Daniel DaviesWales political correspondent and
David DeansPolitical reporter, BBC Wales News
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, outlining how much could be spent on services from hospitals to bin collections.
But it cannot pass a budget alone because it does not have enough Senedd members to win crucial votes.
The Conservatives have offered to hold talks on a deal that would scrap a tax paid when buying a home.
‘Deal possible'
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.
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.
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.
Minority government
‘Mass redundancies'
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.
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.
Labour's options
The Tories have been seen as unlikely budget partners for Labour, but Millar wrote to Morgan on Tuesday offering talks as a “responsible opposition”.
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”.
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.
Full list of candidates
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.
