91�ȱ�

The assembly government publishes its draft budget at 1500 GMT on Wednesday. It will set out the detailed spending plans for all areas of devolved expenditure for the next three years.

How important is the draft budget?

It is probably the most significant political event of the year. The budget allocates around £14.5bn of expenditure across the public sector in Wales, covering devolved areas like health, education, agriculture, local government and economic development. It is particularly important in the light of next May's assembly elections - these will be the decisions on which the governing parties, Labour and Plaid Cymru, will ask for the Welsh people's votes for the next four-year term. It is also the main opportunity for the Conservative and Liberal Democrat opposition parties to stand up and say where they think the government's priorities are wrong.

What do we know so far?

The actual contents of the budget are a closely-guarded secret until it is published, but there are some indications of what we can expect. First of all, following the assembly government's settlement from the Spending Review in Westminster, it's clear that it will be a budget made up largely of cuts, rather than spending increases. This is in stark contrast to the first 10 years of devolution, which saw several generous increases in the money that successive Welsh governments had to spend. The assembly government says its priorities are schools, skills and hospitals - so these areas can expect some measure of protection.

Does that mean health and education budgets will be ring-fenced and protected from any cuts?

No. Ministers are drawing a careful distinction between protecting the health budget and the education budget, and protecting spending on hospitals and schools. The emphasis is on maintaining front-line services, rather than keeping those department's budgets intact in their entirety. Doing so would mean much deeper cuts elsewhere in the budget.

Are we likely to see a political row when the figures are revealed?

Yes - and it has already started. The Welsh Conservatives have made a clear pledge that they would protect the £6bn plus health budget in its entirety, and give it inflation linked increases every year. It is an eye-catching promise, designed to appeal to many voters for whom health is a key issue. However, in order to balance the budget, this would mean severe cuts elsewhere in government expenditure. So far the Tories have refused to spell out where those cuts would come. The other three parties, Labour, Plaid Cymru and the Liberal Democrats will not match the pledge, but they warn that the Conservatives will lack credibility unless they can state clearly how the cuts can be made elsewhere. Expect this to be a major row right up to next May's elections.

Which areas could be the worst hit?

It is clear from the Westminster Spending Review which part of the budget will be hit the hardest and that is what is called capital spending, or spending on building new schools, roads and hospitals. This element of the budget will fall by more than 40% over the next four years. The Health Minister Edwina Hart has said this cut will make it very difficult for the government to continue building new, large hospitals in Wales in the coming years. Expect departments such as economic development and transport to see their budgets fall sharply, as a much bigger proportion of what they spend is capital compared to other departments, including big road-building and maintenance projects.

What about local council budgets?

The expectation is that these will take a hit - but probably not as bad as many councils in England took from the UK Government. The assembly government is likely to want to limit reductions to around the average handed out to its own departments - so it cannot be accusing of singling out councils for cuts. But local authorities will have to take their share of pain when it comes to the big cuts in capital spending, which will lead to difficult decisions about which projects could face the axe locally. The overall figure for how much goes to local government will be announced in the draft budget, with the allocations to individual councils coming a week later. They will then have to take decisions about jobs, services, and how much to increase council tax by.

Is there still enough money to maintain flagship assembly government policies like free prescriptions and free bus travel for older people?

The answer to that is yes - because ministers are adamant that these universal benefits must stay and so they have been prioritised in the budget. The Liberal Democrats say they would scrap free prescriptions for all as wasteful. The Conservatives agree and would also get rid of free school breakfasts. This is another clear dividing line between the government and opposition parties.

What's the time scale for all this?

After the draft budget is published, there will be two months of intense scrutiny by assembly committees either side of Christmas, followed by a big set-piece debate of all AMs in mid-January. The assembly government will then draw up its final budget and put it to a vote of members following another debate in the second week of February.