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The recent Budget unveiled by Chancellor Rachel Reeves will provide Wales with an additional £505 million over the next four years. This funding boost forms part of a broader tax and spending strategy that includes the abolition of the two-child benefit cap and a series of planned tax increases in forthcoming years. Alongside these financial measures, Welsh ministers will gain greater borrowing powers to support public services. Despite these changes, the income tax thresholds for taxpayers will remain frozen until April 2031.
Welsh political lines responded sharply to the Budget announcement. While First Minister Eluned Morgan expressed optimism, stating the plans “will help people right across Wales,” Plaid Cymru criticized the extra funds as “tiny” compared to those granted in prior budgets. The Conservative Party condemned the government for what they described as a “tax bombshell.” Meanwhile, the think tank Reform pointed out that the Budget’s tax increases would push rates to levels not seen since the post-World War Two period.
The Welsh government is currently negotiating with opposition parties in Cardiff to finalize its spending plans for the upcoming year. The UK government confirmed that £320 million of the new funds will be allocated for day-to-day services, and £185 million designated for infrastructure projects. Nonetheless, the precise annual distribution of this additional budget remains unclear. The £505 million represents a modest rise against the existing £27 billion budget that the Welsh administration manages to finance key sectors such as health, education, and local councils. Plaid Cymru highlighted concerns about a decline in capital funding for infrastructure and pressed the UK government for clarity on whether the additional £185 million would halt this trend.
The Treasury announced reforms enabling the Welsh government more flexibility in managing their finances, including increased borrowing limits and changes to reserve fund regulations, which should collectively provide an estimated extra £425 million in spending capacity. Another significant policy change detailed in the Budget is the removal of the two-child benefit cap starting from April. This move affects more than 21,000 Welsh households receiving universal credit who have a third or subsequent child since the cap’s introduction in 2017. Additionally, the state pension is set to rise by 4.8% from April 2025.
Alongside funding changes, a series of taxation reforms were introduced with implications for people across Wales. National Insurance and income tax thresholds will be frozen for an additional three years beyond 2028, potentially pushing more individuals into higher tax brackets. Limits are also being imposed on cash ISA allowances, restricted to £12,000 annually for under-65s, alongside a £2,000 cap on salary sacrifice pension contributions starting in 2029. The Budget also outlines plans to introduce a mileage-based tax for electric and plug-in hybrid vehicles from 2028. Notably, a planned council tax surcharge targeting high-value homes will not be implemented in Wales.
A particularly contentious component has been the application of inheritance tax on farming assets valued above £1 million. The Farmers’ Union of Wales welcomed a concession allowing the sharing of this threshold between spouses but warned that many farming families may face unaffordable tax liabilities. This issue has drawn criticism from various political figures concerned about the impact on rural communities and agriculture.
Political analysis of the Budget highlights contrasting reactions. Gareth Lewis, BBC Wales’ political editor, notes that the decision to end the two-child benefit cap will be warmly received by Welsh Labour and Plaid Cymru, who view the measure as a meaningful success ahead of the upcoming Senedd elections. He also observes that over 26,000 Welsh children previously ineligible for universal credit will now benefit from the change. However, the Welsh Conservatives argue that taxpayers should not bear the cost of enhanced welfare provisions, suggesting voters share their opposition.
First Minister Eluned Morgan welcomed the Budget’s provisions, saying it “will mean more money in the pocket of people who need it the most, support for energy bills, a raise in the minimum wage and good news for pensioners.” On the other side, Welsh Conservative finance spokesperson Sam Rowlands criticized Labour for breaking its promise not to raise taxes on working people, accusing the government of leaking its Budget and punishing those who sustain the economy. Reform UK Wales echoed strong disapproval, arguing that Labour governments at both the Welsh and UK level have negatively affected Welsh businesses and communities by pushing taxes to historical highs. Liberal Democrat MP David Chadwick condemned the approach to farm taxes, warning that rural areas are being left behind and could suffer severe consequences throughout the agricultural supply chain
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