Like the rest of the United Kingdom, Wales is facing a new challenge from the implementation of the Coalition Government's cuts. The Welsh Assembly Government [WAG, renamed Welsh Government (WG), in May 2011] budget was reduced by 1.8 billion British Pounds over the next four years. WAG responded by introducing its own revised austerity budget which reduced spending on Education by 8%. At the same time, the performance of Welsh Education has been under severe strain as a result of a series of new challenges. These include the consequences of Welsh pupils' performance in the Programme for International Student Assessment (PISA), the failure to meet government targets projected in The Learning Country, funding disparities, the findings of the Chief Inspector's Annual Report for Wales, the state of literacy in Wales, the re-organisations within the Department for Children, Education, Lifelong Learning and Skills [DCELLS, renamed Department for Education and Skills (DfES) in May 2011], the Thomas Review Report and the announcement of the Minister's new twenty-point plan which will guide policy for the next four years. This paper will first put Welsh educational policy into context before considering each of these issues in turn and finally, projecting forward to the future. (Contains 2 notes and 4 tables.)