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The Labour Welsh Government has struck a £300m deal with Plaid Cymru to pass its £27bn spending plans for next year, with additional money for the NHS and councils.

The budget agreement will allow the Welsh Government’s final budget for 2026/27 to pass through the Senedd in January, averting a potential crisis for public finances.

Labour cannot pass a budget on its own because the party is two votes short of a majority after Plaid Cymru won the Caerphilly by-election.

Since the draft budget was published, councils have warned of a £400m funding gap and experts suggested the NHS faced a “historically low” funding settlement.

Without a deal, the picture would have been far worse – with the Welsh budget automatically reverting to 75% of last year’s, rising to 95%, costing public services billions of pounds.

‘£300m more’

The deal, which was announced in a written statement from First Minister Eluned Morgan, includes an extra £112m for councils, so all local authorities will receive at least 4% more.

An additional £180m will be spent on health and social care, the equivalent of a 3.6% increase. Meanwhile, £120m of longer-term capital funding will be available for the next government following the Senedd election in May 2026.

Baroness Morgan said: “This agreement shows the strength of the Senedd parties working together on shared priorities to deliver for Wales. Through this agreement we have secured the passage of the budget and prevented potentially catastrophic cuts to funding next year.”

Plaid Cymru previously supported Welsh Government budgets under the cooperation agreement, which contained 46 commitments, between December 2021 and May 2024. The party was in the ‘One Wales’ coalition government with Labour from 2007 to 2011.

Heledd Fychan, Plaid Cymru’s shadow finance secretary, warned the Labour draft budget would have been “catastrophic” for public services. She said her party was not prepared to let that happen as she pointed to more funding for councils and the NHS under the deal.

‘Stitch up’

Last year’s budget was voted through after ministers cut a £100m deal with Jane Dodds, the Liberal Democrats’ Welsh leader and the party’s sole Senedd Member.

Ministers had been in budget talks with Conservative and independent Senedd Members for weeks, with the Tories calling for land transaction tax on primary homes to be scrapped.

Darren Millar, the Conservatives’ leader in the Senedd, described the deal as “another Labour-Plaid Cymru stitch-up”, accusing the First Minister of “playing games”.

He said: “Labour and Plaid’s deal will mean yet more of the same wasteful spending on extra politicians, overseas embassies and trees, instead of focusing resources on the priorities of the people of Wales, and putting more cash into people’s pockets.”

A Reform UK Wales spokesperson said: “This is more evidence that a vote for Plaid next year is a vote for Labour. While Labour find themselves without a paddle, Plaid have stepped in yet again to save them.”

The government’s final budget for the 12 months from April will be published on January 20.