– in the Senedd at 6:14 pm on 8 March 2022.
The next item is the debate on the local government settlement for 2022-23. I call on the Minister for Finance and Local Government to move the motion—Rebecca Evans.
Diolch. Today, I'm presenting to the Senedd for its approval the 2022-23 local government settlement for the 22 unitary authorities in Wales. Firstly, I'd like to record my thanks to local government for both the way in which they have approached this settlement round, and for the critical work that they do day to day in our communities and for people and businesses across Wales, particularly, of course, given the events of the past two years. I hope that you'll join me in thanking them for their hard work and their dedication. In preparing for the Welsh budget, and this settlement, we have engaged with local government throughout the process. I am grateful to local government for the way in which those discussions have been held, and to my officials for the detailed and careful work that they have undertaken as part of this process.
This year, I am pleased to propose to the Senedd a settlement for 2022-23 that is 9.4 per cent higher than that in the current financial year on a like-for-like basis. This equates to an increase of £437 million over 2021-22, with the smallest local authority increase in this settlement, 8.4 per cent, higher than the increase for any authority in any prior settlement for at least 17 years. In 2022-23, local authorities in Wales will receive £5.1 billion in general revenue allocations, from core funding and non-domestic rates. This is a good settlement for local government, including Wales-level core funding allocations for 2023-24 and 2024-25. It provides local authorities with a stable platform on which to plan their budgets for the coming financial year and beyond.
We have worked closely with local government, and we appreciate the pressure that they're facing. We will continue to protect local government, particularly at this difficult and challenging time. In making decisions about the level of funding for local government, I responded to the need to ensure that hard-working staff receive a well-deserved pay rise in future. In particular, I've included funding to enable local authorities to meet our real living wage for social care commitment, as well as the increased costs of teachers' pay and, more widely, to cover the increased costs local authorities will face as a result of the UK Government's announcement to increase the national insurance contributions for employers.
In addition to the core unhypothecated funding delivered through the settlement, I'm grateful that my Cabinet colleagues have provided indicative information on revenue and capital grants planned for 2022-23. These currently amount to nearly £1.2 billion for revenue, and over £740 million for capital for our shared priorities with local government. General capital funding for local government for 2022-23 will be set at £150 million. This will increase to £200 million for the following two years, including £20 million in each year to enable authorities to respond to our joint priority of decarbonisation.
In addition, I wrote to local authority leaders last month to announce a further £70 million capital in the current financial year, to support authorities' overall capital programmes, including impacts on highways. I am also announcing today an additional £60 million, to be added to the current year's settlement, to support local authorities in managing their budgets more effectively over the period 2021-22 to 2024-25, against the context of inflationary and service pressures and the ending of the local government hardship fund. This funding will also enable local government to respond to their ambition to increase their domiciliary support service capacity, through funding driving lessons and providing access to electric vehicles. This will also help authorities continue to decarbonise their services and respond to the climate and nature emergency. The publication of the latest report on climate impact and adaptation by the Intergovernmental Panel on Climate Change shows just how important it is that we all do so. I ask the Members of the Senedd to support the motion.
Thank you to the Minister and the Welsh Government for bringing forward today's debate on the 2022-23 local government settlement. At this point, I'll just declare an interest that I still am an elected member of Conwy County Borough Council, and, sadly, after 14 years, that will soon be changing this year. I'd certainly like to join the Minister in recognising the exceptional work carried out by our councils throughout the COVID-19 pandemic. They went above and beyond in providing those exceptional services to local people, and showed what can be done when they are enabled to do so. But it's crucial to note that this good work occurred before the pandemic as well, and will continue after, which is why this and future local government settlements are so important. Councils must be adequately funded, to enable them to deliver the high-quality public services that our residents need.
The settlement always has the potential to unleash councils and allow them to maximise their potential. On this side of the benches, we don't believe this has occurred in this here today. There are three areas that I would like to raise that highlight this issue in particular. The first is in relation to the local government funding formula. As council leaders and the WLGA have stated, a 9.4 per cent increase in funding is, of course, welcomed. I certainly acknowledge this significant increase in funding for councils. Nevertheless, this funding comes after years of underfunding. It's also important to note that, despite this 9.4 per cent increase, over the last decade, Welsh Government revenue funding in real terms has decreased by around 17 per cent through to councils. And despite this big increase, we're still seeing councils up and down Wales having to raise council tax significantly to deal with the pressures that they are facing.
