The Welsh Government is developing an emergency protocol to address potential financial crises in councils, as rising fiscal pressures bring some local authorities closer to the brink of bankruptcy. This was revealed during a Senedd local government committee meeting on October 10, where Local Government Secretary Jayne Bryant emphasized the severity of the situation.
Financial Crisis Looms for Welsh Councils
Bryant, who took on the role of Local Government Secretary over the summer, highlighted that years of austerity, the pandemic, inflation, and increasing demand have all contributed to the current financial instability of local councils. “I’ve met with local authority leaders, and it’s clear to me the severity of the situation,” she told the committee.
In light of these challenges, the Welsh Government, in collaboration with local authorities, is working on a protocol to manage significant financial difficulties. The initiative aims to provide a structured response should any council face a financial emergency, such as the need to issue a Section 114 notice, effectively declaring bankruptcy.
A Growing Funding Gap
According to a report released last year, Welsh councils are projected to face a £744 million funding gap by 2027/28, underscoring the need for urgent financial intervention. Bryant acknowledged that many services have already been scaled back or reduced, with councils having to prioritize resources under significant pressure.
Audit Wales reports have further raised concerns about the sustainability of council finances, warning that some are at serious risk of financial collapse. Conservative member Altaf Hussain echoed these concerns, prompting Bryant to confirm that while she has powers of intervention, such measures would only be taken as a last resort.
Awaiting the UK Budget for Clarity
The Welsh Government is expected to gain greater clarity on its financial outlook following the UK Budget on October 30. This will be followed by the Welsh Government’s draft budget for the next financial year, which is scheduled for publication on December 10. Local governments will receive their provisional funding settlements shortly thereafter.
No Immediate Requests for Financial Aid
Judith Cole, the Welsh Government’s Deputy Director for Local Government Finance, explained that while no council has formally requested assistance at this point, the financial strain across the sector is palpable. Cole stressed that the protocol being developed is designed to avoid surprises and ensure that any financial difficulties are addressed before they escalate into full-blown emergencies.
However, she also cautioned that the Welsh Government’s ability to bail out councils is limited. “The moral hazard means we’re not suggesting to the cabinet secretary that we simply open up the bank because we don’t have the funds,” Cole explained.
Open Dialogue and Long-Term Challenges
Reg Kilpatrick, Director of Local Government, confirmed that the Welsh Government maintains an “open and frank” dialogue with councils throughout the year regarding their financial situations. Despite this communication, he noted the “concerning messages” coming out of Audit Wales reports and acknowledged that it may take some time before indicative allocations for council funding in the coming year can be provided.
Kilpatrick also addressed the issue of council reserves, noting the difference between usable and allocated reserves. While the Welsh Government collects data on these reserves, it does not play an active role in managing them.
Concerns Over Funding Formula and Pace of Change
During the committee meeting, Conservative member James Evans raised questions about the complex formula used to allocate funding to Welsh councils, joking that “only about four people in Wales understand it.” Bryant admitted that the formula, which uses over 4,000 data points, is under review, particularly in areas such as social care and education.
Meanwhile, Plaid Cymru’s Siân Gwenllian criticized the government’s reversal on setting up a commission on community assets, arguing that this U-turn suggests the issue will not receive the attention it deserves. In response, Bryant explained that a task and finish group has been set up instead, reflecting financial constraints.
Labour’s Lee Waters expressed concern over the slow pace of digital transformation within councils. An Audit Wales report found that half of Welsh councils currently lack a digital strategy. Although the Welsh Government has invested over £7 million in supporting local government’s digital efforts, Waters suggested that this expenditure is minimal compared to overall council budgets and criticized the “pedestrian pace” of progress.
Looking Ahead
As Welsh councils continue to navigate an increasingly precarious financial landscape, the Welsh Government’s forthcoming budget announcements will be critical. The new emergency financial protocol, currently in development, could offer some relief, but significant challenges remain as councils grapple with the complex and compounding pressures of austerity, inflation, and rising demands for services.
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