Extra funding from Welsh Government means councils are financially stable for now, but big challenges lie ahead

Extra funding from Welsh Government means councils are financially stable for now, but big challenges lie ahead
30 September 2021
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Increasing demand for some local government services and potential future funding levels mean the sustainability of the sector is challenging.

The financial position has improved for all 22 councils this year due to extra funding received to help with the pandemic, but some councils are better placed than others to respond to future challenges.  

Public borrowing overall has increased due to the pandemic, and Welsh Government allocated £660 million additional funding to help councils cover their loss in income and their extra expenditure over 2020-21. Councils also received other funding from Welsh Government, including extra funding for teachers to cover the cost of catch-up support from education and cleaning materials.

This extra short-term funding means that councils’ financial positions have improved, the costs of COVID-19 have been mitigated and councils have not generally relied on their reserves to balance their 2020-21 budgets.

However, councils face uncertainty over future funding levels and longer-term challenges remain.  

Today, we have also published A Picture of Local Government [opens in new window], one of a series of reports looking into the Picture of Public Services [opens in new window] which delves into this topic further.

Prior to the pandemic, councils were facing a financial squeeze. The core funding from the Welsh Government has fallen by 17% in real terms over the past decade. Councils have partly offset that cut by a 35% increase in money raised through Council Tax, but overall council spending fell by 8% in the last decade.

Looking forward, the demand for local services is rising, while budgets across the public sector seem set to remain tight. There are big challenges facing councils as they look to manage these pressures while also recovering from the pandemic and responding to the global challenge of climate change.  

Our review recommends 4 key steps which councils can take to improve their financial sustainability. These 4 steps are centred around:

  • Financial strategies
  • Reserves
  • Performance against budget
  • Savings delivery

The pandemic has highlighted the importance of local government services and local government plays a key part in the recovery of the pandemic. Though councils have been supported financially through the pandemic, they need to implement strategies to improve their longer-term financial sustainability to ensure they are able to provide essential services that keep communities safe and healthy.

Our Picture of Public Services report and supporting summaries set out further information and outlines our perspective of some of the key issues for the future.

Auditor General, Adrian Crompton
Financial Sustainability of Local Government – COVID Impact, Recovery and Future Challenges
A Picture of Local Government