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Welsh Budget could increase risk to public services, warns IFS

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  Published in Business and Finance on Thursday, October 23rd 2025 at 16:50 GMT by The Irish News
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Welsh Budget May Threaten Public Services, warns Institute for Fiscal Studies

The Institute for Fiscal Studies (IFS) has sounded a stark warning about the risks posed to Welsh public services by the forthcoming budgetary framework. In a detailed briefing, the research body highlighted that the Welsh Government’s fiscal projections for the next cycle contain a widening deficit that could force cuts across key sectors unless remedial measures are taken. The IFS report, linked in the original article, underscores the vulnerability of Welsh services amid a backdrop of rising costs and reduced central‑government transfers.

A Growing Deficit and Rising Debt

According to the IFS analysis, Wales’ projected fiscal deficit for 2024‑25 is expected to widen by around £1.3 billion compared with the previous year, a rise of roughly 10 %. The main drivers identified include increased spending on health and social care—both experiencing rising demand—and the cost of maintaining public infrastructure. Meanwhile, the Welsh Government’s revenue base has not kept pace, with a decline in local council tax and business rates contributing to the shortfall.

The report notes that if the deficit is financed solely through borrowing, Welsh public debt would climb from £10.7 billion to £12.4 billion, pushing the debt‑to‑GDP ratio to about 16 %. While this remains below the European Union’s 60 % threshold, the IFS warns that continued borrowing could erode fiscal flexibility, leaving fewer resources for essential services in the long run.

Risks to Health, Education and Social Care

The IFS’s most urgent concern is the potential impact on public services. “A larger deficit could translate into cuts to NHS staffing, school budgets and support for vulnerable populations,” the research notes. Health services, already stretched by the pandemic’s after‑effects, face a particular threat from potential reductions in funding for acute care and mental health services. The Welsh Government’s own projections suggest a 2 % cut in NHS capital spending over the next year if the deficit materialises.

Education is also on the frontline. The IFS points out that Welsh schools receive a substantial share of their budget from the Welsh Assembly’s grant, a portion of which could be slashed if fiscal targets are not met. “This could lead to increased class sizes, reduced extracurricular programmes and a strain on local authorities to cover the shortfall,” the report warns. The article links to a separate analysis of the Welsh educational budget, which highlights a projected £300 million decline in teaching staff allocations.

Social care, often the most visible impact on older and disabled populations, may face even sharper cuts. With the Welsh Government earmarking a £400 million increase for social care over the next two years—an increase that the IFS suggests may be insufficient to cover rising costs—any additional fiscal tightening could jeopardise the delivery of in‑home support and community services.

Central‑Government Funding and Devolution

A recurring theme in the IFS briefing is the role of central‑government transfers. The Welsh Government relies heavily on the “own‑resource” component of its budget, which has historically accounted for roughly 25 % of total revenue. Recent policy shifts, however, have seen a 5 % reduction in this component as part of UK Treasury reforms aimed at tightening fiscal policy across the devolved administrations.

The IFS recommends that the Welsh Assembly negotiate a more robust and predictable funding arrangement with the UK Treasury. “Without a secure stream of central funding, Wales will be forced to either borrow more or make hard cuts,” the report argues. The article’s link to a briefing from the Welsh Treasury indicates that a £200 million increase in the central grant could mitigate the deficit, but such an increase would require a policy shift at Westminster.

Policy Options and Recommendations

The IFS suggests a three‑pronged strategy to safeguard public services:

1. Revenue Enhancement: Increase local rates modestly—particularly in wealthier councils—to offset the deficit without imposing steep burdens on lower‑income households.
2. Expenditure Prioritisation: Conduct a sector‑specific cost‑effectiveness review, prioritising services that deliver the greatest social returns.
3. Central‑Government Negotiation: Secure an interim increase in the Welsh Assembly Grant to bridge the shortfall while a longer‑term fiscal framework is negotiated.

The Welsh Government’s response, quoted in the article, acknowledges the deficit but maintains that a balanced approach will be adopted. “We are committed to protecting core public services, but we must also ensure fiscal responsibility,” the spokesperson said. The article also references a statement from the Welsh Health Minister, who highlighted plans to invest in telehealth and community care to offset staffing cuts.

Wider Implications

Beyond Wales, the IFS briefing frames the situation as indicative of broader challenges facing devolved administrations across the UK. The report draws parallels with the Scottish and Northern Irish budgets, noting that similar deficit concerns could prompt austerity measures that undermine public welfare. The article’s final link leads to an IFS briefing on devolution finances, offering comparative figures that show Wales’ deficit growth rate outpacing that of its peers.

In sum, the IFS warns that unless the Welsh Assembly can secure additional funding or implement significant revenue and expenditure reforms, public services—including health, education and social care—stand to suffer in the coming years. The article concludes with a call for urgent dialogue between the Welsh and UK governments to chart a sustainable fiscal path.