Having looked at how local government in Wales has got to where it is, next it’s worth examining how local government in Wales operates.
Local government finances will likely be at the top of everyone’s list because, “Yes, but how much will this cost?” is the most popular question asked concerning anything in Welsh politics these days – independence-related or not.
This is a summary of some (probably not all; I’m bound to have missed something) of the budget elements that fund the unitary authorities, town and community councils and other elements of local government.
This is how things looked in 2019-20:
The graphic is pre-pandemic and things look a bit different now. For example, housing benefit has been/is being phased out by universal credit and councils received additional funding to cope with the Covid-19 pandemic.
The figures mentioned below are for 2022-231 unless stated otherwise. Total expected spending by local government in Wales for 2022-23 was just under £6.95billion (this figure doesn’t include spending on the UK Government’s behalf).
Core Elements
Revenue Support Grant (£3.974billion) – This is a straightforward share of the Welsh budget. The revenue support grant is set at a level to ensure each local authority can provide a consistent level of services based on national average spending based on the cost of providing different services, populations and demographics (called a Standard Spending Assessment).
The level of grant to each council is calculated using a formula for its Standard Spending Assessment, its share of redistributed business rates and the county’s council tax base (worked out using Band D as the average).
Councils can decide how to spend this money themselves, though a portion of it may come from the Welsh Government for specific purposes – for example, funding for sixth forms, the pupil deprivation grant, funding bus services and free childcare schemes. These specific grants totalled £1.19billion in 2022-23. Councils were also awarded £150million in general capital funding during 2022-23 which they can spend on new projects and infrastructure of their choice.
Council Tax (£1.838billion) – A tax on households based on property values. Each domestic property in Wales is placed in a band from A (lowest value) to I (highest value). As mentioned, Band D is considered to be the “average” and is what most figures are based around. There are exemptions (such as student accommodation) and discounts available (i.e. for carers, the disabled and single people). Some local authorities have started to apply premiums to bills for second homes that aren’t occupied all year round, while rules have changed to make it more difficult for holiday lets and second homes to avoid council tax. Each council keeps the council tax they raise for themselves.
Non-Domestic/Business Rates (£1.135billion)2 – This is a tax levied on business properties. It’s set based on the value of the property (called “ratable value”) times by a multiplier set by the Welsh Government (0.535 in 2022-23). Councils don’t keep the rates they raise for themselves. Rates are redistributed across Wales using a formula based on the share of the Welsh adult population living in each unitary authority. A share also goes to fund policing, while the Welsh Government funds business rate relief for qualifying businesses to cut or eliminate bills.
Precepts & Charges
Council Tax Precepts (~£432million; not counted in local government spending figures) – Precepts are top-ups to council tax bills set by Police & Crime Commissioners as well as town & community councils (where applicable).
In 2022-23, the average (Band D) policing precept was £318, while the average town & community council precept was £40. Total income from council tax precepts for the four police forces in Wales based on this was £380.9million in 2022-233, while an estimated total amount raised in town & community council precepts would be somewhere in the region of £50.6million4.
Fire Service Charges (~£172million in total; charged to councils from their budgets) – Unlike the police, the three Fire Authorities don’t set a precept. Councils are charged directly for fire and rescue services, with changes passed on to council tax bills. Top-up grants are also provided to fire services by the Welsh Government, while fire authorities also have borrowing powers.
Other income & expenditure
Borrowing – The 22 unitary authorities and town/community councils have powers to borrow money, usually for capital spending. The legacy Public Finance Initiative and more recent Mutual Investment Model projects could be considered a form of public borrowing by councils too (particularly for the construction of new schools). In 2022-23, the 22 unitary authorities were expected to spend around £350million in total on debt financing (repayment of the principal and interest).
Town and community councils can borrow money with Welsh Government permission, albeit under stricter guidelines on what the money can be used for. Borrowing requests above £50,000 usually require a full business case but, theoretically, there’s no upper limit5.
Reserves – This is money set aside as “savings” or emergency funds by each council. These reserves can be put towards future projects (earmarked reserves) or used to manage in-year spending changes (general reserves). As of March 2021, the 22 unitary authorities held £2.13billion of usable reserves, though only £224million of that hadn’t been earmarked or ring-fenced in some way6. Councils are required to set minimum reserves as a % of overall spending each year as part of good accounting practices.
Charges, Fees & Fines – Councils can levy charges for certain services and also collect fines for low-level offences such as dog fouling and littering. In 2019-20, this was estimated to have raised £1.3billion in additional income for councils across Wales7. However, many councils lost this income during the Covid-19 pandemic (i.e. fewer people using pay and display car parks), which had been partially offset by Welsh Government Covid-19 grants.
1. Welsh Government (March 2022). “Final Welsh Local Government Revenue Settlement 2022-2023”. Available at: https://gov.wales/sites/default/files/publications/2022-03/settlement-2022-2023.xlsx
2. Business Wales. “Business Rates in Wales”. Available at: https://businesswales.gov.wales/business-rates-wales#guides-tabs–0
3. StatsWales (24th March 2022). “Council Tax Levels in Wales: 2022-23” (p6). Available at: https://gov.wales/sites/default/files/statistics-and-research/2022-03/council-tax-levels-april-2022-march-2023-003.pdf
4. A national average of £ 40 per community council with a tax base of 1,265,370 Band D equivalent properties (40 x 1,265,370).
5. Welsh Government (June 2019). “A Guide to Community & Town Council Borrowing Approvals”. Available at: https://gov.wales/sites/default/files/publications/2019-06/borrowing-approvals-guidance-for-community-and-town-councils.pdf
6. Welsh Government (May 2022). “Local authority reserves: 2020 to 2021” (Table 1). Available at: https://gov.wales/sites/default/files/publications/2022-05/whole-of-government-accounts-2020-2021_0.pdf
7. Wales Fiscal Analysis, Cardiff University (April 2021). “Local Government & The Welsh Budget” (p46). Available at: https://www.cardiff.ac.uk/__data/assets/pdf_file/0009/2513619/lgf_outlook_2021_7.pdf
