One or two Welsh councils near bankruptcy, says watchdog

“One or two” of Wales’ councils are close to going bust, Wales’ public spending watchdog has said.

Councils reacted with concern last week after the Welsh government announced an extra £169m in funding for next year – less than a third of what they said they need.

The auditor general, Adrian Crompton, said councils face a “real squeeze” as costs spiral for children’s care and other services.

It could mean major cuts if a council failed to balance the books. The Welsh government said its budget plans provide councils with £6.4bn to deliver key services.

Councils operate schools, collect recycling, maintain roads and fund libraries.

There have been warnings for years that some Welsh councils could face serious financial difficulties, in the way some authorities have in England.

While councils cannot go bust like companies, they can declare what is known as a section 114 notice – a legal instrument which says the authority is about to spend money beyond its means.

The notice usually means the council will meet in a few weeks to discuss how to avoid that – usually resulting in significant cuts to services.

Ministers have previously drawn up plans for what to do if this happened in Wales, but no Welsh authority is yet to issue a section 114 notice.

Adrian Crompton did not name the councils when he spoke to Vaughan Roderick’s Sunday Supplement programme on BBC Radio Wales.

“What we’re seeing now is that one or two local authorities are very, very close to the edge in terms of their financial sustainability,” he said.

“It wouldn’t take very much to push them over that edge as we’ve seen happen to some local authorities in across the border in England.”

He said councils have a statutory duty to deliver a lot of their services – meaning they are required by law to provide them.

“Some areas of service where we’re seeing really sharp cost growth, areas like children’s services or the provision of temporary accommodation. These are largely demand-led areas, so not within the gift of local authorities to control directly.

“They have to deliver those services, and if they’re faced with some unexpected cost in those areas that could be sufficient in a few cases to tip them over the edge.”

Last week the Welsh government announced it planned to boost council coffers by 2.7% to £6.4bn.

But the £169m increase was less than a third of the £560m shortfall local authorities think they will face.

How much councils will ultimately receive may change as a result of talks the Welsh government is holding with other parties to agree next year’s budget.

A source in local government said there was optimism that the final figures will be higher.

Finance Secretary Mark Drakeford has also said he would like to give councils more cash to spend.

In a Senedd committee on Monday, Drakeford said he was “particularly alert” to the special circumstances facing local government.

“I expect that to be an important part of the conversation with other parties,” he added.

A Welsh government spokesperson said: “Our provisional budget provides local authorities with £6.4 billion to deliver key services, an average increase of 2.7%, with additional funding to ensure every council receives at least a 2.3% increase next year.”