The Welsh Government published its Outline Draft Budget for 2026-27 on 14 October 2025, followed by a Detailed Budget on 3 November 2025.
The 2026-27 Draft Budget allocates £26.7bn in revenue and capital DEL, an increase of £846m, or 3.3%, compared to 2025-26.
Ahead of Senedd debate on the Draft Budget on 16 December, this article sets out what we’ve learnt during scrutiny.
A “business as usual” approach to setting departmental budgets
In July 2025, the Cabinet Secretary for Finance and Welsh Language, Mark Drakeford MS, told Plenary he was planning a “business-as usual” budget for 2026-27. This meant the Welsh Government would restate the 2025-26 budget allocations in line with “inflation”. It would not focus on new priorities or fresh policies.
The Cabinet Secretary decided not to allocate all funds within the Draft Budget, with £380 million held in reserve. This forms a platform to allow for negotiations with Members and party groups “who believe a more ambitious budget can be agreed”.
The Outline Draft Budget 2026-27 Report noted the approach to allocating funding to departments was to take the 2025-26 Revised Baseline and add:
- an uplift of 2.2% to fiscal resource that is provided for the public sector pay elements within each department.
- a 2% uplift for non-pay fiscal resource, general capital and Financial Transaction capital.
There are also a limited number of other adjustments.
The Welsh Government’s Detailed Draft Budget 2026-27 Report (published on 3 November) was accompanied by the Budget Expenditure Lines (‘BEL’) tables and set out each Cabinet Secretary’s spending plans for the year. The Welsh Government also updated the tables supporting its spending plans, which it published with the Outline Draft Budget 2026-27.
The BEL tables show Cabinet Secretaries have not applied the uplifts used to calculate the total funding for their portfolio across the BELs, with some budgets held at the Revised Baseline 2025-26 in cash terms (which represents a decrease in real terms), while some decrease in cash terms. The Detailed Draft Budget states that “each Cabinet Secretary has made decisions about how the inflationary uplift is being allocated within their portfolios”. The Cabinet Secretary said:
These are initial spending plans. The Draft Budget is the start of the budget process – it is not the end point…
Solving the productivity puzzle
Wales shares the UK’s ‘productivity puzzle’, a term used to describe the slowdown in the UK’s productivity growth since the 2008 and 2009 Global Financial Crisis. Our recent article on productivity looks at what it is and its importance. A prolonged period of slow productivity limits economic growth, tax revenues and public spending.
The Cabinet Secretary explained how the Draft Budget 2026-27 addresses components of productivity, including investing in a skilled workforce, infrastructure and using the Cardiff wider region as an economic agglomeration to drive productivity.
The Welsh Government’s Detailed Draft Budget Report 2026-27 makes specific reference to productivity but solely about the NHS.
During scrutiny of the 2026-27 Draft Budget, the Institute for Fiscal Studies (IFS) told the Finance Committee that improving public sector productivity and outcomes needs to be a key part of improving the overall productivity story for Wales.
Wales Fiscal Analysis compared the Welsh Government’s approach with the Scottish Government’s fiscal sustainability plan, which “talks about efficiency savings, productivity, headcount growth, et cetera”. It said “we haven't really seen that from the Welsh Government”.
Regarding productivity in the private sector, FSB Cymru highlighted that focusing on certain Welsh Government support services that are working could shift the productivity trend in Wales, whilst the Institute for Directors stated that best practice may be getting more “productivity literacy” in amongst business and government.
Does the Draft Budget put enough emphasis on prevention?
During scrutiny of the 2026-27 Draft Budget, the Cabinet Secretary told the Finance Committee “this year’s budget placed a strong emphasis on investment in prevention”. The Cabinet Secretary went on to note investment into homelessness prevention, amongst other areas in 2025-26, is being restated for 2026-27.
During scrutiny of the Draft Budget, the Auditor General for Wales said:
[…]we need to understand…how much are we spending on preventative activity, and then we can start to assess what are we getting for that, what is its impact.
Regarding how a preventative agenda may be measured in outcomes, the Bevan Foundation suggested fewer people using crisis services, such as temporary accommodation and foodbanks, could be used as outcomes for prevention.
The Future Generations Commissioner told the Committee “I think we've got some way to go to improve how we consider prevention in budget decisions”.
Citizen’s Advice Cymru told the Finance Committee it “definitely endorse[s] the language around prevention and the steps that have been taken in this budget and in previous years, but there’s undoubtedly a need to go further”.
How does the UK Autumn Budget affect Wales?
Funding available to the Welsh Government for 2026-27 increased by £237 million following the UK Autumn Budget 2025 (26 November). Of this £186 million is revenue funding and £14 million capital funding, whilst £37 million is as a result of overall positive net impact of devolved taxes being higher than at the time of the draft budget. The Welsh Government will receive over £500 million additional funding over the period to 2029-30 through the operation of the Barnett Formula.
In its response to the UK Autumn Budget 2025, the Welsh Government notes investments in Wales, including the Wylfa power station and AI growth zones, and adds that “£547m is returned to the Welsh Government to deliver a new Local Growth Fund programme”.
The UK Autumn Budget 2025 noted that in 2026-27, the Welsh Government’s annual and cumulative capital borrowing limits, overall Wales Reserve limit and annual drawdown limits will all be increased by 10%. From 2027-28, each of those limits will be uprated annually in line with inflation. The UK Government will also provide a temporary waiver of the Wales Reserve drawdown limits in 2026-27.
The UK Government announced it will extend the freeze to personal tax thresholds (income tax and National Insurance contributions) for three further years, to April 2031. The OBR expects this will raise £23 billion in total by 2030-31.
The UK Budget made changes to UK taxation of income from assets, creating separate tax rates for property income from April 2027, which will apply in England, Wales and Northern Ireland.
The UK Government will engage with the Scottish and Welsh governments to provide them with the ability to set property income rates in line with their current income tax powers in their fiscal frameworks.
More changes to funding and taxation for Wales include National Insurance contributions relating to pension salary sacrifice schemes, removal of two-child limit on Universal Credit and changes to reduce household energy bills.
Impact of inflation and wages
New OBR forecasts of inflation and wage growth are higher than the estimates available when the Welsh Government’s “inflationary” draft budget was set, which reduces the real terms increases in the Draft Budget.
The IFS noted that “…even if all this unallocated money for day-to-day resource spending was put into the NHS, that would still be only roughly in line with the estimates of what you need to just keep things steady”.
The Welsh Local Government Association stated that stripping out demand, the “standstill” pressure is approximately 4% of budgeted expenditure, which would require a 5.4% increase in aggregate external finance.
A budget agreement
On 9 December, the Welsh Government announced a budget agreement with Plaid Cymru. As part of that, an extra £180m funding will be allocated to health and social care and an extra £112.8m to local government. The agreement also outlines that £120m of capital funding will be available to the next Welsh Government.
These changes, along with any other changes made by the Welsh Government outside of the agreement, will be reflected in the Final Budget 2026-27, to be published on 20 January 2025.
What’s next?
Monday (15 December 2025) is the deadline for committees to publish their budget reports, which will be available on the Senedd’s website. The Draft Budget will be debated in Plenary on 16 December and available to watch live on Senedd TV. There will be a vote to note the draft budget; this vote will have no binding effect.
For more information in addition to this article, see our interactive tool on the Draft Budget 2026-27.
Article by Božo Lugonja, Senedd Research, Welsh Parliament
