Local authorities across Wales are confronting a severe financial crisis that could lead to the loss of 14,000 jobs or require council tax increases averaging 22%, according to a stark warning from the Welsh Local Government Association.
Budget Shortfall Reaches Critical Levels
The WLGA, representing all 22 Welsh councils, has revealed that local authorities face £560m of financial pressures in the 2026/27 financial year - £100m more than initially anticipated. The situation has been exacerbated by what councils describe as an "extremely damaging" 2% settlement in the Welsh Government's draft budget, creating a £436m funding shortfall that requires immediate attention.
Ministers have proposed an average 2.5% funding increase with a protection floor ensuring no council receives less than 2.3%, but local authorities argue this falls dramatically short of what's needed to maintain essential services.
Auditor General Issues Bankruptcy Warning
Wales' outgoing auditor general, Adrian Crompton, has echoed the WLGA's concerns, telling the Senedd's finance committee that several councils are "very close" to issuing section 114 notices - the local government equivalent of bankruptcy.
"There are undoubtedly a few authorities that are very close to having to issue a section 114," Mr Crompton stated during his evidence on November 5. "Our assessment at the time of publishing our report was that none were about to, so they all had sufficient grip on their in-year position, so it wasn't imminent. But some are right at the edge."
Councils are currently forecasting a £184m overspend for the 2025/26 financial year, with Mr Crompton warning that unexpected cases in high-demand services could "tip authorities over the edge."
Spiralling Costs in Essential Services
The financial strain is particularly acute in demand-led services, where costs have escalated dramatically. According to WLGA evidence, the net cost of homelessness and temporary accommodation has exploded nearly eight-fold in a decade, rising from £12.8m in 2016-17 to £100.8m budgeted for this year.
Education services are facing equally severe challenges, with children's care and education accounting for the majority of the forecasted £184m overspend. One council reported that 33 primary and six secondary schools - nearly 70% of all schools in its area - were projecting deficit budgets.
Another authority revealed its schools had "completely eroded a £15m surplus balance into a £2m deficit" and projected a £9m in-year overspend. Multiple councils warned of job losses, depleted reserves, and class sizes rising above legal limits.
The financial pressure has become so intense that many councils are failing to meet basic accounting obligations, with Mr Crompton describing missed filing deadlines as a "slippery slope" for bodies "so close to financial sustainability."
Broader Systemic Challenges
Mr Crompton argued that the spiralling demands reflect a wider failure to shift spending toward prevention rather than crisis management. He revealed that his recommendation for the Welsh Government to "embed prevention into the budget-setting process" had been rejected, a decision he described as "disappointing" and something he didn't "fully understand."
Council evidence supported this assessment, noting that while policy "increasingly references the importance of prevention, this is not often reflected" in actual funding allocations. This mismatch has forced councils to cut non-statutory services such as leisure facilities, transport, and community resources.
The auditor general's warning extends beyond local government, with his assessment concluding that Wales' entire model of public service delivery is "unsustainable on its current trajectory." He told Senedd members that demand is consistently "outstripping" funding and critical areas have been "hollowed out" after two decades of tight budgets.
This unsustainable model affects multiple sectors, with Mr Crompton noting that all seven health boards in Wales have breached their statutory duty to break even, further illustrating the systemic nature of the financial challenges facing Welsh public services.
