Welsh councils' cash cut by average of 3.5% next year

Financial experts at councils worry they have not got enough time to plan such deep cuts sensibly

Details of cuts to every local councils' budget from the Welsh government have been announced.

Funding for Ceredigion, Denbighshire and Powys will fall by 4.6% but Newport will only experience a 1.2% cut.

Prior to the announcement, the Welsh Local Government Association (WLGA) warned that most councils were unprepared for the scale of cuts.

Many of Wales' 22 councils have already started to plan for how they will meet their budget shortfalls.

It is expected that cuts to services such as libraries, refuse collections and public toilets will be made across the country.

The funding has been distributed according to a formula, taking into account factors such as the number of school pupils, the age profile and size of the local population.

Next year's funding is the first to be based on 2011 census figures. Rural areas will experience bigger cuts because of projected reductions in their populations.

Newport's settlement is less harsh because its population is rising and it has a large number of school pupils.

The government's draft budget last week prioritised the health service, with £570m extra for the NHS.

Plaid Cymru and the Lib Dems had made a deal with Labour before the announcement to allow the minority government to pass its budget when AMs vote on it in the coming months.

Making Wednesday's announcement, Local Government Minister Lesley Griffiths said the total settlement was £4.26bn.

She acknowledged the situation was "extremely challenging".

The minister said she had included a mechanism ensuring no single council faced an "unmanageable reduction in their allocation" compared to last year, and had transferred over £30m in grants to give councils greater flexibility in managing resources.

"I could not have been clearer about the future financial reality facing local government in Wales and I have provided warning of the likely shape of budget reductions," Ms Griffiths said.

"For the last three years, the Welsh government has shielded local government from the full force of the cuts to allow them to prepare for the transformational change necessary to maintain vital local services, whilst limiting any additional financial pressure on hard-pressed households."

Asked whether local authorities could raise council tax above the 5% limit set informally by the Welsh government, Ms Griffiths said: "I would have to look at that.

"I have made it very clear that I have powers to cap and I would have to look very closely at that. But, at the moment, no figures have been mentioned to me.

"I will have to see what comes forward and take the decision then."

She criticised Rhondda Cynon Taf for using the term "armageddon" in describing the local authority cuts earlier in the week.

Ms Griffiths said it was "over the top" and called on councils not to carry out "knee jerk" reactions.

She also said that modelling by the Welsh Local Government Association (WLGA) of a council tax rise of 3.5% was "probably about right" but said she did not have a specific figure in mind.

Conservative local government shadow minister Janet Finch-Saunders said: "Labour, the nationalists and Lib Dems agreed a very challenging settlement for Welsh local authorities, which means tough decisions and a forensic scrutiny of council spending.

"The challenge for local authorities is to resist the easy options of putting up the council tax bills of hardworking families or cutting frontline services.

"Welsh councils need to go through their budgets line by line and eliminate wasteful spending, improve their tax collection rates and deliver services in more imaginative ways.

The WLGA said councils were facing "unprecedented funding reductions".

It called for "less central regulation and prescription" to allow councils to change the way they run public services.

WLGA deputy leader and finance spokesperson Aaron Shotton said: "Whatever councils do, these cuts mean that the public services delivered by local government in Wales will look significantly different within the next three to five years.

"Communities throughout Wales will have to revise their expectations significantly in terms of what services they can realistically expect their local councils to deliver, and local councils and their communities will need to engage in some very difficult discussions on what services should be prioritised."

The challenges

BBC Wales' economics correspondent Sarah Dickins writes:

It is councillors in Ceredigion, Denbighshire and Powys who will really be feeling pressure with cuts of 4.6% in the money they get from Welsh government. In contrast, in Newport there will be relief that its budget from April is only being cut by 1.2%.

Councils have known for months that they will have many millions less to run public services such as social care, school dinners, leisure centres and roads than they have had this year or, for that matter, the year before.

Now they have to make decisions about whether to axe specific services, whether to get private companies to run them or whether the work can be done differently, for instance by volunteers or community groups.

They will also have to decide how much they can turn to residents for help by increasing council tax.

The cuts in funding from Welsh government will have to be found in what is in effect only one third of each council's overall money.

