IFS: Initial response to Reform UK’s Welsh manifesto

David Phillips, Head of Devolved and Local Government Finance at the IFS, said: 

“You may be forgiven for feeling a sense of déjà vu. The similarities between Reform UK's manifesto and the Welsh Conservative manifesto published earlier this week are striking.  

First, Reform UK proposes a 1 percentage point reduction in income tax on non-savings, non-dividend income – albeit applying to all rates, rather than just the basic rate as the Conservatives propose – by the end of the upcoming Senedd term. Official estimates suggest this would cost £371 million as of 2026–27, with OBR forecasts implying the cost could increase to £420 million a year by 2030–31. Gains would increase with income, amounting to up to £122 a year (or 0.6% of net income) for someone earning £24,785 (working full time on the National Living Wage); £377 (0.9%) for someone earning £50,270, the higher-rate income tax threshold; and £1,250 (1.6%) for someone earning £125,000 a year.  

Second, on business rates, Reform UK proposes to introduce a permanent lower tax rate for pubs, hotels and hospitality venues – matching a policy in place in England (currently, reductions in bills for the hospitality sector are confirmed only for 2026–27). This would benefit targeted businesses to some extent, but higher demand for property means that rents could also rise, transferring part of the gains to landlords – and potentially hitting businesses not eligible for this lower tax rate (such as professional services firms). Reform UK also proposes to revoke powers for councils to levy taxes on stays in tourism accommodation of £1.30per person per night, currently due to commence in 2027. A wider review of business rates is also pledged, which is overdue – although a stated objective of ‘reducing reliance' on the tax could represent another sizeable, unfunded tax cut. 

Third, Reform UK, like the Conservatives, proposes a requirement for councils to hold and win a local referendum if they wish to increase council tax by 5% or more (as is currently the case in England). Council tax increased by an average of 5.6% a year across Wales between April 2021 (just prior to the last Senedd election) and April 2025 – although high inflation means that this has equated to around a 0.4% real-terms increase per year. A cap would have been more binding on some councils, though: increases averaged 8.1% a year (2.9% in real terms) in Conwy, for example. Looking ahead, lower forecast inflation means 5% cash-terms increases would be closer to 3% in real-terms in the coming Senedd term, though the cap would effectively be tighter if inflation turns out to be higher than currently forecast.  

Turning to the spending side of the budget Reform UK, again like the Conservatives, proposes reforms to agricultural support – although it has not committed to an increase in the overall amount spent.  

Reform UK also proposes significant investment in new and improved roads in both north and south Wales. Overall funding for capital investment is, given current UK government spending plans, set to fall in the coming Senedd term. Paying for these road schemes from within the capital budget would require larger cuts to other areas of spending. The Reform UK manifesto does not say specifically where such cuts would fall, but does propose ending investment in what it terms ‘wasteful' net zero schemes. It also proposes to prohibit local councils from introducing ‘pay per mile' road pricing schemes, which would make it harder for councils to tackle traffic congestion.  

On the Welsh NHS, Reform UK rightly highlights current poor performance – the IFS will be publishing analysis of this next week. Reform proposes a range of interventions to try to reduce waiting lists and times and to improve the quality of care – but delivering these would require increases in both day-to-day spending and capital investment. Finding money for this would again likely require cuts elsewhere in the Welsh Budget, given proposed tax cuts and increased capital investment in roads.  

Reform UK, like the Welsh Conservatives, leans on assumed efficiencies and cuts to spending it deems wasteful or inappropriate to fund its proposed tax cuts and spending priorities. It proposes a 10% reduction in Welsh civil service headcount and pay freezes for some pay grades; ending the Welsh Government's international aid programme; cutting funding for charities that are deemed to be ‘politically biased'; and abolishing  ‘diversity, equality and inclusion' (DEI) officer roles in the public sector. The Welsh international aid budget amounts to £1 million a year – less than 0.004% of the Welsh Government's budget. Cuts to civil servant numbers and real-terms pay would save a more significant sum, but only a small proportion of the cost of proposed tax cuts.  

Thus, while Reform UK's Welsh manifesto is more restrained on its tax-cutting pledges than its plans in Scotland, it has not fully faced up to the fiscal realities facing the next Welsh Government. Lower taxes are possible in Wales. Any government should focus on maximising the efficiency with which the public sector spends its money. But with significant efficiencies likely required to maintain services even with existing funding, tax cuts would likely necessitate cuts in at least some services used by households. These are implied – but left unspoken – in Reform UK's plans.”