The Welsh Government’s draft budget for 2026/27, unveiled on October 14, 2025, has set the stage for one of the most dramatic fiscal showdowns in recent memory. With £27 billion on the table and billions for public services hanging in the balance, political leaders, business groups, and public sector advocates are bracing for weeks of tense negotiations that could determine the future of everything from schools and hospitals to local councils and high street shops across Wales.
Finance Secretary Mark Drakeford, addressing the Senedd, did not mince words about the stakes. He warned that failure to pass the budget would force him to propose cuts of between £6 billion and £7 billion, threatening thousands of jobs and potentially gutting core public services. "The weeks ahead must culminate in the passing of a budget… every member here will have a part to play, every political party a responsibility," Drakeford told legislators, according to BBC Wales.
Labour, which leads the Welsh Government, finds itself in a precarious position. The party needs support from at least one opposition Senedd member—and possibly two, depending on the outcome of the Caerphilly by-election on October 23—to pass its spending plans. Without a deal, Wales risks reverting to emergency funding measures: just 75% of last year’s budget if deadlock continues past April, and 95% if no agreement is reached by the end of July. Last year, experts estimated that such a scenario could cost Wales up to £4 billion, impacting not only public services but also directly funded bodies like the Senedd commission and the Wales Audit Office, as reported by WalesOnline.
To sweeten the deal, Drakeford has put forward £380 million to find “common priorities” with opposition parties. He’s also promised a funding floor so that no council receives less than a 2.3% increase, aiming to shield local authorities from the worst of any cuts. The draft budget adds an extra £800 million compared to last year, but as Labour’s Mike Hedges pointed out, a planned 2-3% increase would actually translate to a real-terms cut once inflation is taken into account. Hedges described the potential consequences as "catastrophic," warning that even Senedd politicians’ salaries could be affected if the budget fails.
The opposition, meanwhile, is flexing its muscles. The Conservative Party has offered to enter talks, but only if ministers agree to scrap the land transaction tax—the Welsh equivalent of stamp duty—which is forecast to raise £401 million next year. During the October 14 debate, Tory shadow finance secretary Sam Rowlands reiterated that "our door is open," but made clear that meaningful concessions would be needed. Eluned Morgan, the First Minister, welcomed the overture, telling opposition leader Darren Millar, "I am very pleased that you’ve written to me today – this demonstrates grown up politics…. our door is open."
Plaid Cymru, whose support was crucial for passing budgets in recent years until their formal agreement with Labour collapsed in 2024, is adopting a cautious approach. Shadow finance secretary Heledd Fychan has raised the alarm about the impact on local government, warning of possible council tax hikes of up to 20% and thousands of job losses if the budget passes as currently drafted. "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," Fychan told the Senedd.
Jane Dodds, leader of the Welsh Liberal Democrats and the party’s sole Senedd member, has again positioned herself as a potential kingmaker. She struck a deal worth about £100 million with ministers to pass last year’s budget and signaled her willingness to work with any party to find a constructive way forward. "I am prepared and willing to work with any party to find a constructive way forward with this budget as I did last year. We need to be ambitious," Dodds said.
Beyond the political wrangling, business leaders—especially from the embattled retail sector—are watching developments with mounting anxiety. The Welsh Retail Consortium (WRC) has called on ministers to avoid new cost pressures, arguing that any increase in business rates would hit both investment and prices for consumers. Sara Jones, head of the WRC, emphasized that stores have already faced sharp rises in 2025 operating costs from labor, payroll, and new packaging rules. She argued that a meaningful rates cut would support jobs and keep prices stable, stating, "A guarantee that no shop pays more would prevent cost shunting across the sector as differential multipliers are introduced."
Currently, the government offers a 40% discount on eligible non-domestic rates bills for 2025–26, capped per business. Ministers have also consulted on introducing a lower multiplier for small and medium-sized shops and a higher rate for larger properties—a move intended to rebalance the system but one that, according to industry groups, could create "winners and losers." Retailers warn that any new fiscal burdens are likely to be passed on to households, especially as the UK’s extended producer responsibility regime and increased Plastic Packaging Tax have already pushed up compliance costs this year.
Retailers are not alone in their concerns. Wider cost pressures—including higher wages, national insurance, and packaging taxes—have added an estimated £2.3 billion to UK retailers’ costs since April 2025, according to the British Retail Consortium. The WRC and other business groups are urging the government to prioritize high streets by keeping business rates stable or lower, maintaining targeted relief, and ensuring medium and large stores are not penalized by a higher multiplier.
Drakeford, for his part, has tried to reassure both business and public sector leaders that the draft budget is only the beginning of the process, not the end. He’s promised that details on planned business rates cuts for bricks-and-mortar shops will be revealed in January’s final budget. He also painted a vivid picture of what’s at stake, telling the Senedd: "These are people’s pay packets; they are the accounts of local businesses; the free school meals and teaching materials in our schools; the new trains on our railways and homes in our communities. They are the thousands of childcare placements which look after our children; the new roof on an art gallery; the prescriptions taken every day and the new life-saving medicines."
As the Senedd prepares to scrutinize the draft budget and proposals on non-domestic rates, all eyes are on the negotiations that will unfold in the coming weeks. The government’s ability to forge consensus—whether with Plaid Cymru, the Conservatives, independents, or the Liberal Democrats—will determine not just the fate of the budget, but the future of public services and the economic health of Wales as a whole. Drakeford closed his remarks with an urgent plea: "We must work together to secure a final budget which can be passed…. It is our responsibility as elected members to secure the best possible budget for public services in Wales. To that end, I urge all members to engage with me in discussions over the coming weeks so this draft budget can lead to a final set of proposals which can be passed."
The weeks ahead promise high drama, hard bargaining, and, if consensus can be reached, a budget that might just steer Wales through turbulent times.