An area this points to in the funding formula, which perhaps needs further consideration, is around the reserves held by councils. Some councils have significant usable reserves, which, in my view, should be used to benefit citizens and not held back. An example of this is that in 2021, the financial year previous to this year, Rhondda Cynon Taf, Swansea and Caerphilly councils had the biggest amount of usable reserves at £208 million, £183 million and £180 million respectively—nearly £600 million-worth of reserves between three councils there. Other councils such as Merthyr Tydfil, Conwy and Monmouthshire had reserves of £27 million, £30 million and £32 million respectively—less than £90 million between them. There's an issue there in how some councils are able to continue to have significant funding, with significant levels of reserves, but others will be struggling. Another issue around the funding formula is the data that's used, and I've raised this previously in the Chamber. Thank you, Minister, for acknowledging some work that you and your officials are likely to do on this and to review, because some of aspects of the funding formula are over 20 years old—some of the data points. Thank you for looking to review that and I look forward to an update on that as soon as possible. That's the first area—the funding formula.
The second area that is an issue, in my view, is a very recent one. I haven't heard anything today around how those who are fleeing Ukraine will be supported via councils. It's likely that councils will be housing those refugees coming out of Ukraine. I'd be interested to know whether consideration has been put into the funding formula and the settlement to enable councils to properly support those who are fleeing Ukraine over the coming weeks and months. We know that councils are already stretched in housing services. Many councils are having to put significant sums of money into housing at the moment. So, further support there, I'm sure, is needed to enable councils to deliver services properly.
Finally, there continues to be concern with councils regarding the Government and Plaid Cymru's co-operation agreement, specifically the effects it'll have on services delivered by those councils. We already know that the co-operation agreement has committed to taking some powers away from councils and radically changing council tax. Those will be significant new asks of councils in delivering many new policies, not all of which seem to be fully or appropriately funded. So, I'd be interested to hear if the Minister has any concerns with the financing and delivery of some aspects of the co-operation agreement that is in place at the moment.
And to conclude, Deputy Presiding Officer, as I'm sure the Minister has already acknowledged, we do, in the Welsh Conservatives, support the increase in the local government settlement and appreciate the positives that this will have for councils. However, we do regret how the local government settlement continues not to deal with some of the issues I've raised today. In light of this and what I've outlined, we will be abstaining today. Nevertheless, I'd like to thank the Minister for the funding acknowledged in the settlement and for her continued co-operation and discussions on the settlement. Diolch yn fawr iawn.
I also want to start my contribution to this debate in the proper place by thanking councils, councillors and the staff of local authorities for the exceptional work that they've done over past few years. They have proved, if it needed to be proved—I don't think it does—the importance of that level of government, perhaps closest to the coal face. They stepped up, of course, and created the bespoke solutions, reflecting the needs of their local communities in a way that a national government couldn't have done. I think it's important that we recognise that and bear that in mind when it comes to discussing the shape of local government for years to come.
The increase of 9.4 per cent in the settlement is something to be welcomed. It is certainly a bigger increase than many in local government had expected, and we could say that it's generous. Certainly, at first sight, it is generous. But when you then realise that the reality is that many of the elements funded outwith the RSG in the past are now part of the settlement, and if you add that backdrop of increasing costs, inflation being significantly higher than some of us would have anticipated, and certainly higher than any of us would want, and the commitment to salary increases, which is of course the right thing to do, then all of a sudden the settlement doesn't look quite as generous as it would have done otherwise.
Year 1 tells one story, but years 2 and 3 tell a very different story, don't they? Because the settlement is flat for years 2 and 3, to all intents and purpose. If we do recognise that there are going to be challenging elements in the year to come, well, that's going to be intensified significantly in the years beyond that. So, I do think we need a reality check, although of course we do welcome the increase. It is greatly needed, because there will still be huge pressures on that funding, and the need to increase council tax will remain in order to respond to those pressures.
