Mark Drakeford announced the Welsh Government’s draft budget for 2025-6 this week, saying it included £1.5bn extra that can be spent in Wales. He described this as the start of a “brighter” future, speaking of investment in the NHS, saying “thousands” more patients would be seen for treatment in the health service, families whose children need additional learning support would get it, and councils could breathe a sigh of relief after years of austerity.
Both Mr Drakeford, the finance minister, and First Minister Eluned Morgan have boasted of how every government department will see increases in its spending in the upcoming year – if the Senedd backs the budget.
However, a leading Welsh finance expert has said that the actual spending increases may be “more modest than on first appearance”. Mr Ifan explains how this was always going to be a “big” budget as a result of UK Labour chancellor Rachel Reeves’ announcement in October that there would be £1.7bn more money for Wales. The Welsh Government had said on the day the draft budget was released that £1.5bn of that would be for the 2025-26 year. But, Mr Ifan says because the 2024-25 draft budget changed so much, actually, there is £557m of day-to-day spending not included in the baseline figures and if it were included, it essentially means there has been no real terms growth in the day-to-day budget from 2024-25.
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In a Wales Governance Centre blog, Mr Ifan writes: “The budget allocates an additional £1.5 billion in resource and capital spending in 2025-26 compared to 2024-25 – a transformative picture compared to what would have occurred under both main party manifesto plans from the summer.
“However, the front-loaded nature of the additional funding from the UK government means much of the increase in spending happens in this current year (2024-25). As a result, eventual spending increases in next year’s budget (2025-26) may be more modest than on first appearance. This blog provides some initial thoughts on the budget plans.”
He explains: “Welsh Government draft budgets set new plans for the forthcoming year, compared against Final Budget plans for the current year (set back in February), and don’t account for in-year funding and transfers.
“Usually, this doesn’t matter too much in practice. However, the 2024-25 budget is a completely different beast from that envisaged in February, with funding for day-to-day spending increasing by an estimated £1.2 billion from the time those final budget plans were laid out”.
He continues: “We estimate that there will be approximately an additional £557 million of day-to-day spending not included in that 2024-25 baseline. If it were included, then spending would increase by a more modest £517 million from 2024-25 to 2025-26. This would essentially mean no real terms growth in the size of the day-to-day budget from 2024-25 to 2025-26.”
He admits that to those working out what they can spend next year, it doesn’t particularly change things but it does making scrutinising the figures harder because “the stated growth in 2025-26 spending plans are likely to be overstated” and that “several [other] funding announcements have been made for 2024-25 over recent weeks that are not fully reflected in the revised 2024-25 baseline”.
In concluding his comments, which he admits come with several caveats and are “inevitably nerdy and technical”, he says: “This analysis implies that the Welsh Government has prioritised front-line services, increasing the NHS and local authority budgets significantly.
“However, despite the large increase to the Welsh Government’s settlement in 2024-25 and 2025-26 announced at the UK’s Autumn Budget, the additional funding doesn’t appear to have left enough to avoid some real terms cuts in some spending areas. (A more detailed analysis of spending plans will be a job for another day.)
“But this might be a sign of things to come. The UK government has pencilled in much tighter spending plans beyond 2025-26, which, if they are to be believed, would imply a difficult Spending Review to be published in the summer.
“After this year’s ‘big’ budget, next year’s budget round promises to be more difficult, and might feel like a return to austerity for some public services.”
Since the budget, councils have voiced their concerns about the reality of what a 4.3% uplift in council finances actually means. For a start, that is an average, and when figures were announced for individual councils the day after the budget, some received considerably less, and others more. You can read more here. Councils say that even that uplift will not plug the budget gap they have. In total, Wales’ 22 councils are looking at a £560m gap, that figure will help fill less than half of that. The rest will have to be met by authorities themselves, with some warning it will lead to council tax rises. For our free daily briefing on the biggest issues facing the nation, sign up to the Wales Matters newsletter here
The Welsh Local Government Association has estimated there is a £559m funding gap, caused in part by growing social care and schools costs, and would need a 7% increase in cash.
Flintshire’s Labour council leader Dave Hughes told BBC Wales he was a “little disappointed” to say the least with the council’s 3.3% rise and “the threat of bankruptcy is always there”.
Plaid’s four council leaders have written to the Welsh Government saying: “The gaping hole in Mark Drakeford’s budget has left Welsh councils on the edge of a precipice, and our public services face an existential crisis without an immediate re-think.
“Put simply, the size of the pie must be bigger.”
In comments released via the Welsh Local Government Association after funding for councils was announced on Wednesday, December 11, Darren Price the Plaid Cymru WLGA group leader said: “Local government has been clear of the perilous financial outlook for local services. The average 4.3% increase announced for next year by Welsh Government clearly falls short of meeting the 7% pressure on council budgets.
“Unless the Welsh Government increases the funding being made available to local councils in the final budget, councils across Wales will have to make further cuts to services and significant increases in council tax in order to balance the books.”