On October 14, 2025, the Welsh Government unveiled its draft £27 billion budget for the 2026-27 financial year, setting the stage for a tense and high-stakes political showdown in Cardiff Bay. Finance Secretary Mark Drakeford, in what is expected to be his ninth and final budget as either finance secretary or first minister, presented a spending plan that promises modest increases for public services but leaves the fate of billions hanging in the balance as political arithmetic and looming by-elections threaten to upend the process.
Drakeford’s draft budget includes an extra £800 million compared to last year’s plans, with every government department set to receive an approximate 2% increase in funding. According to the BBC, health and social care are earmarked for the largest slice—about £13 billion—while housing and local government are to receive nearly £7 billion. The document, described by Drakeford as “just the start,” also leaves £380 million unallocated, a sum specifically held back for negotiations with opposition parties who could make or break the government’s spending ambitions.
But Labour, which currently holds exactly half of the Senedd’s 60 seats following the death of Caerphilly Member of the Senedd (MS) Hefin David, finds itself unable to pass the budget alone. The outcome of the Caerphilly by-election, scheduled for October 23, could tip the scales. If Labour loses the seat, its already precarious position becomes even more fragile, making the support of opposition MSs not just desirable but essential.
“My door remains firmly open to working with other political parties in the Senedd who share my conviction that we have a collective responsibility to pass the Welsh budget and believe a more ambitious budget could be agreed,” Drakeford said, as reported by the Caerphilly Observer. He emphasized his intention to minimize political wrangling and avoid tying the hands of the next Welsh Government, with a general election looming in May 2026.
The draft budget, which allocates 98.6% of available funds, leaves that crucial £380 million as a bargaining chip. The Welsh Conservatives, led by Darren Millar, have seized the moment to offer talks, but with a major caveat: they want the government to scrap the land transaction tax—Wales’ version of stamp duty—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,” Millar told BBC Radio Wales Breakfast.
Plaid Cymru, which has previously helped Labour pass budgets before their cooperation agreement collapsed in 2024, has not ruled out talks. However, party leader Rhun ap Iorwerth has signaled reluctance, especially with an election on the horizon. “It’s Labour’s budget,” he stated, while Plaid’s finance spokesperson Heledd Fychan criticized Labour for “clearly run out of steam... they're not putting forward a budget that shows ambition for Wales.”
Liberal Democrat Jane Dodds, whose single vote was pivotal last year after a £100 million deal with Labour, may not be enough this time unless Labour holds Caerphilly. A spokesperson for Dodds commented, “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.”
The stakes could hardly be higher. If the budget is not passed by the start of the new financial year in April 2026, the government would be forced to operate on just 75% of the current 2024-25 budget, a constraint that would impact everything from hospitals to bin collections. The spending cap would rise to 95% if a deal is still not reached by the end of July. First Minister Eluned Morgan has warned that such a scenario would require “big cuts, leading to mass redundancies” in the public sector, a prospect that has public service leaders and unions on edge.
David Phillips, a financial expert from the Institute of Fiscal Studies, offered a sobering assessment. He warned of the dangers of a budget that rises in line with inflation when costs are escalating at different rates across services. “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,” Phillips told the BBC. He speculated that Drakeford’s “inflation only” draft might be a negotiating tactic to force other parties to share responsibility for tough decisions, especially in health funding.
The parliamentary arithmetic is daunting. Labour needs at least one, and likely two, opposition MSs to support the budget. The Conservatives and Plaid Cymru both voted against last year’s budget, while Reform UK, which gained a seat after Laura Ann Jones’ defection, has stated it won’t support a budget that continues to fund the Nation of Sanctuary policy. Independents Rhys ab Owen and Russell George, as well as the lone UKIP and Green MSs, could also play kingmaker roles—though their support is far from assured.
The full list of Caerphilly by-election candidates includes representatives from the Liberal Democrats, Gwlad, Wales Green Party, Conservatives, Reform UK, UKIP, Labour, and Plaid Cymru. The outcome of this contest could be decisive for the budget’s fate, and BBC Wales is even hosting a live debate for the candidates on October 15, underscoring the contest’s significance.
Meanwhile, a more detailed breakdown of the Welsh budget will be published on November 3, 2025, followed by weeks of intense lobbying and scrutiny in the Senedd. Chancellor Rachel Reeves is set to announce the UK’s autumn budget on November 26, which will determine the bulk of Welsh Government funding. The final Welsh budget is due to be published on January 20, 2026, with a crucial vote in the Senedd scheduled for January 27. If the budget fails to pass at that stage, the government could attempt another vote later in the financial year.
Amid the uncertainty, Drakeford is determined to steer his final budget through the Senedd, even as he acknowledges the likelihood of significant changes before a final deal is struck. Eluned Morgan, the current first minister, expects the budget that eventually emerges in spring 2026 to be “very different” from the outline published this week.
As the political drama unfolds, the future of Welsh public services—and the livelihoods of thousands who depend on them—hangs in the balance. The next few months promise to test the resolve, creativity, and ability of Wales’s political leaders to work together for the common good, with the eyes of the nation—and many anxious public servants—watching every move.