Although we're coming out of one crisis, the COVID crisis, we are entirely aware of the new crises facing us now in terms of the cost of living and the situation in Ukraine, and so on, and that's going to make a difficult situation more difficult. Food costs are increasing, fuel costs are increasing, and there are implications for local authorities, of course—in terms of schools, education services, care and all sorts of other services. The costs are increasing at exactly the same time as the demand for many of the services provided by local authorities is also increasing. So, the question is, essentially: how much scope is there to step into the breach next year if things deteriorate more than we are anticipating? To what extent does the Government have plans or funding in reserve in order to step in if need be?
I also want to echo the point made on the funding formula and to repeat what was said a few weeks ago in that debate. Whilst it's right that the Government looks at how council funding is collected through council tax, I think it's also appropriate that we look at how that is distributed. And not just look at the formula in isolation; we need to look at the bigger picture of the funding of local authorities. Because I hear in feedback from local authorities that many of the new responsibilities that have been handed to local authorities that are supposed to be cost neutral in reality do bring additional costs in many different ways. I don't think there's been an opportunity to look at the bigger picture when it comes to that funding scenario. The formula is dated. We would agree with that, and also agree that, whatever the formula is, there will be winners and losers. Of course that's the case. But I do feel that an independent review would be very timely indeed.
I'd firstly like to say it's really pleasing to see so many people sat in this room with very senior local government experience taking part in this debate. I think that can only add to the quality of debate on the local government settlement.
I welcome the settlement. It's good news for local authorities. Adjusting for transfers, the core revenue funding for local government in 2022-23 has increased by 9.4 per cent on a like-for-like basis, no authority will receive less than 8.4 per cent, and there are no smoke and mirrors involved. I think that we've seen in the past increases, and when you start digging into them, they didn't quite turn out to be exactly as much as we were expecting. This is really good news. Of course, it doesn't make up for previous budget cuts that have taken place, but it's certainly a step in the right direction in providing additional money for local authorities. It has been welcomed across local authorities. It's a good settlement for this year.
I can compare what I'm saying about this local government settlement to what I've said in previous years. I've described it as disappointing, leading local government to cut services, putting pressure on key services provided by local authorities, leading to the council being forced to increase council tax to make up some of the shortfall, not providing sufficient resources. This year, whilst not fully addressing previous cuts, it does allow local authorities to set budgets without cuts and without substantially increasing council tax. It's my expectation that, as local authorities set their tax rates, which most of them are doing around about now and in the next few weeks, most will set an increase of less than 2 per cent, and some will set a 0 per cent increase. The local government settlement is the aggregate external finance being provided to local authorities to top up its council tax precept in order for it to spend at the standard spending assessment level. Since business rates were centralised, this has meant that the aggregate external finance, which now includes business rates, makes up a bigger proportion of councils' income. What it is not is a total financial support for each local authority. Local authorities can raise money from council tax. They can raise income from charges and fees and this varies by authority. Some fees and charges, such as the cost of planning applications, are set centrally; others, such as car parking charges, are set fully at the discretion of each local council.
The local government finance settlement determines how much of the funding provided for Wales will be given to each local authority. This funding contains the revenue support grant and the non-domestic rate as stated earlier, and it is issued on the basis of a a needs-based formula. A Welsh Government and local authority working group, called the distribution sub-group, is responsible for ensuring the formula is reviewed regularly. I speak as somebody who once sat on a distribution sub-group and I hold my hand up: we got it wrong. It used to be 52 per cent of road was based on population, and 48 per cent on road lengths. We decided to make it 50:50. It doesn't seem like a big change, does it? Well, it actually moved several hundreds of thousands of pounds out of Swansea, Cardiff and Newport, and put them into Gwynedd, Pembrokeshire and Powys. So, little changes can have huge effects.
The distribution of properties in each band varies enormously. While some authorities have over half their properties in the lowest two bands, others, most notably Monmouth, have over half their properties in band D and above. We would thus expect that those to get the largest Welsh Government support per capita would be Blaenau Gwent, Merthyr and Rhondda Cynon Taf, and the three lowest per capita to be the Vale of Glamorgan, Monmouth and Cardiff, due to the scheme making up for the council tax not being able to be collected. This actually is what happens. I thought the relative annual increase was based mainly upon weighted changes in population. Traditionally, Cardiff is the fastest-growing area in Wales, and has the largest increase, but this year, the largest increase is in Monmouthshire, followed by Cardiff. Cardiff is the third fastest-growing city in Britain; the two that beat it are London and Edinburgh. And what do London and Edinburgh and Cardiff all have in common?
