Welsh government outlines draft Budget 2026-27

Draft Budget overview

The total funding available to Wales for 2026-27 stands at £27.6 billion, with 98.6% allocated in this draft Budget. Of this, £21.9 billion comes from the UK government’s block grant, including £18.3 billion for day-to-day spending and £3.6 billion for investment. Devolved taxation now accounts for around 20% of the revenue available to the Senedd, or £5.5 billion.

Mark Drakeford, Welsh Cabinet Secretary for Finance and Welsh Language, highlighted the impact of fiscal devolution, saying: “The Budget… has nearly £500 million more in it for investment in our public services next year than would have been the case had we not had tax devolution…None of that £500 million is accidental, it reflects decisions made here in the Senedd.”

Welsh Rates of Income Tax

The minister said that Welsh rates of income tax are expected to raise £3.9 billion in 2026-27. He confirmed that he would leave rates unchanged, adding that: “The vast bulk of income tax payers in Wales have incomes that qualify for the standard rate only”. He highlighted that a separate vote will be held on this proposal, and if the Senedd does not approve the proposed Welsh rates of income tax, then expenditure would have to be reduced by nearly £4 billion.

Land Transaction Tax (LTT)

LTT is forecast to raise £401 million in 2026-27. The threshold at which LTT becomes payable is £225,000, above the average property price in Wales (£217,000) and well above the average for first-time buyers (£188,000). The minister added: “Some six out of ten transactions for a main home in Wales pay no tax at all. I intend to continue with the progressive pattern we have established since taking responsibility for this tax. In this draft budget, the rates remain the same.”

Two changes are proposed to the multiple dwellings relief regime: a new equalisation rule, which will improve ‘fairness’ for taxpayers who purchase more than one dwelling in the same transaction, or in linked transactions, and an increase in the current minimum rate for the relief from 1% to 3%. 

The minister stated: “I will also introduce a new refund of the higher residential rates of LTT, where a taxpayer buys a dwelling and then leases it to a local authority through the Leasing Scheme Wales.”

Landfill Disposals Tax (LDT)

LDT is forecast to raise £34 million in 2026-27. The Welsh government intend to increase the standard rate of LDT for that year by the forecast retail price index, and to maintain the lower rate on the unauthorised disposals rate at 5% and 150% of the standard rate, respectively. The monetary value of these rates will be confirmed based on the updated forecast to be published alongside the UK Budget on 26 November.

In regard to consultation on the reform of landfill tax in England, the minister said that if the UK government amends its approach to this area of taxation: “Should it be necessary, I will not hesitate to protect our own system in Wales against waste unnecessarily crossing the border, and to ensure our tax continues to contribute to our environmental and circular economy goals.”

Non-Domestic rates

The draft Budget maintains revenues from non-domestic rates in real terms but does not include further funding to extend the retail, leisure and hospitality rates relief scheme. “The Chancellor announced her intention to bring this temporary scheme to an end in England from April of next year,” explained the minister, “and the consequential funding that has supported the scheme in Wales will therefore also end at that point.”

Reaction and debate

Conservatives: Conservative Senedd members (MS’s), including Sam Rowland and Gareth Davies, criticised the Welsh Labour government's approach to economic growth and taxation, with Davies saying, “[i]f the current state of our economy is anything to go by, then the next government can't come soon enough, because the people of Wales are paying more and getting less”.

They outlined their party’s proposals, including abolishing LTT for primary residences, cutting the basic rate of income tax by 1p, scrapping business rates for small businesses and axing the ‘tourism tax’ before its introduction. Davies claimed that: “These are practical, low-tax, pro-growth, pro-family measures that would actually make a difference to people's lives”.

Rowlands added: “We also want the Welsh Government to call on a UK Labour government to drop the increase to employers' national insurance contributions and to reverse inheritance tax changes, both of which adversely impact Welsh family firms and Welsh family farms”.

Liberal Democrats: Jane Dodds’ response focused on social care funding, saying that the previous weekend, the Welsh Liberal Democrats had set out “a bold plan to tackle the social crisis head on, funded by a modest one penny rise in income tax”. “A penny for social care isn't about taxing more,” she said, “it's about caring more.” Dodds argued that over 70% of local authority budgets are “eaten up” by rising demand in social care, childcare and education, quoting the WLGA warning that Welsh councils face a 7% funding shortfall—a gap that cannot be closed without cutting services, making job losses or raising council tax, she suggested. 

Plaid Cymru: Heledd Fychan raised concerns about the impact of the settlement on local government, saying: “Even passing this budget as it is will create huge problems. We've heard local government telling us about increases that would be required in terms of council tax of 20 per cent, and thousands of jobs lost.” She asked the minister whether further discussion has been had with the UK government in relation to national insurance, highlighting that it takes a ‘substantial’ part of the Welsh Budget.

Labour: A number of Labour members, including Lesley Griffiths, Mike Hedges, Julie Morgan and Lee Waters, also contributed to the debate. Hedges suggested that if the government cut land transaction tax, “the only thing you do is increase house prices”, while Morgan asked if the minister could confirm that six out of 10 properties in Wales remain below the threshold for land transaction tax. She argued that in Cardiff, houses have higher prices.

Waters welcomed the measures, particularly changing the way non-domestic rates are set to help small retail shops, however he stated that, “unless it [the Budget] is passed, none of it will apply, and we will all have to explain to our constituents, when we knock on their doors in the next six months, why we have failed to be grown-ups”.

The minister's response

On Fychan's question, Drakeford reaffirmed that the government continue to have discussions on national insurance contributions with the UK government. He added, “We have certainty of the level of contribution that the UK Government has made in relation to NSI. That does continue into next year. That's why I'm able to put it into the draft budget”.

In regard to Morgan’s point on LTT, he explained that LTT rates have gone up and down at different points under different governments. When LTT rates come down, house prices go up, he said, continuing: “It's sellers, not buyers, who benefit, because, when there is more money in people's pockets, the price of the house goes up”.

Drakeford also challenged the cost of Conservative proposals, claiming that if their proposals were to be put through, people in Wales would end up “getting an awful lot less”. He itemised the proposals: “Abolition of LTT, £401 million; a 1p reduction in income tax, £299 million; scrapping business rates, probably £1.2 billion—a £2 billion reduction in the income available to the Senedd that could only possibly be accommodated by very significant cuts in the things that we do.”

Next Steps

The draft Budget will be subject to further scrutiny and debate in the Senedd, in particular, the Finance Committee, with detailed spending decisions to be published on 3 November. Wales has a two-stage Budget process. Stage 1 is the outline draft Budget. This will set out the Welsh government’s high level strategic fiscal proposals for expenditure and financing. It will also provide details on how the Welsh government is utilising its fiscal responsibilities for devolved taxation and borrowing. Stage 2 is the detailed draft Budget. This will set out individual portfolio spending plans, including the Budget Expenditure Line details.

You can read the full debate here.

Mark Drakeford's written statement of the draft Budget can also be found here.