The Welsh government has agreed a budget deal with Plaid Cymru, after committing to setting aside more money for local councils and health services.

Plaid Cymru leader, Rhun ap Iorwerth, said he had secured almost £300m in extra funding for front-line services.

It means the Labour government – which currently does not have a majority in the Senedd – will avoid defeat when its £27bn budget goes to a vote in January.

The Welsh Conservatives, which had also been in talks with the government, has accused the government, and Plaid, of “another Plaid-Labour stitch-up”. Meanwhile, Reform said it showed a vote for Plaid was a vote for Labour.

First Minister Eluned Morgan said deal with Plaid had prevented the “catastrophic cuts” which would have ensued had no deal been reached.

There was a mixed welcome from local government for the deal, which will improve previously published plans but that one council leader said still did not go far enough.

Reports of a deal between the two parties first surfaced at lunchtime on Tuesday, when sources told the BBC an agreement had been reached.

It came after weeks of negotiations between the Welsh Labour government and the other parties, as they sought support for their budget – which covers spending on the NHS, schools, local government and other public services controlled by Cardiff-based ministers.

The government in Wales is currently unable to pass the budget on its own because it does not have a majority in the Senedd, a situation made worse when Labour lost the Caerphilly by-election in October.

Plaid Cymru had pushed for more money for health and councils, amid warnings the Welsh government’s existing plans for a 2% increase next year had left local government facing significant cuts and the prospect of council tax rises.

Initial proposals were already expected to change, after it became clear hundreds of millions had been left unspent, with Finance Secretary Mark Drakeford suggesting he would be willing to give the NHS and councils more cash.

Under the deal forged between the Welsh government and Plaid, there will be £113m additional funding for local government, with council budgets increased overall by 4.5% next year.

Exactly how much councils will get will vary but all 22 will receive cash increases worth 4% or more.

Health and social care’s budget will rise by £180m, meaning an overall increase of 3.6%.

In addition, a total of £120m will be set aside in capital for the new government to decide how to spend following the May Senedd election – something that Rhun ap Iorwerth is hoping to win.

Capital is the part of the budget spent on infrastructure – like roads.

One Labour source described the £120m as a “golden egg” for whoever wins the next election and a “vast amount” for a single year.

First Minister Eluned 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.”

Rhun ap Iorwerth said: “By securing £300m of additional funding for front-line services, it avoids the potential of a cliff edge for public spending in Wales and, in May 2026, puts the next Welsh government on a firmer footing than would otherwise have been the case.”

The Welsh government needed a deal as its budget is automatically cut if the Senedd cannot agree its spending plans – something both Plaid Cymru and the Tories wanted to avoid.

Having been in talks with the government over the autumn – negotiations the Welsh Conservatives said it had approached in good faith – the Tories accused the first minister of “playing games” on Tuesday.

Welsh Conservative Senedd leader Darren Millar said: “Yet again, it appears that the Welsh government is set to pass a budget that falls short, thanks to another Plaid-Labour stitch-up.”

Finance Secretary Mark Drakeford said a deal with the Tories was always likely to be “an uphill journey… but I am still grateful to them for being willing to come to the table”.

He added he was “very glad that we have been able to reach an agreement before Christmas”.

“I wanted public services to know, and the people working in them to know, that we weren’t facing a cliff edge of no budget at all – with the damage it would have caused to them, their employment and the people who use the services they rely on,” he said.

Welsh Liberal Democrat Jane Dodds, who was also among the politicians speaking to Drakeford before Tuesday’s deal, said: “If this budget fails to deliver a serious social care settlement, it will be yet another year of people stuck in hospital beds who should be at home, carers pushed to breaking point, and councils struggling to keep services afloat.”

Dodds – not Plaid – helped Labour ministers pass the last budget for 2024/25, in exchange for a ban on greyhound racing and other measures, including cheap bus fares for young people and extra money for universal childcare.

The Welsh Local Government Association (WLGA) gave a mixed response to the announcement.

Andrew Morgan, WLGA leader – and leader of Rhondda Cynon Taf council – said the average increase of 4.5% was a “welcome improvement on the original draft settlement”.

But Mark Pritchard, WLGA independent group leader – and leader of Wrexham council – added it remained “short of what is needed to place local government on a sustainable footing”.

Figures from the WLGA from earlier in the year said that even a 5% increase would be equivalent to a shortfall of £312m, requiring a council tax increase of 12% – or 8,000 job losses.

Head teachers union, the NAHT Cymru, called it a “huge let-down for school leaders, teachers, pupils and families”.

“At a time when the Welsh Local Government Association has reported a predicted deficit of £137m for school budgets alone, it is clear that £113m extra for all council services will simply leave schools short-changed yet again,” said national secretary Laura Doel.

By Cemlyn Davies, Wales political correspondent

The timing of this announcement caught most people by surprise – spare a thought for Conservative group leader Darren Millar, who had another budget meeting with the government scheduled for next week.

However, the agreement itself is less surprising.

Plaid and Labour have done numerous budget deals over the years, and when we found out last week that Plaid’s demands were more money for councils and the NHS – things Mark Drakeford had already said he wanted to deliver – this deal began to look inevitable.

The danger for Plaid now – as we’ve seen already this afternoon – is that some of the other parties will accuse them of once again propping up Labour with just months to go until the Senedd election.

Rhun ap Iorwerth will hope his response that Plaid Cymru have stepped in here to avoid a no-deal scenario that would have led to massive cuts, whilst also securing more money for public services, will play well with voters.