I always ask for two things during this debate, and I was not disappointed this year. Firstly, I'm calling again for business rates to be returned to local authorities. That would reduce the amount being paid centrally. My second request, and I don't understand why it cannot be carried out, is to publish the calculations that produce the aggregate external finance for each authority. This must exist; that is how the funding is calculated. The sums are there: show your workings. I always say that, and I've said that about central Government as well in terms of the money we get from central Government. I'd like people to start showing their workings. Publish the calculations: you've got them, you only have to put them on the website. It would allow academics, local authorities and others to check that the amounts according to the formula are correct. If the Welsh Government does not voluntarily provide them, eventually a freedom of information request will force them to provide it. But I think it's important for everybody to see exactly how the calculations are worked out, and if they are getting the most that they should.
Can I declare an interest also, as a councillor of Monmouthshire County Council for a short period longer? And I absolutely share the sentiments regarding our councils and all they do. I've said many times that the greatest resource that a council has is its staff, and their staff have done fantastically, and continue to do so, and I thank them for that.
Members will recall that recently in this Chamber, as Llyr pointed out, we discussed the local government formula, so we'll remember that many from this side of the Chamber, and indeed, colleagues opposite, argued that the distribution formula was out of date, and certainly not fit for purpose, and I'm going to focus on that area again today. Members will also recall how I argued for the formula in that it didn't sufficiently recognise the needs of rural authorities and the issue of sparsity in any meaningful way, and thanks to Sam Rowlands for raising that point again today.
Deputy Llywydd, to prove this point, Members of the Senedd only have to open the link in today's agenda to the local government finance report and scroll to annex 2, identifying indicators and values used to calculate standard spending assessments attributed to councils. My colleague Sam Rowlands raised again today, but previously pointed out, how much of that data was so out of date, especially the dispersion and settlement data that is stated in the report, dated back to 1991. That aside, I want to focus on the key tenets of my concerns on the formula—that it doesn't sufficiently recognise the rurality and the unit costs of delivering services in rural and sparsely populated authorities. If you look through the indicators used to build the formula, there is, it seems, only dispersion indicators, of which there are four, that can be attributed to touching on rurality. They are stated in the report as being
'designed to capture the additional time and distance costs associated with service delivery to dispersed communities.'
But look at their contribution to the building of the final formula—they are miniscule, they are pence. For easy reference, Members, the explanation to the indicator is item 21 on page 18 of annex 2. There are several other very interesting and questionable indicators used to contribute to the formula, but I won't digress.
Deputy Llywydd, there are many other points that can be made on the inappropriateness of the current formula, as I have raised before, such as the clear evidence that it allows some councils to accumulate huge reserves, whilst seeing smaller and rural councils seeing their reserves diminished. Indeed, you only have to look at Welsh councils' statement of accounts report for any given year to look at their movement in reserves statements to see the accumulation of usable reserves and how they're planning to or have used them. All that said, today, Deputy Llywydd, is not about criticising the quantum being made available to local authorities in the budget, but I will continue to argue that the way the cake is cut up isn't fair, with some councils getting huge wedges and the others, especially rural councils, being thrown the crumbs via this current formula. If the Welsh Government really does care about the sustainability of our councils across Wales, and believe in fairness and the appropriateness of how they are funded, they would realise their distribution method is out of date, not fit for purpose and needs to be reviewed. Minister, please don't hide behind the usual rhetoric that you would commission a review if certain council leaders wanted it. You know that won't happen because you also know as well as I do that some of those councils would have to lose a little to make the formula and its distribution fairer. I urge you, Minister, to look seriously, without political lenses, at the funding formula ahead of future settlements. Diolch.
Please could I also declare that I am Flintshire county councillor? I will be standing down after 14 years in May. During the budget debates, we have discussed the importance of the public sector in delivering front-line services, contributing to the well-being of the nation and employing local people right across the region. And councils—. Sorry, I'm looking at the wrong thing here. Sorry, could I just start again? Sorry.
Take your time, but you've got less time on the clock.
Sorry. I was nearly passing out before with a face mask on. If I take it off I can breathe again. Sorry.
Please can I declare I'm a Flintshire county councillor? During the budget debates, we've discussed the importance of the public sector in delivering front-line services, contributing to the well-being of the nation, and I know across—. Sorry. Can I just give up?
