Natalie Zhivkova, WCVA’s Policy & Insights Manager, discusses the Welsh and UK budgets for 2026/27 and the implications for the voluntary sector.
It has been an eventful few months. We held our breaths for an unusually important by-election, considered obscure sections of the Government of Wales Act, and the Office for Budget Responsibility (OBR) accidentally leaked the UK budget. More is yet to come, but it is a good time to summarise the key budget developments and put them in the context of the findings from the first wave of Baromedr Cymru.
STEADY AS SHE GOES IN CARDIFF BAY
Welsh Government’s draft budget came uncharacteristically early, in mid-October, and brought no surprises – truly none, it’s a budget nearly identical to last year’s. The Cabinet Secretary for Finance proposed a ‘business as usual’ budget, featuring a modest, inflation-linked increase on last year’s spending. The inflationary increase was not applied evenly across all portfolios with Housing and Local Government receiving the biggest increase (2.13%), while Social Justice received the smallest increase (1.98%).
At the time of the draft budget publication the OBR predicted inflation will be at 2.1% in 2026. In late November, the OBR published a new forecast putting inflation in 2026 at 2.5%. Welsh Government’s draft budget documents acknowledged the expected OBR reforecast and state the budget process is ‘well designed to take account of such uncertainties, and we have flexibility to […] accommodate changes in the Final Budget’. It is important that we remind them of this at every opportunity ahead of the final vote in January.
HITTING ROUGH WATERS
Despite lacking major announcements, next year’s Welsh Government budget comes with major uncertainty. Following Welsh Labour losing in the Caerphilly by-election, the Government needs the support of at least two opposition members to pass their budget. They have set aside £380m of unallocated funding which will play a key role in the negotiations with potential backers. The Welsh Conservatives, Plaid Cymru, the Welsh Liberal Democrats’ sole representative in the Senedd, Jane Dodds MS, and the independent Russell George MS have already met for negotiations. WCVA is calling for the unallocated funding to be used to support the voluntary sector.
The uncertainty does not stop here. If the Welsh Government is not able to secure the two extra votes, they will only be able to allocate 75% of the limits approved in the previous year. This will result in a 25% cut on spending, which will impact every public body in Wales and we can expect a serious knock-on effect on the voluntary sector.
WESTMINSTER CHAOS
In contrast, the UK Government’s budget was preceded by a wave of uncertainty, speculation, and leaks.
WCVA joined forces with charities across the UK to call for incentives to promote giving, funding for the safe roll out of AI technology in the voluntary sector and, most importantly, no nasty surprises.
Amidst the chaos on budget day, there were some good and bad news for the sector. We were pleased to see the introduction of a new VAT relief for business donations of goods to charities. The removal of the two-child limit on Universal Credit has also been welcomed widely across the sector.
Wales will receive £505m in Barnett consequentials but the Cabinet Secretary for Finance was quick to clarify the majority of that money will be used to set up a transition fund for business rates revaluation.
The higher-than-expected increase of the National Living Wage is a policy many voluntary organisations support in principle but it can signal trouble for charity employers who are already struggling financially. In addition, a new annual £2k cap on tax-free salary sacrifice contributions is bad news for all charities who have introduced salary sacrifice schemes to mitigate some of last year’s Employer National Insurance Contributions (ENICs) increase. The silver lining is this change does not come into place until 2029.
The first wave of Baromedr Cymru revealed that 68% of surveyed organisations said their financial position had been negatively impacted by last year’s ENICs and National Living Wage rises, with 27% describing the impact as very negative.
THE REAL COST OF DELIVERY
It is crucial that we apply pressure on all public bodies to provide adequate increases to public grants and contracts. While generating income is a top concern for 90% of surveyed organisations, only 14% said they had always achieved full cost recovery from public grants and contracts in the past year. More than half (54%) reported receiving no uplift at all in the last 12 months, while only 3% said that all of their grants and contracts had been uplifted. Even among organisations that did receive uplifts, most (63%) indicated that these uplifts covered only part of the true cost of delivering services.
It is therefore unsurprising that among the 56% of organisations that used reserves to meet operating costs over the past year, most (69%) did so to fill funding gaps, while more than a quarter (26%) were using reserves to subsidise government contracts.
CAN WE ACTUALLY GO ON WITH BUSINESS AS USUAL?
One the surface of it, this year’s budgets haven’t been the worst. But just how long can we go on with budgets as usual and sighs of relief when things were not as bad as they could have been?
I have already shared some findings from the first wave of our new quarterly survey – Baromedr Cymru. Here are a couple more:
- 74% of organisations reported worsened financial position due to rising costs
- 65% reported insufficient capacity to meet demand in the next three months
- 64% reported increased service demand
- 27% expect their financial position to deteriorate over the next three months
- 14% expect their paid workforce to decrease over the next three months
It is clear that the voluntary sector is not thriving. While we welcome some of the budget announcements and there is comfort in knowing what to expect, we fear it may not be enough long-term. The Senedd election is just around the corner and we are challenging all political parties to put partnership with the voluntary sector at the heart of their manifestos.
We will be co-hosting an event with VCSE Observatory to delve deeper into our latest survey results on 15 December. Register to learn more and join the discussion.
Explore the Baromedr Cymru dashboard and sign up to take part in our future surveys.