Ministers draw up plans if Welsh council goes bust

Councils fund schools, care services, waste collections and some local transport

Welsh government ministers and officials are preparing for the possibility that some of the country's 22 councils could go bust.

Senedd members were told that while no council has asked for help yet, local authorities were finding things "really difficult".

A number of local authorities in England have effectively declared themselves bankrupt in recent years, and Welsh councils have also warned that they could end up in similar trouble.

Recent reports by the watchdog Audit Wales concluded that there are significant risks to the "financial sustainability" of two Welsh councils - Flintshire and Merthyr Tydfil.

Judith Cole, deputy director for local government finance policy, spoke when she appeared before a Senedd committee on Thursday.

She made her comments after Local Government Secretary Jayne Bryant revealed that ministers were "jointly developing, with local authorities, a protocol to apply in case of significant financial challenge".

Last November local authority leaders told BBC Wales it was only a matter of time before a council went bankrupt unless cash pressures eased.

Local authorities provide a range of local services, including schools, social care, waste collection and some local transport.

They receive most of their funding from the Welsh government, with additional revenue coming from council tax and business rates.

At a local government and housing committee scrutiny session on Thursday, Ms Cole told Senedd members: "There is nobody who has formally come to us and say 'we need help' at this point."

But she added: "What we are conscious of is that the sector as a whole is saying it's really difficult and therefore it's sensible for us to have those discussions now about what we would do if they got to that state.

"That's why we're working up, as the cabinet secretary said, a sort of protocol that says how would they approach us in those circumstances, can we have a no surprises approach and what are the sort of steps we'd expect them to take and the sorts of steps that ministers might be able to offer."

Ms Cole was responding to Conservative Brecon and Radnorshire Senedd member James Evans, who asked if any local authorities in Wales were facing "particular financial challenges".

'Spiralling costs'

Welsh Conservative shadow finance and local government minister Peter Fox said that after "25 years of Labour’s outdated funding formula, there is a real possibility of Welsh councils declaring bankruptcy".

“At least two Welsh councils are sounding alarm bells, they must be listened to, with bold action taken where necessary," he said.

Fox called for a "fundamental rethink" of Welsh government funding for councils, replacing the current system with one "fair for all councils so that essential public services can be maintained across all of Wales”.

An Audit Wales report on Merthyr Tydfil council, published earlier this week, found "significant risks to the council’s financial sustainability" because it "does not currently have a plan to address its medium-term funding gap and does not have a long-term approach to improve its financial".

Last month, the watchdog concluded that Flintshire council's financial sustainability was at "serious risk".

Audit Wales said it was not convinced that Flintshire could find ways to transform itself "on the scale required by its financial position", given its "low level" of financial reserves and "spiralling costs in some service areas".