Carolyn, take your time. By all means, there's no rush. You're the last speaker before the Minister. I'll give you plenty of time. Do you want to continue? Do you want to continue? Go on. As someone has said, go for it. You are a county councillor, you know the score, so be confident.
Okay. Right. Sorry. Thank you. Okay. I declare I'm a Flintshire county councillor. During the budget debate, we've discussed the importance of the public sector in delivering front-line services, contributing to the well-being of the nation and employing local people. Along with the healthcare sector, the councils are one of the biggest employers, providing local jobs in local areas. And I am pleased that the Welsh Government have protected local government with an average of 9.4 per cent uplift, compared to English councils' settlement of a 6.9 per cent uplift, and a three-year settlement to give stability and help with planning, especially after 10 years of austerity. I also welcome that the Minister confirmed during the budget debate that the local government funding formula will be analysed by the WLGA finance committee.
When we walk in our communities, we can see the benefits of Welsh Government investment: twenty-first century schools delivering fantastic learning environments; investment in care provision; low and zero-carbon council and social houses; safer routes in the community; active travel schemes encouraging walking and cycling to school and shops and access to work in a cleaner, safer environment. Welsh Government are paying due regard to the future generations and well-being Act and putting sustainability and a green recovery at the heart of investment, giving regard for nature and creating areas for biodiversity.
The cost-of-living crisis is now one of the biggest issues we face and I welcome the packages of support given by Welsh Government and the additional £200 million to deliver the commitment to extend free school meals to all primary school children and expand free childcare. I do remain concerned about funding for highway maintenance—and I would not be me without mentioning this—and the ongoing deterioration of roads, pavements and structures such as bridges following 10 years of austerity and lack of investment. Infrastructure also caused by natural disasters is also a serious problem, but I welcome the additional £48 million revenue and total investment of £102 million capital that was recently announced to help improve flood management and mitigation measures. And also during the budget process, the Minister mentioned an extra £70 million capital funding this year that we can also use for investment in highways, so I really welcome that—thank you. I hope that the Welsh Government will work with local authorities through the Welsh Local Government Association to address the backlog. Over the years, there have been some good examples of joint working, including exploring alternative approaches to prudential borrowing. And also, the review of the building of new roads will see that the funding will be reinvested in the maintenance of existing roads, which will be welcome, as well as public transport, going forward. Diolch.
I call on the Minister for Finance and Local Government to reply to the debate.
Diolch yn fawr. I'd like to thank all Members for their interest and their contributions to the debate today. Like Mike, who has his own local government experience, I would like to join him in really recognising the level of expertise that we do have in the Senedd. I do make a point, I hope, of making the most of that level of expertise that we have on all benches and I'm keen to continue those constructive discussions that we have on all matters relating to local government.
While this is a good settlement building significantly on improved allocations in recent years, I do recognise that this is still not a settlement that can reverse the years of constraint as a result of overall austerity in public finances. Local governments will still need to make some difficult decisions in setting their budgets and it is important, of course, that they engage meaningfully with their local communities as they start to consider their priorities for the forthcoming year.
The core funding we provide to local government is distributed, of course, through a well-established formula and it is created and developed in collaboration with local government and agreed annually with local government through the finance sub-group of the partnership council for Wales. And the formula is free of any political agenda and is driven by data and it does have collective buy-in from local government. The formula is constructed and governed in such a way that it can't be manipulated unfairly by any one authority or group of authorities or by politicians, whether they're locally elected councillors or Welsh Government Ministers.
There of course have always been calls for a fundamental review of the formula and, indeed, I recall that we debated this point in detail in one of the opposition debates just last month, but these calls have been isolated and not collective, because, of course, any formula produces relative winners and losers. But all authorities, as we've heard, will see an increase in funding on a like-for-like basis next year of at least 8.4 per cent. And I do want to reassure all areas of Wales that there's no deliberate bias or unfairness in the formula and to suggest so is unfair to those who engage so positively in the work that they do to deliver it.
