The Welsh Government published its Draft Budget for 2025-26 on 10 December 2024, described as providing “optimism about a brighter future”. Earlier this month we published a summary of the key allocations by government department and the changes from last year. The draft budget allocates £25.8bn in revenue and capital DEL, an increase of £1.7bn or 7% compared to 2024-25.
Ahead of Senedd Committees publishing their reports and the debate on the Draft Budget on 4 February, this article sets out five things we’ve learnt during scrutiny.
1. Funding for local government better than expected but pressures remain in social care and education
The Draft Budget increases core revenue funding for local government by £253m, or 4.3 percent on a like-for-like basis compared to 2024-25. The uplift is better than expected at the beginning of the year but the Welsh Government acknowledges that difficult decisions remain.
The Welsh Local Government Association (WLGA) welcomed the uplift but noted:
..this settlement will be a difficult pill for many authorities to swallow. The demand on services such as social care, education, and housing are ever-increasing.
The WLGA cited the continued growth and complexity both in adult and children social care as “an extreme budget pressure”.
Meanwhile, schools are facing financial pressures related to pay and the increasing demand for additional learning needs services.
While funding might be better than expected going into 2026-27, Wales Fiscal Analysis expects UK Government spending plans to be “much tighter” in coming years. The Welsh Government’s Chief Economist estimates discretionary resource expenditure will increase “at a rate of just under 1% a year in real terms”.
2. The increases in employer National Insurance contributions are causing concern
The Cabinet Secretary for Housing and Local Government says HM Treasury has confirmed it will provide additional funding in the first half of 2025-26 to the Welsh Government to reflect the impact of the increased employers’ National Insurance Contributions (NICs) for public sector staff, following changes by the UK Government to employer NICs. The annual impact of these changes is estimated to be £253m.
The NHS Confederation told the Finance Committee the NIC change would have a “a huge knock-on effect for front-line services”. The Welsh Local Government Association (WLGA) noted the potential “additional burden” of the changes on the provision of local services operated by the private sector.
The Cabinet Secretary said currently it’s proposed Wales will get a Barnett share of the costs of the increase for England (which would be based on the actual cost to the public sector there). Something he says “would not be the right way in which to cover the costs of public sector employers” and “fundamentally unfair”.
Voluntary sector organisations have called on the Welsh Government to mitigate the impact of the extra costs they will face as a result of the NIC change, as the UK Government won’t be reimbursing their costs in the way they will for the public sector. Wales Council for Voluntary Action (WCVA) talked about the impact on the third sector, stating:
… 65% of organisations we surveyed very or moderately concerned about their ability to afford the rise. 21% told us they are considering reducing service delivery and 14% said they are considering service closure as a result of the increase of NICs…
3. It’s the sixth year in a row the budget protocol hasn’t been followed, leaving less time for scrutiny
For the past six years (including this year), the Welsh Government has published its Draft Budget too late to allow for the normal scrutiny procedure, as set out in the Budget Process Protocol.
This year, the Welsh Government noted a lack of clarity “regarding the date of the fiscal event in which we will learn the precise details of our budget settlement for the 2025-26 budget year” as the reason for the truncated timetable. The UK Government’s Autumn Budget 2024 happened on 30 October.
In June 2024, the Chair of the Finance Committee wrote to the then Cabinet Secretary for Finance, Constitution and the Cabinet Office, Rebecca Evans MS highlighting calls from Senedd Committees for more time to scrutinise the Draft Budget, noting shortened timescales made it “extremely challenging” to meaningfully assess its impact.
The timetable for publication of the Draft Budget was not amended, with the Draft Budget published on 10 December.
During scrutiny the current Cabinet Secretary for Finance and Welsh Language, Mark Drakeford MS, noted the new UK Government’s plans will “institutionalise” the timetable difficulties that the protocol has experienced, which means the issue of the shortened amount of time available for scrutiny may be ongoing. Changes to the protocol are currently being considered by the Finance Committee as a result of the experiences in the Sixth Senedd.
4. Revised baselines make scrutiny more difficult
The 2025-26 Draft Budget compares financial allocations against a revised baseline for 2024-25.
This is a different approach to previous years. The baseline for comparison has been adjusted to account for larger-than budgeted for pay deals in 2024-25 and increased pension costs for public sector employers, for which funding consequentials have now been received from the UK Government. A number of other changes have also been made to this baseline comparison. Without making such adjustments, year-on-year increases would have appeared significantly higher.
Wales Fiscal Analysis stated the “baseline issues make scrutiny of these spending plans more difficult than usual” and that it was “difficult this year to get a proper sense of how total spending is changing”. The Institute for Fiscal Studies also labelled the Welsh Government’s presentation of the budget as “far from ideal” and was not “as transparent as it could have been” as all the changes are not presented in the same place..
5. Concerns that preventative spend hasn’t been given high enough priority
The importance of preventative spend was noted by the Cabinet Secretary as a principle for prioritising funding in the Draft Budget and it’s something Senedd committees have considered over a number of years.
The Cabinet Secretary told the Finance Committee that he could describe “almost everything the Welsh Government does as being preventative in one way or another”. He said the Welsh Government is keen to “move money in a preventative direction” but “it's sometimes a harder concept to use in practice than it is from the headline idea”.
However, the WCVA found prevention isn’t mentioned in this year’s Draft Budget as many times as previously. The WCVA added this might suggest the Draft Budget is more about “addressing the challenges right now”. Similarly, the Welsh NHS Confederation reflected that “there’s very much a focus on firefighting” within the Draft Budget and there was a need to change towards “a much bigger focus on prevention”.
What’s next?
Today (3 February 2025) is the deadline for the Senedd Finance and Policy Committees to publish their reports on the Draft Budget.
The Welsh Government’s Draft Budget 2025-26 will be debated in Plenary on 4 February 2025 and will be available to watch live on Senedd TV.
The Welsh Government will publish its Final Budget 2025-26 on 25 February 2025.. Our recent article sets out information about what happens if the budget is not voted through. For more information on specific allocations in the Draft Budget 2025-26, see our interactive tool.
Article by Božo Lugonja, Senedd Research, Welsh Parliament
