June was a busy month for budget lovers with the Welsh Government publishing its First Supplementary Budget 2025-26 on 17 June 2025, less than a week after the UK Government’s Spending Review 2025.
This article sets out the changes to Welsh financing and allocations since the Final Budget 2025-26, which the Senedd approved on 4 March 2025.
Welsh Government financing increases by almost £600m or 2.1% compared with the Final Budget 2025-26
The First Supplementary Budget 2025-26 shows, overall, Welsh Government financing increases by almost £600m to £29.5bn, an increase of 2.1% on the Final Budget 2025-26.
Around £557m of the increase relates to changes in allocations from the UK Government, including those in its Main Estimates (May 2025) and Spending Review 2025. It also includes transfers to the Welsh Government from UK Government departments and adjustments to funding allocations to correct “previous errors”.
£188.2m of the £557m increase relates to non-fiscal resource (or ‘revenue’) allocations. These are sometimes referred to as ‘non-cash’ and are for student loans and depreciation. The Welsh Government is not able to allocate them for its fiscal revenue spending.
The Welsh Government is drawing down £40.0m from the Welsh Consolidated Fund to fund its revenue spending, something it hadn’t planned to do at the time of the Draft Budget 2025-26 (December 2024) and Final Budget 2025-26 (February 2025). It also has £2.4m more to spend since the amount required to repay principal borrowing has reduced since the Final Budget 2025-26.
The Welsh Government is not expecting any changes to Wales devolved financing, with the amounts raised in Non-Domestic Rates and devolved taxes (Welsh Rate of Income Tax, Land Transaction Tax and Landfill Disposals Tax) remaining the same as at the time of the Final Budget 2025-26 (February 2025). Its plans for borrowing are also unchanged (held at the annual capital borrowing limit set out in the Fiscal Framework, £150m).
Funding allocations
Overall, the Welsh Government’s allocations for revenue plus capital (excluding Annually Managed Expenditure or ‘AME’) increase by £404m or 1.6% compared with the Final Budget 2025-26.
Changes between overall allocations in the First Supplementary Budget 2025-26 from the Final Budget 2025-26
Source: Welsh Government First Supplementary Budget 2025-26 and Senedd Research
The total revenue plus capital (excluding AME) allocations for all but one department increase in the First Supplementary Budget 2025-26 compared with the Final Budget 2025-26. The largest increase in value terms is for Health and Social Care (an increase of £263m compared with the Final Budget 2025-26). The total allocation for Climate Change and Rural Affairs decreases by £1m or 0.1% compared to the Final Budget 2025-26.
Changes between the allocations for Main Expenditure Groups in the First Supplementary Budget 2025-26 from the Final Budget 2025-26
Note: Education includes allocation of £261.1m of non-fiscal revenue due to student loans resource budget provision.
Figures are rounded. Refer to the Welsh Government First Supplementary Budget 2025-26 for exact figures.
Source: Welsh Government First Supplementary Budget 2025-26 and Senedd Research
Covering the cost of increased National Insurance Contributions
The Welsh Government has allocated £220m for increased National Insurance Contributions in 2025-26 but this doesn’t meet the full cost, and it may be one-off support for public services for this purpose.
In May 2025, the Cabinet Secretary for Finance and the Welsh Language (the ‘Cabinet Secretary’), Mark Drakeford MS, confirmed the Welsh Government would receive £185m from the UK Government to meet the cost of increased employer National Insurance Contributions (NICs) in 2025-26. He said this fell “significantly short” of the £257m cost for devolved public sector employers in Wales.
Using the funding from the UK Government and £36m from its reserves, the Welsh Government allocates £220m to support public services with the related cost in 2025-26. This equates to 85.7% of the cost (£257m). Public bodies in Wales will need to meet the remaining cost (£36m) from their budgets.
First Supplementary Budget 2025-26: Allocations for increased National Insurance Contributions
Source: Welsh Government First Supplementary Budget 2025-26 and Senedd Research
While the Welsh Government has met half of the shortfall in 2025-26, we don’t know whether it will in future.
On 26 June, the Cabinet Secretary told the Finance Committee reserves were to be used as “one-off money … to respond to emerging issues, not underlying issues, that happen during the year”. He added he would decide, through the 2026-27 budget round, whether the Welsh Government would include the funding for the shortfall (£36m for 2025-26) in its baseline allocations, meaning public bodies would receive it each year going forward. Or it may be provided for 2025-26 only. However, the Cabinet Secretary said he will continue to press the UK Government to meet the full cost of increased employer NICs in Wales, as has been the case in England.
£100m to reduce NHS waiting lists
The Welsh Government also allocates £100m to Health and Social Services. It didn’t provide any further information about this allocation in its budget documentation, but two days after laying its First Supplementary Budget 2025-26, it announced funding of £120m for the NHS to “carry on cutting waiting times”.
The funding announcement came the same day as the latest release of the NHS performance data, which showed an increase in the number of the people waiting more than two years for treatment in April compared with March.
During its scrutiny of the Second Supplementary Budget 2024-25 (March 2025), which allocated £50m to reduce NHS waiting times, the Cabinet Secretary told the Finance Committee:
If the health service can demonstrate that the £50 million has delivered the activity and the outcomes that it said it would, that will give me confidence in providing money next year. If the £50 million hasn't delivered, then there will be a different level of scrutiny on any proposals for next year.
Against the latest NHS performance data, the Finance Committee asked the Cabinet Secretary about the process and scrutiny he had undertaken regarding this latest funding allocation to reduce NHS waiting times.
The Cabinet Secretary described the process and confirmed the Local Health Boards had delivered what they said they would for the £50m allocated in 2024-25.
What revenue funding has the Welsh Government left to allocate?
Following the First Supplementary Budget 2025-26, the Welsh Government has an unallocated fiscal revenue reserve of £1.8m. However, this is not the only tool at the Welsh Government’s disposal.
The Cabinet Secretary told the Finance Committee the Welsh Government has a “working figure of around £250m revenue” in the Wales Reserve following the First Supplementary Budget 2025-26, which he described as “adequate” for it to manage through the year.
The Fiscal Framework (2016) limits the Welsh Government’s annual draw down from the Wales Reserve to £125m for revenue and £50 million for capital. However, the UK Government has waived the drawdown limits for 2025-26. While this provides the Welsh Government with flexibility for the current year, the Cabinet Secretary told the Finance Committee the Welsh Government would “continue to work with the UK Government to secure further fiscal flexibilities”.
What’s next?
The Welsh Government’s First Supplementary Budget 2025-26 will be debated in Plenary on 8 July 2025 and will be available to watch live on Senedd TV.
Article by Joanne McCarthy and Božo Lugonja, Senedd Research, Welsh Parliament.