Of course, the formula is kept under review and it's right that the core revenue funding is distributed according to relative need. The largest drivers of service expenditure are population levels, deprivation levels and sparsity, and the formula uses indicators of need as opposed to direct measures of service use to ensure that funding allocations can't be directly influenced or manipulated. It is the case that around 72 per cent of the funding distributed through the local government settlement formula relies on data that is updated annually. As a result of the pandemic and the staggered roll-out of universal credit, a number of the indicators are currently frozen and undergoing investigation by the distribution sub-group. But, once these issues are resolved, over 80 per cent of the funding distributed through the local government settlement formula will rely on data that is updated annually. And, of course, we very much look forward to the results of the census, which will be published over a series of weeks and months in the near future. And, of course, there will be other data that is available to update the formula. And this is one of the reasons why, of course, we've provided those clear funding allocations for year 1 of the spending review, but, years 2 and 3, we gave that all-Wales figure so that we could allocate funding on the most up-to-date kind of data.
I will just refer to a meeting that I had with the finance sub-group on 9 February, where we did discuss the issue of the suitability of the local government settlement funding formula and the timeliness of the data that feeds in to the formula. Local authority leaders noted the need for any funding formula to balance the need for stability in funding and responsiveness to changing relative needs. But we will discuss—. At our next meeting of the finance sub-group, in July, we'll be looking at components of the local government funding formula and whether there should be work to review some of those components in particular. So, I think that that is a welcome step.
Any change to the formula, of course, would result in winners and losers, and these could be substantial, and that's why I've said previously that, if there is that kind of collective appetite from local government to have that fundamental review, then of course we would act on it together. I will mention, though, that we have agreed to—or we have committed to—making council tax fairer in Wales. Of course, this is something that we're doing in partnership with our co-operation agreement partners in Plaid Cymru, although I'm not aware of a commitment in that agreement to take powers away from local authorities—I'm not sure that's something that any of us would have signed up to—but we are absolutely committed to working to make council tax fairer. As part of that work, we will be considering how the funding formula needs to respond to this and to other changing circumstances when providing authorities with stability and certainty. So, the formula will form part of our thinking, particularly when we get the updated indications as to what the change might be for local authorities in Wales as a result of any council tax reform. And when we start thinking about whether transitional arrangements are needed, for example, all of these things will inevitably have a link across to the funding formula.
And then just finally, to respond to the point relating to the situation in Ukraine, we are a nation of sanctuary, we are very much ready and willing to welcome people from Ukraine. And we had an absolutely incredible meeting, I thought, with the leader of the WLGA, the leaders of all local authorities in Wales, the third sector and the police, and my colleague Jane Hutt, the Minister for Social Justice, was also at the meeting—
Would you take an intervention, Minister?
Yes, of course.
We all see the horrific—what's happening in Ukraine. The quantum of refugees leaving now is in excess of 2 million, I think, reported today. There was a meeting last week by Government Ministers with colleagues in local government and the health boards. As Minister for Finance and Local Government, are you in a position to update the Senedd today as to what Wales can exactly put on the table as an offer for the refugees that will ultimately be coming to the United Kingdom? Because I think it's really important to understand what we can do in a meaningful and positive way.
We will absolutely give a meaningful and positive welcome to people coming from Ukraine. Obviously, there are discussions with local government in respect of any funding required. But I will say that, just reflecting on that meeting, it really was an example of compassionate leadership in action. And that's the kind of leadership that we are all absolutely crying out for our UK Government now to be starting to turn its mind to. Because compassionate leadership isn't about being a pushover or an easy or soft touch, it's about seeing people as people. And, you know, we talk about one of these refugees coming to Wales, but, of course, in the UK at the moment, we've just got a handful of them. So, when the refugees do arrive, they will be assured of a really warm welcome. And that meeting that we had with local government leaders and others last week, really did make me positive that we will be able to provide that kind of warm and important welcome to them, and the support, of course, that they will need after fleeing such terrible circumstances.
We would expect that there would be consequential funding from the UK Government in respect of any resettlement kind of schemes that it would introduce, but, of course, we're still waiting, really, for the shape of those schemes to be clear from the UK Government, but, of course, local government and Welsh Government stand ready to welcome people.
So, just turning back to the settlement, Llywydd, I do commend it to the Senedd, it does reflect our commitment to public services and continues to support local government across Wales to deliver for the people of Wales.
The proposal is to agree the motion. Does any Member object? [Objection.] There is objection, therefore we will defer voting on this item until voting time. And we now reach voting time, so we'll take a short break whilst we prepare technically for that vote. A short break.