Rhun ap Iorwerth has been confirmed as the new First Minister of Wales, leading Wales’s first Plaid Cymru administration. The governing party has 43 out of 96 seats in the new Senedd, and will govern as a minority administration rather than attempt to form a coalition or develop a formal cooperation agreement with one of the other parties.
The distribution of seats in the Senedd means that in order to pass legislation, Plaid Cymru will need the support (or at least the abstention) of one or more of Reform UK (34 seats), Labour (9 seats) or the Conservatives (7 seats): the Green Party (2 seats) and Liberal Democrats (1 seat), on their own, are not large enough to reach a majority. This means finding common ground with either the former party of government (Labour) or right-wing parties (Reform UK and the Conservatives). As we discuss below, parties’ manifestos and past positions suggest it is likely to be easier to find that common ground for some policies than others.
In addition, as we have repeatedly highlighted, the fiscal outlook facing the new Welsh Government is extremely challenging. After increasing by an average of 2.8% a year above economy-wide inflation between 2019–20 and 2025–26, Welsh Government funding for day-to-day spending on public services is set to grow by an average of just 1% a year above inflation in 2026–27, 2027–28 and 2028–29. A top-up to funding this year announced by the UK government in the Spring Statement has not yet been allocated, but will almost certainly have to be allocated to the NHS if recent progress in reducing waiting lists is not to be reversed: current NHS spending plans imply a substantial real-terms cut to spending. And with no top-up planned for 2027–28 (the funding for this year is linked to a one-off write-off of some English council debt), the outlook for next year looks especially tough, with funding effectively flat in real terms. With rising costs and demands for services such as healthcare and social care, that means cuts to some other areas of spending are almost certain. For example, if health spending were increased by 2.6% a year in real terms in 2027–28 and 2028–29, in line with plans for England, and local government funding were protected from cuts, other areas of spending would need to be cut by an average of 5% a year given current funding forecasts.
The new Welsh Government will therefore need to be very clear about its priorities for both existing services and its new policy proposals – there is unlikely to be the political or fiscal space to deliver every pledge in Plaid Cymru’s manifesto.
Property taxation
One area where Plaid Cymru may be able to make significant progress is its plans for property taxation.
A revaluation of council tax in Wales is already legislated to take effect from April 2028, with further revaluations every five years thereafter. As we highlighted recently, this is a very welcome contrast with England and Scotland, where council tax is even more out of date and there are no concrete plans for revaluation or major reform (on their own, proposals for ‘mansion taxes’ do not cut it).
Both Plaid Cymru’s and the Labour Party’s manifestos committed to making council tax ‘fairer’, which could be delivered simply by going ahead with the currently planned revaluation. But building on work undertaken as part of the 2021–24 cooperation agreement between Plaid Cymru and Labour, it may be possible to agree further reforms – for example, adding additional bands and/or making the tax less regressive.
Plaid Cymru have also said they want to further reduce business rates for the ‘high street’ – which may be code for smaller retail, hospitality and leisure properties. The Conservatives and Reform UK also proposed cuts for similar types of properties, while Labour again pledged to make the tax ‘fairer’ without specifying what they meant by this. While the rationale for such reforms is debatable, and there are differences between the parties in how they propose to pay for the cuts to their favoured sectors – Plaid Cymru hinting at raising more from larger retailers, while Reform want to reduce overall revenues – the overlap in policy proposals suggests agreement on some changes may be possible.
On land transaction tax (LTT, the Welsh equivalent of stamp duty land tax), Plaid Cymru’s manifesto said they would ‘examine how Land Transaction Tax can be reformed to better support first-time buyers’. The nature and scale of the changes the party has in mind are unclear, but with the Welsh Conservatives in favour of abolishing LTT on the purchase of main residences, there may be wider support for some sort of reduction for first-time buyers. In a tight fiscal environment, overall cuts to LTT would mean trickier trade-offs on the spending side of the budget, but with reforms to other property taxes due too, there may be scope to make the package revenue-neutral as a whole.
Schools
Both Plaid Cymru and Labour (and the Green Party) favour the extension of free school meals to all secondary school pupils in receipt of universal credit, rather than just the poorest, mirroring a policy planned for England. With costs estimated at £20 million per year, the policy might be seen as a relatively affordable ‘win’ when it comes to cost of living measures – particularly compared with some of the other proposals discussed below.
As discussed in a recent IFS comment, there is also significant common ground between Plaid Cymru and other parties on learning and school standards. All parties have highlighted the importance of evidence-based approaches to improving literacy and numeracy, with Reform UK like Plaid Cymru homing in on an approach called synthetic phonics for teaching reading – for which there is a strong evidence base. Both Plaid Cymru and Reform have also emphasised the importance of reforming the new Curriculum for Wales, with a greater focus on specific knowledge that pupils are expected to have acquired. Like Plaid Cymru, the Conservatives have also proposed to make greater use of standardised tests. In the case of the Conservatives, this is in relatively general terms, whilst Plaid Cymru’s manifesto proposed making greater use of existing tests to create national and pupil-level targets.
Given worrying trends in Welsh educational performance, a focus on improving standards (and raising expectations) could be a fruitful area for cross-party collaboration.
Childcare and a child payment
Plaid Cymru’s most significant proposal was to roll out 20 hours per week of funded childcare for all children aged 9 months to 4 years, irrespective of their parents’ work status or income (while continuing to offer 30 hours a week to parents of 3- and 4-year-olds who work). The party estimated this would cost £400 million a year once fully rolled out – although they have not shared information on the assumptions underlying this plan. A signal of the importance Plaid Cymru place on this policy is that its delivery is part of the brief of the new Deputy First Minister – who highlighted it in her first official comments.
