Council cuts and bankruptcy fears despite cash boost

Council leaders have warned they could struggle to maintain essential services or even go bankrupt despite a cash boost from the Welsh government.

The Welsh government will boost council budgets by £253m next year if its budget plans pass - less than half of what the sector says it needs to plug gaps caused by increased demand and costs.

Dave Hughes of Flintshire has warned his authority faced a threat of bankruptcy and a "lot" of Welsh councils are in the same position.

Ministers say it will bring councils "back from the brink" but admit local authorities will have "difficult decisions" to take.

Councils often look at cutting services or raising council tax to deal with squeezed budgets.

Newport and Cardiff will be the biggest beneficiaries under the Welsh government's plans, with Monmouthshire and Powys the worst with rises just over the rate of inflation.

Welsh Conservatives say the difference means the funding formula used to decide who got what was "broken", while Plaid Cymru claimed the funds simply were not enough.

Both called for further support for the worse off councils, which Drakeford did not rule out in the Senedd on Wednesday.

Local authorities, which fund social care, councils, bin collections, libraries and other services, have faced rising demand for services.

The Welsh Local Government Association has estimated there is a £559m funding gap, caused in part by growing social care and schools costs, and would need a 7% increase in cash.

The boost of £253m amounts to an increase of 4.3% - although councils will receive either more or less because of the formula.

Most local government money comes from the Welsh government - while some is raised through tax.

Flintshire's Labour council leader Dave Hughes has previously been reported to have warned bankruptcy was "staring at us down the barrel of a gun".

Hughes told BBC Wales he was a "little disappointed" to say the least with the council's 3.3% rise.

He explained he needed to look through the figures to see where the council stood.

But he added: "I think the threat of bankruptcy is always there.

"I don't think it's just Flintshire. I think a lot of authorities are in the same position as what we are."

Asked if the threat of bankruptcy remains, he added: "I would say so personally, yes."

Council leaders in north Wales were "all greatly concerned" about the financial settlement, he said.

Plaid Cymru's four council leaders said the budget had left councils "on the edge of a precipice".

The party's Gary Pritchard, leader of Anglesey council, said: "Although Cardiff Bay have given a larger settlement than before, it's still not enough to ensure that local authorities can provide the services that we are obliged to provide."

According to Welsh government documents, councils will have a 4.3% rise to their funding overall, which is worth £6.1bn in total.

But the amount they get varies according to a funding formula, which takes into account the needs of the population and the ability of councils to raise funding via tax.

Under the government's funding formula the two cities in the south east do best, with Newport seeing a 5.6% rise, and Cardiff a 5.3% rise.

Monmouthshire will have the smallest increase at 2.8% - just above the current rate of inflation at 2.3% - while the 21st and 20th worst is Powys and Gwynedd at 3.2% each.

Monmouthshire council leader Mary Ann Brocklesby said she is "pressing for a larger increase".

"I believe all local authorities in Wales should receive at least a 3.5% increase," she said.

In a letter to council leaders, Jayne Bryant said: "While this is a significantly better settlement than was envisaged at the beginning of this year, I recognise that there will again be difficult local decisions to be made."

"Following the UK government autumn statement, our overall settlement for 2025-26 is more than £1bn higher than it would have been under the previous UK government.

"However, as we all recognise, 14 years of constrained funding cannot be turned around in just one budget and it will take time for the public finances to recover".

Discussions took place between councils and Welsh government earlier in the year over the process by which authorities could receive emergency assistance - known as exceptional financial support (EFS).

This can include allowing authorities to spend cash usually earmarked for construction and other infrastructure projects on day-to-day spending instead.

BBC Wales has seen a letter from local government director Reg Kilpatrick, sent to council chief executive officers in September, in which he said there had been "a couple of recent occasions" where council leaders have asked whether there was any guidance to follow.

The Welsh government said the letter "pre-dated the UK government's autumn budget which, as the cabinet secretary for finance and Welsh language has already said begins to turn the corner for Wales".

If councils cannot balance their books they can declare a section 114 notice, which will prevent the council from spending more money without the permission of its finance office. It is commonly known as an authority going bust.

An Audit Wales report had recently warned that the financial position of local government was "unsustainable" in the medium-term unless action was taken.

