Welsh councils will cut services or face Section 114 bankruptcy, warns Caerphilly council leader

A Welsh council leader has warned councils across Wales face bankruptcy if they do not receive more funding or make drastic cuts to some of their most important services.

Cllr Sean Morgan who is the leader of Caerphilly County Borough Council has spoken to ITV’s Wales This Week programme to detail the stark reality of the decisions the council is facing. 

It comes as another council across the border in England issued a Section 114 notice.

On Wednesday, Nottingham City Council effectively declared itself bankrupt.

Caerphilly currently has to make around £48.5 million worth of savings over the next two years in order to balance the books.

Cllr Morgan told ITV Cymru Wales’ Wales This Week programme: “The council is in a very difficult financial situation and therefore we have to make those changes which ensure that we direct our services at those most in need. 

“Ultimately if the demands on councils continue and the money doesn't come from central government to run those services we would be serving a 114 notice.

“This is a situation that many Welsh councils may be looking at over the next year or two.” 

Across Wales, council services are currently projected to cost around £400 million more than their budgets allow. 

Many now fear further savings would require making cuts to services that have so far been considered too important. 

Councillor Eluned Stenner is responsible for finance in Caerphilly council.

She is worried about what the council’s financial outlook means for residents and service users.

“The fears that I have is our residents they need to be looked after and supported by the local authority and we will do our best,” she said.

“But, with £48 million of savings something has got to give. But we don’t know at this present point at time what that will be. 

“The authority’s job is to provide a service from cradle to grave, and when you’re taking 48 million pounds out of the budget then it will hit services and the services that we provide to our communities.” 

Local authorities have statutory services that councils have to provide, including education and social services.

In Caerphilly, these two services alone take up around 60% of the council's entire budgets. 

Lewis School in Pengam is a secondary school in the heart of the Caerphilly county borough. 

It has running costs totalling £3.5 million each year. Around £3 million of that total is spent on staffing costs.

The school’s headteacher, Chris Parry, told Wales This Week the school is now in a position where it is assessing what subjects and services it can offer pupils.

“The issue for me as a head is that for the last 10 years or so we’ve probably been managing in real terms with less money each year,” he said.

“Probably the most difficult thing for me is often making decisions about which subjects you can offer. 

“In the past we’ve had a really successful drama department in school. We’ve got young boys and girls in the school that have come along and been incredibly successful in the arts. 

“Over time, the number of pupils couldn’t justify that we put those courses on and we’ve kind of lost drama out of the curriculum as a good example.

“For the first time this year actually we’ve set a deficit budget which means we’re spending more money than we take in. 

“So do I lose sleep over finance? Yes. Do I wake up at 4 o clock in the morning thinking about what are we going to do to make ends meet next year? Yes. Is it personally difficult for me as a head? Yes.”

Councils are funded through a mixture of money received from council tax and business rates, as well as through grants from the Welsh government.

These incomings are increasingly failing to cover their costs.

One approach councils can take to address budget shortfalls is using reserve savings, which act like saving pots reserved for emergencies.

However, nearly half of councils that responded to ITV Cymru Wales said they do not have enough money in reserve to plug the gap in their finances.

The Welsh Government is responsible for funding councils in Wales from money it receives from the UK Government. 

This is known as the ‘block grant’, and the total is calculated based on what the UK Government spends in England, also known as the Barnett Formula.

A spokesperson for the Welsh Government said: “Record inflation and economic mismanagement by successive UK Governments over the last 13 years has led to the most difficult financial situation since the dawn of devolution. 

“Following [the] UK Autumn Statement, our settlement for 2024-25 is worth up to £1.3bn less in real terms than expected at the time of the 2021 Spending Review. 

“As the Finance Minister outlined in response, the statement offered nothing new or meaningful for Wales, but was a disaster for public services across the UK which are being starved of necessary funding.

“Our funding position remains incredibly difficult and the decisions Welsh Ministers face are stark. 

“However, as part of our efforts to protect public services, we protected local government funding in our 2023-24 budget review and we are providing increased funding for local authorities in this financial year with a 7.9% increase across Wales on a like-for-like basis. This follows a 9.4% increase in 2022-23. 

“Despite this increased funding, we recognise that local authorities are facing difficult decisions and we continue to work closely with councils to meet the shared challenges we face.”

A UK Government spokesperson said: “The Welsh Government funds Welsh councils and is currently receiving the largest funding settlement from the UK Government in the history of devolution. 

“We are providing a record £18 billion per year settlement, which is still increasing in real terms over the 2021 Spending Review period.

“Following last week’s Autumn Statement there will also be an additional £305 million in Barnett Consequentials for the Welsh Government, on top of its record block grant, to spend on devolved responsibilities.”

The Welsh Government is expected to give an update on the funding for local authorities in their draft budget on the 19th December.

Watch Wales This Week: Councils in Crisis at 8:30pm on Thursday, November 30th on ITV Cymru Wales.