First Minister Morgan Confident Welsh Councils Will Avoid Bankruptcy Despite Funding Shortfalls

First Minister Eluned Morgan has expressed confidence that local authorities in Wales will not face bankruptcy, even after the Labour leader of Flintshire council cautioned that the threat of financial collapse had not dissipated. On Wednesday, an average funding increase of 4.3% for councils was announced, totaling an additional £253m for the upcoming financial year. This amount is less than half of the budget deficit local authorities claim to be experiencing. Morgan stated that she understood any funding increase would “never be enough” but asserted that councils were now in a “much better place.” She further added that local authorities across Wales would be “breathing a sigh of relief.” Meanwhile, Mark Drakeford, Morgan’s Finance Secretary, defended his budget after academics suggested the government was likely overstating the extent of the funding increase for the next year. Speaking to BBC Radio Wales Breakfast, Morgan acknowledged the “massive pressure” confronting local authorities, but highlighted that funds were being made accessible for the first time “in a very very long time.” Regarding the potential for bankruptcy, she stated that the government had been closely monitoring councils. “We check their reserves, we check where they’re at. We are confident that we are not in the situation that they are in England, where many, many councils have gone bust.” “So of course, we will keep monitoring that situation,” she said. Morgan also voiced criticism of what she termed the “ridiculous system” for managing funding intended to cover the rise in national insurance (NI) contributions for public sector employers. Welsh ministers will not ascertain the precise amount of funding available from the Treasury at Westminster until May or June of the following year. The alterations to NI contributions are set to commence at the beginning of next April. She indicated that she would be pressing Chancellor Rachel Reeves to provide the Welsh government with improved foresight. She described herself as “pretty miffed,” but anticipated that the increased contributions for individuals directly employed by the public sector would be entirely covered. Uncertainty persists regarding whether private companies or charities that deliver services for the public sector will be encompassed. The First Minister stated that the average 4.3% funding increase for councils would, to some degree, mitigate any existing shortfall. Charities, voluntary organizations, the private care sector, and numerous GP and dental practices have issued warnings about the potentially detrimental impacts of NI increases on their operations. Darren Millar, the new Conservative Senedd leader, characterized the extended wait of several months to ascertain the amount of UK government funding allocated to assist Welsh ministers in addressing the NI increase as “completely unacceptable.” He stated that this situation represented “seven months of limbo for public services here in Wales,” and urged Morgan to “demand that the costs incurred be completely covered for the Welsh public sector and the services they commission.” “Clarity must be provided immediately, not in seven months’ time,” he added. Plaid Cymru described Morgan’s assurance regarding local government finances as “jarring when compared to warnings from council leaders.” Peredur Owen Griffiths, the party’s local government spokesperson, stated that local authorities were “already facing a £559m shortfall” and that “uncertainty around reimbursement after the national insurance hikes is going to make things even worse.” “Plaid Cymru is clearer than ever that Wales desperately needs a fair funding formula – something that Labour have given up on since their London bosses came into power.” During her interview, Morgan reiterated her aspiration for the longest NHS waiting lists, those exceeding two years, to decrease to eight thousand by the spring; this figure was over 23,000 in September. Over £600m in supplementary funding for the NHS was announced in Tuesday’s budget, in addition to £50m recently declared for the current year to aid in reducing the longest waiting times. Morgan explained that the additional funds would enable doctors and other medical personnel to be compensated for working overnight, evenings, and weekends in an effort to clear the backlog. Finance expert Guto Ifan of Cardiff University stated that Welsh government budget documents indicate an increase in spending of £959m in 2025-26, which represents a 2% rise in real terms, accounting for inflation. However, he estimated that £557m of day-to-day spending allocated for the current year had not been incorporated into these calculations. Had this amount been included, there would be “no real terms growth in the size of the day-to-day budget from 2024-25 to 2025-26.” In a blog post, Mr. Ifan noted that scrutinizing the figures was “more difficult than usual.” “This is because it means the stated growth in 2025-26 spending plans are likely to be overstated,” he said. He additionally cautioned that the upcoming year’s budget cycle is expected to be “more difficult, and might feel like a return to austerity for some public services.” David Phillips, from the Institute for Fiscal Studies, stated: “The Welsh government has yet to allocate all its funding for the current financial year. That means the budget documents likely overstate the year-on-year increase in spending that are implied by the plans set out for next year.” “If all the funding available for the current financial year is in fact needed this year, the draft budget would imply no increase in day-to-day spending on public services, after accounting for inflation.” Both individuals informed BBC Wales that the complete financial situation would only become apparent in February. Addressing the Senedd’s Finance Committee on Thursday, Mark Drakeford asserted that his budget “understates the impact of funding over these two years because we’ve had a significant amount of additional money available to us… this year.” “We’ve had more money [this year] than in any year I can remember for at least a decade.” Andrew Jeffreys, the Treasury director within the Welsh government, explained that certain items were omitted from this year’s budget calculations because “some of those are one-off funding allocations for things that don’t recur.” During the same session, Jeffreys confirmed that the anticipated UK government funding designated to cover increasing national insurance costs in the public sector is expected to be allocated via the Barnett formula, which is the system utilized to fund the Welsh government and is partially based on population. Drakeford stated that it would be “fundamentally unfair” if the allocated funding proved insufficient, and indicated that he would raise objections if such a scenario materialized. “If things worked out… where Wales doesn’t have full cover, whereas English public authorities do have full cover, well, I won’t simply be leaving it there,” he added. Additional reporting by Adrian Browne Copyright 2024 BBC. All rights reserved. The BBC is not responsible for the content of external sites. Read about our approach to external linking.