Auditor General stresses importance of good governance amid warnings that local government in Wales is financially unsustainable over medium term unless action taken

While councils in Wales generally know the scale of their funding gaps, they do not have longer term plans in place to address them, the Auditor General has warned.

In a report, Financial sustainability of local government, Adrian Crompton said: “This leaves them vulnerable to short term decision making that may not represent value for money or be in the longer-term interests of local communities.

"That runs counter to the expectations of the Wellbeing of Future Generations Act, which places long-term thinking at the heart of organisational planning.”

The report follows an examination by Audit Wales over the spring and summer of 2024 of the sustainability of each of the 22 councils in Wales.

The Auditor General said Audit Wales’ examination highlighted the importance of good governance to financial sustainability.

He said: “That means having clear strategic leadership, a detailed and well-communicated understanding of the financial position, and effective oversight and collaboration by elected councillors. In such an environment, value for money is more likely to be at the heart of decision making. I echo the view of my counterpart the UK Comptroller and Auditor General that promoting productivity and making public money work harder should be focuses for the whole public sector.”

The report found significant risks to the sustainability of local government finances which were likely to increase over the medium term without action to alleviate them.

It called for “a transformative shift” in approach to move beyond setting an annually balanced budget to achieving value for money and financial sustainability over the medium-term. 

Audit Wales added that it had heard from some councils that national issues or processes made financial planning more difficult. “These included concerns relating to the local government funding formula and funding settlement, and the increasing responsibilities being placed on councils.”

The Audit Wales report noted that some councils in Wales were better placed than others to weather the financial challenges ahead.

“But given the scale of the funding gaps projected for local government in the coming years, all councils will need to keep up or increase the pace of change if they are to meet the urgency and scale of the challenge."

The Welsh Government will also need to support the sector in meeting this challenge, it added.

Adrian Crompton, Auditor General, said: “Councils have taken difficult decisions to manage their finances through a long period of financial constraint. But as the cumulative impact of that restraint builds we cannot assume that local government will remain financially sustainable….

“Put simply, local government is financially unsustainable over the medium term unless action is taken, by those who support and interact with the sector as well as councils themselves.”