Around 40% of their budget is ring-fenced for schools and a further 25% is protected for social services. The remaining 35% does not just pay for services from school meals to gritting to refuse collection but also for councils' long-term borrowing arrangements.

A four-week consultation period now begins and councils' final budgets will be set by the end of February.

The options

BBC Wales' business correspondent Brian Meechan writes:

Councils have a number of options on the table as they face the squeeze.

Staff costs make up the bulk of most spending on public services. A Wales Audit Office report said the public sector would need to "identify novel ways of reducing their staffing bills". That could mean flexible working, with reduced hours or moving from full-time to part-time work.

It could also mean councils outsourcing some services, for example benefits, computing and technology, and facilities management, to private companies. This can involve the whole scale transfer of staff to the private sector but doesn't necessitate that.

Private companies have not proved a popular choice in Wales where local authorities have seemed reluctant to use them as a solution to their financial woes. It's also unpopular with trade unions.

But in England, it's a route that many councils have gone down.

Mouchel is one company that's profited from this approach. In partnership with Balfour Beatty Infrastructure Services, it maintains highways, road markings, public lighting and street signs for Westminster Council.

Meanwhile, Capita runs Service Birmingham, a joint venture with the council that provides IT services. The company says the partnership has led to improved services, reduced costs and created a more efficient, motivated workforce.

But there are those who believe that public services shouldn't be about creating profit for private companies and they're sceptical of the claims of improved efficiency.

The issues around profit and public services are what's led to a growth in Wales in what's come to be known as the "third sector"- it's neither public nor private.

While charities are a part of this, it goes beyond them to describe other organisations that are run as businesses with any profits being reinvested into the business or in other social activities.

Many of those third sector organisations are coming together in Cardiff today for the Social Enterprise Wales Conference and councils will almost certainly be looking at how much bigger a role they can play in future provision of services.

Some of the bigger examples of these are housing associations.

The growth in these over the last decade or so came from some authorities transferring the ownership of their housing stock to not-for-profit housing associations including Valleys to Coast which took over Bridgend's properties.

Neath Port Talbot council's leisure facilities meanwhile are run by the not-for-profit Celtic Leisure. It was set up in 2003, long before the financial crash and the cutbacks.

It's also happened on a smaller scale when local communities have come together to keep facilities going when they were threatened with closure, Harlech Swimming Pool and the Swansea Tennis Centre being two successful examples.

Of course, councils could save by working more closely together as the Welsh government has asked them to do.

Their track record though is far from convincing.

In 2012, Conwy and Denbighshire councils scrapped plans to merge highways departments.

The 22 councils are also supposed to be working together in 4 regional consortia to improve schools which the Education Minister, Huw Lewis, told Good Morning Wales earlier has "not been functioning very well".

If councils can't make savings by co-operation, attention may turn to whether there needs to be a reduction in their number as has happened with Local Health Boards.

Supporters of reorganisation say it will lead to savings as departments and senior roles are merged.

Those against argue that it would be a fraction of cuts that are required and would result in years of problems as councils are distracted from the task of delivering services within tightening budgets while dealing with dramatic changes to their organisations.

Cuts in action

BBC Wales' arts correspondent Huw Thomas writes:

The amount of money that councils spend on the arts and culture is a relatively small proportion of the overall pot, but these services are often funded without any statutory obligation by the local authorities.

The situation means there's never any certainty that the funding will continue if the financial climate deteriorates, and the prospect of a significantly tougher 2014/15 local government settlement has already prompted councils to review the services that they fund.

Cardiff council has proposed completely cutting the annual grants it gives to some arts organisations in order to save more than £220,000 - which includes stopping a grant worth £161,001 for Sherman Cymru.

Flintshire council is reviewing the annual amount it gives to Clwyd Theatr Cymru, which received £1m from the local authority in 2012/13.

Other local authorities are also reviewing the non-statutory services they fund, but some councils are also seeking to protect the cultural services that they consider to be a key part of their strategies for attracting tourism and investment.

Swansea is currently bidding to be named UK City of Culture 2017, and its joint bid with Carmarthenshire and Neath Port Talbot could mean those authorities are reluctant to significantly reduce their spending on the arts as the judges examine what the area has to offer.