Welsh Conservative Peter Fox told the Senedd on Wednesday there were "winners and losers" from the settlement.

Some councils, he said, "will still be facing a real cliff edge". "This again demonstrates that the funding formula needs to be revisited."

He called for Finance Secretary Mark Drakeford to implement a funding floor - a level below which funding will not drop - "to protect those who are most under pressure".

Drakeford replied that the formula "is really driven by only two factors which cover the vast bulk of the formula".

"If your population is rising, the amount of money you get through the formula goes up with it.

"[If] the number of children entering schools [goes down], the formula reflects that as well."

But he said he was aware of the gap, and said he would hold discussions with the local government minister to see if more could be done to "further support those councils that find themselves at the less advantageous end of that spectrum".

Drakeford told Radio Wales Breakfast the £253m extra for local authorities announced on Tuesday will not "solve all their problems" but would be a "first step" into a "brighter future".

He said: "I think it does allow local authorities to move back from the brink, and that's where they've been forced to in the last 14 years, and particularly in more recent years, as austerity has bitten and bitten."

"It doesn't make up for all the losses they've had in those years, but it will be that first step into that brighter future."

Anthony Hunt, Welsh Local Government Association spokesman for finance and Labour Torfaen council leader, said councils are facing pressures of £560m.

He said the extra £253m funding "won't meet the entirety of those costs, but it'll give us a chance."

Councils have pressure in schools, children's services, homeless and housing - "areas like that have seen a big increase in demand," he said.

"Councils will still have to make difficult decisions. It won't make it easy for us."

Opposition parties raised concerns over how councils will cope with the rise in national insurance contributions (NICs) planned for employers.

Bryant's letter to councils estimated the impact of increased NICs for councils is £109m.

The UK government plans to cover the cost to the public sector employers, but Mark Drakeford told Radio Wales Breakfast that at the moment he did not know how much money would come to Wales.

"I won't know until May or June of next year," he said.

Plaid Cymru local government spokesman Peredur Owen Griffiths said: "Today's announcement simply does not go far enough to ease the budgetary constraints faced by Welsh councils and will force them into tough decisions on the future of public services that have already been cut, some even disappearing entirely.

"At the same time - the Labour UK government's rise to National Insurance contributions plunge councils into uncertainty, as they may have to shoulder the burden of these increased costs. Every day of silence from Labour on this make it harder for our councils to plan."

Mark Drakeford says he has brought councils back from the brink, but in a letter to local authorities the local government secretary admits there will be difficult decisions.

In other words the precipice is still there and cuts to services and council tax rises are still a distinct possibility.

The uplift in funding covers roughly half the financial shortfall Welsh councils themselves said they were facing.

There have been warnings from the spending watchdog about longer term sustainability, spending increases are projected to tail off in future years and then there is the rise in national insurance contributions.

Drakeford revealed on Wednesday morning that there will be no decision from the UK government on NI compensation for public sector employers until May or June, meaning that councils and other bodies will have already started paying the increase.

And we still do not know what will happen for charities and private companies who provide services for the public sector.

It is the sort of uncertainty that Welsh Labour ministers used to complain about when the Conservatives were in charge at Westminster.

It also means that anyone inclined to do a deal with Labour to pass the budget will have to do so before knowing what will happen with NI.

The £26bn Welsh government budget will need an opposition politician to support it when it comes to a vote in March.

It included £1.5bn to spend on public services, including more than £600m for the NHS.

Jane Dodds, the Senedd's only Liberal Democrat and the most likely MS to back the budget, has expressed concerns over childcare provision in the budget.

Drakeford suggested he would be willing to talk to other politicians about the issue when he was interviewed on Radio Wales.

He said £20m announced for childcare will help with increasing the hourly rate care providers who take part in the Welsh government's scheme will receive.

"We've got ambitions that go beyond that, and I will be talking with others between the draft and the final budget to see if there are any other possibilities that we can find where we can go on investing further."

Asked if he meant extending it to more people, Drakeford said he wanted to see phase three happen, which would see more two year olds benefit.

"Plans are coming in from local authorities. If I can find a way between draft and final to find a bit more to help that to happen, I'd be very pleased to do that," he said.