The pressure facing local government risks becoming the norm, with budgets squeezed for over a decade. Despite recent uplifts in core funding, as well as increases to council tax, local government finances are struggling to keep up with rising service demand, inflationary pressures and workforce challenges.
Local government estimates it’s made £3bn of cuts and efficiencies since 2009-10. Inevitably, funding pressures have led to a reduction in services provided by councils, with non-statutory services such as libraries and leisure centres often feeling the greatest impact.
As councils grapple to balance the books, households have been asked to pay more in council tax. You might forgive residents for thinking each year they’re paying more for less.
Local government funding: a priority but remains under pressure
Around a quarter of the Welsh Government’s budget for day-to-day spending is allocated for local government, only health receives more. The Welsh Local Government Association (‘WLGA’) estimates Welsh Government grants (including the Revenue Support Grant) make up around 70% of total council revenue. The remainder is made up of redistributed non-domestic rates (NDR, also known as business rates), council tax, and other income, such as parking fees.
The previous Welsh Government often said it was prioritising local government funding. However, the overall picture for council finances has been difficult. Wales has an ageing population and growing complexity of service user need. Local government is also experiencing workforce pressures, such as with the recruitment and retention of staff.
Prior to the Welsh Government’s Final Budget 2026-27, the WLGA estimated the additional funding needed to meet local authority budget pressures could total £1.6bn over the next three years. The Auditor General for Wales said some councils are at “the very edge of financial sustainability”. In November 2025, during the last budget round, he suggested some local authorities were close to issuing section 114 notices, commonly referred to as a council going ‘bankrupt’.
There’s also significant uncertainty around what the new Welsh Government will have to spend, with the current outlook anticipating tight budgets beyond 2026.
The debate about the amount of public funding allocated to local government is likely to continue, as will discussions about how it is distributed. The WLGA says some datasets underpinning the funding formula are outdated, and highlights growing calls from councils for a “thorough, independent and external review”. The previous Welsh Government indicated a review of the data was underway, but whether the new Welsh Government perseveres with this, or decides to undertake a broader review of the funding formula, will become clearer in the months ahead.
Increasing costs in social care and schools
Education and social services account for the majority of local government spending. The WLGA estimates schools and social services alone will make up around 60% of financial pressures in 2026-27.
Local authorities have statutory duties to provide these services, and with ever increasing demands in these areas, there’s little flexibility in other budgets. The WLGA says “spending on services other than education and social services reduced by over a quarter (adjusted for inflation)” from 2009-10 to 2022-23.
Using figures from HM Treasury, Cardiff University’s Wales Fiscal Analysis estimates that between 2019-20 and 2024-25, local government resource spending on education increased in real-terms, from £3.6bn to £4.0bn (around 12%). On social protection (primarily social services), spending increased from £2.7bn to £3.2bn (almost 19%).
Growing demand for children’s social services, in particular the number of children looked after by local authorities, is one example of the increasing pressure on councils. The number of children looked after by local authorities has increased by 28% in the last decade, and the WLGA projects financial pressures (that is the funding gap between what they have to spend now and what they expect to have to spend in addition to this in future years) of £24m for 2026-27 in relation to children’s residential placements. In adult services, there’s over £20m of estimated pressures in residential and domiciliary care. The total pressures for social services in 2026-27 are estimated to be around £200m.
Better integration between health and social care is often pitched as a possible long-term solution to the sustainability of the care system, something the Welsh NHS Confederation has called for recently. As part of its asks of the next Welsh Government, it wishes to see an independent rapid review to develop a long-term agreement on the sustainability of the social care system.
In schools, reserves built up during the pandemic are now diminishing, with some schools slipping into deficit. The WLGA says, for 2025-26, school pressures were mainly based on demand for services, particularly Additional Learning Needs (ALN), with almost £29m ALN cost pressures anticipated in 2026-27 alone. Pay has also been a significant factor for schools (as it has been in other council services), with the majority of the anticipated pressure in 2026-27 expected to come from pay inflation. The overall estimated pressures in schools are around £137m in 2026-27.
Council tax: rises, revaluation, reform?
While a significant proportion of local authority funding comes direct from the Welsh Government, councils also raise income through council tax to support local service delivery. Average band D council tax bills have been rising at a faster rate in Wales than elsewhere. Academics from Cardiff University estimate Welsh council tax revenues in 2025-26 were £440m higher than if they had increased in line with England since 2010-11, and £750m higher than Scotland.
The all-Wales council increase in the band D level in 2025-26 was 7.1% with some local authorities raising council tax by more than 9%. The increase is lower in 2026-27 at 4.8%, with increases ranging between 3.6% and 6.5%.
The Council Tax framework has been in place since 1993. However, evidence shows households living in lower bands pay a higher proportion of the value of their house in council tax than those living in a higher property bands. Since the 2005 revaluation, there’s also been significant, and variable, changes in house prices, meaning what some pay may not be reflective of current circumstances.
The previous Welsh Government took steps to reform council tax, which also featured as part of the co-operation agreement with Plaid Cymru. Among other things, the Local Government Finance (Wales) Act 2024 set in motion a full revaluation of all homes in Wales in 2028 - three years later than originally planned. However, putting this into action will be the responsibility of the new Welsh Government, if it chooses to do so.
Digital dividends might not be straightforward
While transformation and innovation aren’t new to local authorities, some have questioned the feasibility of delivering further efficiencies in the face of continued pressure. So where else might councils turn?
Digital and artificial intelligence (AI) solutions are often cited as opportunities to deliver sustainable, people-focused services, alongside cost savings. The Wales Centre for Public Policy outlines how effective use of data and digital tools can inform decision-making and shift resources towards prevention.
Councils have invested in this area in recent years, but their challenging financial position makes longer-term investment in digital solutions harder to justify. Alongside this, the Auditor General for Wales warns the basic building blocks of the public sector’s technological infrastructure needs to be addressed, with many organisations operating from “a pretty antiquated position”. The WLGA has called for the new Welsh Government to commit to implementing and “fully resourcing” the Digital Strategy for Wales.
Firefighting vs forward planning
The WLGA says “Without long term, sustainable funding, councils cannot move from firefighting to the forward planning our residents deserve”. In 2024, the Auditor General argued “[w]e cannot rely on the way things have been done in the past to future-proof our public services and, if starting from a blank sheet, we would be unlikely to design things the way they are”. Without a step-change in funding or approach, the current strain on councils will likely continue.
Article by Osian Bowyer and Owen Holzinger, Senedd Research, Welsh Parliament
