Welsh Government draft spending plans will leave hard up rural councils again facing a financial squeeze, with an uplift in funding expected to be around 2.5 per cent - far less than is required to ensure services can be maintained and avoid council tax rises.

The Welsh Government unveiled details of the £27bn draft budget on 3 November as ministers face a significant political test to get the spending plans passed by the Senedd.

Finance secretary Mark Drakeford provided an update on the 2026/27 draft budget, which includes an extra £800m, setting out line-by-line allocations for public services.

The former first minister has brought forward a “roll-over” draft budget, broadly rising by about two per cent in line with inflation, in an effort to cut a deal with opposition parties.

The budget will mean the settlement for councils would rise by an average of 2.5 per cent, with a “funding floor” to ensure no local authority receives less than a 2.3 per cent increase.

Last year, amid pleas from rural councils including Powys, Ceredigion, Gwynedd and Pembrokeshire, the Welsh Government introduced a 3.8 per cent funding floor for all councils.

Despite that uplift in last year’s funding, councils still faced significant budget pressures and said the increase was not enough.

The 3.8 per cent funding floor allowed councils to peg a lower council tax increase for residents, but the proposed 2.5 per cent average rise for next year will leave councils facing difficult decisions on services and council tax rises.

An initial settlement last year of 3.6 per cent for Ceredigion County Council was dismissed as “miniscule” by the county’s MS and MP Elin Jones and Ben Lake, with the pair saying the lack of proper funding is “increasingly unsustainable.”

Ceredigion County Council said that last year’s uplift of 3.8 per cent was welcomed but still “falls a long short way of meeting the significant budget pressures” it faced.

The likelihood of a 2.5 per cent or less increase next year will pile pressure on Ceredigion to find more cuts.

Pembrokeshire County Council also welcomed last year’s increase, but has also warned of experiencing significant budgetary challenges that require more money than is currently received from Welsh Government with the council’s draft Medium Term Financial Plan 2025-26 to 2028-29 showed a projected funding gap of between £66.5m and £80.8m.

Gwynedd council warned this year that “we have now reached a point where we cannot squeeze more of it without cutting services that would have a clear and direct impact on the residents of Gwynedd.”

Gwynedd council said a “roll-over budget” for 2026/27 would show “no consideration or recognition towards significant costs facing local government.”

Powys council warned of more ‘difficult decisions’ to be made to balance its budget and said that the “increase will not be sufficient in meeting the severe pressures the council is currently facing due to increased demand for services, price inflation, provider costs and national pay awards.”

The Welsh Local Government Association (WLGA) unveiled its ‘For a Resilient Wales’ manifesto last month ahead of the 2026 Senedd elections in May, and called for a “future-proof, sustainable funding model” to be introduced to avoid “constant fire-fighting” at local authority level.

Laura Doel, national secretary at school leaders’ union NAHT Cymru, said: “Local authorities are predicting a £137m budget shortfall for schools in 2026/27 which is an unthinkable situation when we know that this comes on the back of significant cuts to school budgets, redundancies and scaling back on frontline delivery of education.

“This announcement does not show any significant increase for local government where schools get their core funding from”.

The draft local government settlement, with exact figures for councils, is expected to be published later this month.

The settlement for councils could get worse if the Welsh Government and the Senedd cannot reach a budget agreement, with Labour no longer having the numbers to push through a fresh budget on its own.

Last year’s Welsh Government spending plans were narrowly agreed after ministers struck a deal with Jane Dodds, the leader of the Liberal Democrats in Wales and the party’s sole Senedd member.

But, following Labour’s defeat in the Caerphilly Senedd by-election on 23 October, the Welsh Government needs the support of at least one other Senedd member this year.

Failure to pass the budget by April would result in spending plans automatically reverting to 75 per cent of last year’s – rising to 95 per cent if still not agreed by July.

Prof Drakeford has warned such a scenario could cost Wales up to £7bn, leading to thousands of job losses.

Ministers have been in talks with the Conservatives over a deal, with the Tories demanding the scrapping of land transaction tax on people’s primary homes.

Binning Wales’ equivalent of stamp duty on property purchases would cost about £200m, experts estimate.

Plaid Cymru has helped ministers pass budgets in previous years, but a deal between the two collapsed in 2024 and the party would be loath to lend its support with an election on the horizon.

The Welsh Government has left around £380m unallocated in the draft budget but the actual wiggle room for political negotiations is thought to be far lower.

Prof Drakeford will step down at May’s Senedd election, having been involved in every budget for a decade and been at the heart of Welsh politics for a quarter of a century.

In his foreword, the first minister-turned-finance secretary reiterated: “We have a shared responsibility, as a Senedd, to pass a budget for Wales.

“My door is firmly open to working with those who believe a more ambitious budget could be agreed.”

The detailed draft budget for the 12 months from April includes £800m more than last year – with spending totalling £27.13bn.

Under the plans, health and social care would receive an extra £259m, bringing the total to £12.4bn – more than 55 per cent of the Welsh Government’s resource budget.

The budget also includes £1.5m to extend the £1 bus fare pilot to cover five- to 15-year-olds.

But, according to budget documents, the Welsh Government will work with Transport for Wales to target £58m in “efficiency savings” on rail and bus spending.

The detailed draft budget sets out the amount of day-to-day revenue and longer-term capital funding available to other arm’s-length bodies, including the Arts Council and Sport Wales.

The Welsh Government has returned to a two-stage budget-setting process this year, with an outline published on 14 October followed by much of the finer detail today.

In previous years, the budget would be published in December, leaving less time for scrutiny.

Alongside the detailed draft budget, the Welsh Government published its £3.3bn 2026/27 infrastructure plan – with housing, health and transport topping the list of priorities.

The Welsh Government also published an impact assessment, admitting the budget as drafted could disproportionately impact disabled people, women and low-income families.

Chancellor Rachel Reeves will deliver the UK autumn budget, which will have implications for Wales, on 26 November.

The final Welsh budget will then be published on 20 January, with a key debate and vote pencilled in for 27 January.