Spending cuts loom if Drakeford budget falls in Senedd

Public services have been told to expect big cuts if Finance Secretary Mark Drakeford cannot convince political opponents to support his spending plans.

The Labour Welsh government began publishing next year's £27bn budget on Tuesday, but it cannot pass a budget alone because it does not have enough Senedd votes.

The Conservatives have offered to hold talks on a deal that would scrap a tax paid when buying a home.

Senior Labour ministers opened the way for talks with both the Tories and Plaid Cymru on the budget, which outlines how much could be spent on services from hospitals to bin collections.

Drakeford ruled out scrapping the Welsh version of stamp duty altogether but said he was open to amending it.

Both the Tories and Plaid Cymru say they want to avoid automatic cuts which would come about if the Senedd cannot agree a budget, and which the first minister has warned could lead to mass redundancies.

On Tuesday Drakeford released a draft that increases each department's funds by around 2% each.

Those figures are expected to change, with £380m left unallocated and available for discussions with opposition parties about how they might want to spend it.

Drakeford said Tuesday's publication was "just the start" and urged other politicians to work with Labour.

This budget will be inherited by the winner of next year's Senedd election.

Drakeford has said he does not want to tie the hands of the next Welsh government.

He has promised a budget designed to minimise political wrangling.

The result of the Caerphilly by-election this month could make the political arithmetic even more challenging for Labour.

First Minister Eluned Morgan says she expects the budget that finally gets through the Senedd in the spring to be very different from Tuesday's first outline draft.

Welsh Conservative Senedd leader Darren Millar said a budget agreement "may be possible" if the government considered scrapping Wales' version of stamp duty, called land transaction tax, for people buying their main home.

"We want to see changes to the Welsh government's budget and that's why we're saying if they are prepared to have that conversation about scrapping stamp duty then we are prepared to sit down with them and explore whether a deal might be possible," he told BBC Radio Wales Breakfast.

In First Minister's Questions, Morgan said: "When it comes to public services, I am very much open to a conversation."

She praised Millar's "grown up politics", and added: "Let's make sure that we do what is right for the people of Wales and not see a situation where our public sector is crashed."

Mark Drakeford told BBC Wales he would not be able to scrap the Welsh version of stamp duty - land transaction tax - which he said raised £401m and would leave a "big hole in the budget".

"I'm willing to talk to the Welsh Conservatives however about the more nuanced approach to it," he added.

Millar said after the interview: "Scrapping stamp duty on primary residences, rather than all land transaction tax in Wales, is a key ask and will be central to any discussions."

Labour cannot win votes alone, having held exactly half of the seats of the Senedd before the death of Caerphilly's Hefin David.

The party has never won an outright majority in a Senedd election, so has almost always relied on other parties' help to pass budgets.

Last year, the two biggest opposition parties – the Conservatives and Plaid Cymru – voted against the budget.

Drakeford struck a deal with Liberal Democrat MS Jane Dodds to get the budget through.

But her single vote will not be enough if Labour loses the Caerphilly by-election.

On Tuesday, Drakeford allotted money for government departments for 2026-27.

The budget is similar to last year's, with an increase in funding for every department of around 2%.

The government says this reflects the Office for Budget Responsibility's inflation forecast for rising prices.

A detailed breakdown, with spreadsheets showing funding for public services, will follow on 3 November.

Officials say this second set of figures will be different once ministers decide how to spend the £380m in unallocated cash.

Weeks of lobbying and scrutiny will now follow - and in the meantime Chancellor Rachel Reeves will publish her budget for the UK government. Most of the Welsh government's funding comes from her.

A vote on the final Welsh budget is due on 27 January.

If the budget does not pass by the start of the financial year in April the government is only allowed to spend 75% of the current 2024-25 budget.

The first minister has warned that will require big cuts, leading to "mass redundancies" in the public sector.

The spending limit rises to 95% if a budget still has not been passed by the end of July.

Some work to figure out what might happen has gone on behind the scenes.

Officials say ministers would be on shaky ground to move cash from one department to another - meaning they would not be able to provide extra funding for health by taking money from the culture budget, for example.

A government can table a budget vote during the financial year, so it could try again after 1 April.

Millar has gone further than others in offering talks as a "responsible opposition", although the Tories have been seen as an unlikely partner in budget talks.

In a Senedd debate on Tuesday, Finance spokesman Sam Rowlands said: "We too want to avoid unnecessary pain in the services that people in Wales rely on."

Plaid Cymru has not closed the door on talking to the government, but the party's leader, Rhun ap Iorwerth, has said, "it's Labour's budget".

On Tuesday his finance spokesperson Heledd Fychan said Labour had "clearly run out of steam... they're not putting forward a budget that shows ambition for Wales".

But she told the Senedd: "The warnings have been clear, so there is a requirement on us to be mature in our approach to this debate in the coming months."

Drakeford later said Fychan recognised the importance of getting the budget through and said he was "looking forward to having more discussions with her".

A spokesperson for Dodds said she recognised what was at stake for public services.

"That means Jane is ready to listen and work with other parties, something that neither the Conservatives nor Plaid Cymru were willing to do in the last budget," they said.

Reform, which has one MS after the defection of Laura Ann Jones, said it would not support a budget that continues to fund the Nation of Sanctuary policy.

A financial expert at the Institute of Fiscal Studies warned of the dangers of a budget which goes up by a set rate of inflation, when costs are rising at different rates in different services.

David Phillips said if this was not changed by the final budget the Senedd would need to quickly update it, otherwise NHS organisations and councils "may feel the need to cut services and jobs".

He added that it was possible that Drakeford aimed to use an "inflation only" draft budget "to help negotiate a more realistic final budget – and hence have the other parties in the Senedd take some of the responsibility for the tricky decisions needed to find sufficient money for the health service".

Health will get the largest allocation of £12.4bn, while housing and local government gets £5.6bn.

The budget proposes no changes to the Welsh rates of income tax - the Welsh government has control of 10p in the pound collected - or to the rates or thresholds of the Welsh version of stamp duty.

Meanwhile Drakeford said he planned to introduce a lower level of business rates for small to medium size retailers, details of which would be announced after the UK government budget due on 26 November.

The full list of candidates for the Caerphilly by-election are:

• Liberal Democrats: Steve Aicheler
• Gwlad: Anthony Cook
• Greens: Gareth Hughes
• Conservatives: Gareth Potter
• Reform: Llyr Powell
• UKIP: Roger Quilliam
• Labour: Richard Tunnicliffe
• Plaid Cymru: Lindsay Whittle

You can find out more about the candidates here.

BBC Wales is holding a live debate for the candidates of the Caerphilly by-election on 15 October. Click below to apply to be in the audience.