that the NHS cannot be effectively addressed without resolving issues in social care. Conversely, the companies providing care services report insufficient funding to compensate staff with the Real Living Wage, a standard advocated by the Welsh government. Furthermore, these companies will soon face increased National Insurance contributions due to the UK government’s Budget. Drakeford expressed satisfaction that Reeves has provided additional funds for expenditure; however, weekly in the Senedd, opposition members criticize other significant decisions she has made. These include the implementation of means-testing for pensioners receiving the winter fuel payment and the continuation of the two-child benefits cap. The Scottish government has extended an offer of assistance to those impacted. Despite the Welsh government not possessing identical authority over the benefits system as Scotland, it is anticipated to encounter demands for support for citizens grappling with the cost of living. The Welsh government does, however, possess certain taxation powers, encompassing a segment of income tax and the land transaction tax applicable to property purchases. These powers could potentially provide ministers with additional funds for allocation. Numerous businesses experienced an increase in their rates following the previous budget. Nevertheless, raising income tax would constitute a momentous decision. The Welsh income tax rates have remained unaltered since their devolution in 2019. Given that Labour holds fewer than half of the seats in the Senedd, the party cannot enact this budget unless it secures the support of at least one member from another party in a pivotal vote scheduled for next year. Significant behind-the-scenes negotiation and bargaining are anticipated, if not already underway. Morgan has intensified the pressure, issuing a stark warning regarding the financial losses Wales would incur should her budget not pass. A failure to secure votes could also result in a reduction of 10p from every £1 of income tax, thereby stripping the Welsh government of vital funds. While this prospect might appeal to some, it would signify a political and financial crisis for the Senedd, and it is challenging to envision a government enduring such an outcome. Drakeford asserts that the preliminary version of his budget will present a “bright future for Wales.” The Welsh Conservatives stated that social care required increased funding, as did the NHS, which they described as “at crisis point.” Peter Fox, the Tory shadow finance minister, additionally advocated for a “root and branch review so that taxpayers’ money is well-spent and efficiently allocated.” The endorsement of Jane Dodds, the sole Member of the Senedd for the Welsh Liberal Democrats, would suffice to ensure the budget’s passage. Her spokesperson indicated her desire for greater investment in social care, child poverty initiatives, and rural development. The preceding three budgets were approved through a co-operation agreement with Plaid Cymru, an arrangement that has since concluded. Plaid finance spokesperson Heledd Fychan urged the first minister to “fight for a fair deal” from Keir Starmer’s UK government. She added, “If she fails, then Labour’s budget will mean more cuts and NHS funding that delivers ever-diminishing returns.”