All parties bar Reform UK pledged an expansion of funded childcare to the under-3s – with Labour proposing 12½ hours per week and the Liberal Democrats 30 hours per week. With widespread political support and funded childcare provision being less generous for the under-3s in Wales than in England, finding a Senedd majority for an expansion of provision is unlikely to be the major challenge.
In contrast, finding sufficient funding is a challenge. £400 million a year is not an impossible amount of money to find by any means – it is equivalent to less than 2% of the Welsh Government’s budget for day-to-day spending, and the amount that would be raised by 1 percentage point on all rates of Welsh income tax. But in the context of the severe fiscal pressures already highlighted, it would mean some combination of having to hold down growth in healthcare spending, deeper cuts to other spending or increases in devolved taxation. Plaid Cymru will therefore need to decide whether to make such choices, or to pare back their plans for childcare to ease trade-offs elsewhere. They could decide to restrict provision to families where all parents work, for example, which would be consistent with a focus on boosting labour supply. Or they could means-test provision, focusing funded support on lower-income families, which would be consistent with a greater focus on improving child development.
The potential cost of a Welsh child payment of £10 per child per week for families on universal credit is not so large – somewhat over £100 million a year once fully rolled out. This would be well targeted at reducing income poverty and material deprivation among children, although its impact on wider inequalities (such as in educational attainment) is likely to be much more limited.
Finding £100 million for a child payment would not be trivial, but it would be less challenging than finding the £400 million needed for the full childcare proposals. A bigger challenge may be Wales’s current devolution settlement, which explicitly reserves ‘social security’ to the UK government. The last Welsh Government has made temporary payments to recipients of UK government benefits, such as the Fuel Support Scheme of 2022–23. And it has piloted time-limited non-means-tested benefit payments for care leavers (which it termed a ‘basic income’). Existing powers therefore seem likely to allow the new Welsh Government to pilot a child payment scheme (provisionally named Cynnal). But it may not have the powers for a permanent, national scheme – or at least one where payments are not deemed as unearned and taxable income by the UK Department for Work and Pensions and HMRC.
The new government could therefore request powers to create new social security benefits, like the Scottish Government can – and the UK government has indicated its willingness to discuss new powers for the Senedd. If a request for such social security powers were denied, the Welsh Government could also press ahead with the national roll-out of Cynnal, and see whether the UK government really would feel comfortable offsetting a new Welsh benefit with lower UK benefit payments. Such brinkmanship would not be without risks though.
Housing
Another area where meeting its pledges may be challenging is housing.
The Plaid Cymru manifesto commits to delivering at least 20,000 new social homes over the Senedd term – an average of 5,000 or more per year. This compares with around 3,640 new affordable housing units in total in 2024–25 (including those rented at social rents, those rented at higher but below-market ‘intermediate rents’, and those sold via shared ownership schemes) and the 4,200 expected to have been delivered in 2025–26. It would therefore require a sustained increase in the number of units delivered of close to 20% compared with forecasts for 2025–26, and of well over a third compared with actual deliveries in 2024–25 – even if we assume that the target relates to the wider definition of affordable housing, not just housing for rent at social rent levels.
Meeting this pledge would therefore likely require a substantial increase in capital spending on grants for social housing provision. Overall capital funding has increased this year (2026–27) and has yet to be fully allocated to different types of investments. But overall capital funding is then set to fall in real terms from 2027–28 onwards to below its level in 2025–26. Increasing investment in social housing would require bigger cuts to other areas of capital spending. And Plaid Cymru have pledged to improve rail infrastructure, to investigate the options to relieve congestion on the M4, to ensure full broadband connectivity in rural areas, and a programme of repairs and upgrades to the school and NHS estate in Wales. With a falling capital budget, the new government will need to be selective when prioritising investments.
A key Plaid Cymru proposal related to housing that would not directly cost the Welsh Government money is to cap changes in private sector rents at the lower of average earnings growth or inflation. As we discussed in our response to the Green Party’s similar proposals for rent controls, capping rents will benefit many tenants – but over time is likely to distort the housing market, and reduce the supply and quality of rental properties in the areas doing best economically, hurting other tenants as well as landlords. The ‘double lock’ approach proposed by Plaid Cymru would have another undesirable feature – the long-term effect of the cap would depend not just on the long-run trends in earnings and inflation, but also on their year-to-year volatility and correlation. In the same way that the ‘triple lock’ means that the state pension ratchets up relative to both earnings and prices when earnings and prices are volatile, the rental ‘double lock’ would mean that the rent cap ratchets downwards.
Plaid Cymru may struggle to find sufficient support for rent caps in the Senedd in any case. Neither the Conservative nor Reform UK manifesto mentions rent caps in Wales, but in their Scottish manifestos both parties say they would scrap the powers that Ministers have been given to designate rent control areas. Welsh Labour also did not mention rent caps or controls in their manifesto, but a White Paper published by the last Welsh Government in 2024 argued that a combination of data challenges, and evidence that rent controls could reduce the supply of rental properties, meant it did not intend to take rent control measures forward.
The Welsh Labour manifesto does propose several other changes designed to support private sector renters, and the Labour UK government has made significant reforms to private tenancy arrangements in England – so there may be more scope to agree other types of changes in the Senedd.
Prioritisation and compromises will likely be needed
The new Welsh Government will therefore face tricky decisions over what proposals to prioritise in a difficult fiscal environment, and with a need for agreement (or at least acquiescence) from at least some other parties, which will share some priorities but have different views on others. The above list is by no means exhaustive of the areas where progress may be easier or harder.
With four years ahead and a particularly tricky budget looming for 2027–28, the new Welsh Government should waste no time in identifying its most important priorities – and putting in place a strategy to deliver them.
