Financial Stewardship

In 2007-8 local government was responsible for nearly £8 billion of public spending in Wales. This compares with expenditure of £4.9bn on the NHS and the total public expenditure in Wales of £16bn1. The majority of local government  expenditure is funded by the revenue support grant (RSG) from the Assembly Government which is supplemented by council tax, Business Rates (National Non-Domestic Rates), specific grants and earned income, such as car parking charges, leisure centre fees, etc.

The biggest spending services are education, social services and housing. The Assembly Government’s revenue support grant is not ring fenced or hypothecated. This means that the grant is flexible and councils have significant scope to decide how it is to be used to meet local needs and priorities, and on what services it should be invested in.

Each autumn, councils conduct an annual budget review which informs the budget setting for the following year and the level of council tax to be charged. The amount of revenue support grant is calculated against a national assessment of local funding needs called the Standard Spending Assessment. The annual budget and level of council tax is set by the whole council on the advice and recommendation of the cabinet or executive board.

Councils also develop medium term financial plans which look forward over a minimum of three years. The introduction of three year settlements from the Welsh Assembly Government will support this forward planning further.

Despite being one of the most contentious taxes, council tax represents only 4.2% of national taxation in the UK, and funds on average only 20% of local council expenditure in Wales. Although called council tax, it is often forgotten that a significant proportion of the council tax is the police precept (15%) and in some areas town and community councils’ precepts (2%): the council tax pays for police officers and fire-fighters, as well as the broad range of council services.

A key reason why there is a pressure on council tax is ‘gearing’. If a council needs to increase its expenditure, it can only do this by raising more money through the council tax. As an average Council only raises 20% of its income via Council Tax, the increase is disproportionate, as a 1% budget increase would require a 5% Council Tax increase. For example, a Council’s budget is £100m and it raises £20m of this via Council Tax. The Council needs to raise an extra £1m, which has to come from the Council Tax. Whilst only 1% of the Council’s budget, £1m represents 5% of the £20m Council Tax total, therefore bills would go up by 5%.

Councillors have a duty to manage the finances and resources of their council to ensure efficiency, economy and effectiveness. The council is advised by a senior officer, known as the Section 151 officer, who is statutorily charged with responsibility for ensuring financial probity. The management of financial transactions is governed by the financial regulations of the council and there is a statutory requirement to adopt an asset management strategy showing how land, buildings, plant and other assets will be used and maintained to best effect to maximise income and minimise wastage.

1. Total public expenditure includes both current (revenue) expenditure on resources which are used in the current financial year and capital expenditure which is on assets which are usable for a longer period of time. The total public expenditure of £16 billion includes the £14.4 billion Welsh Assembly Government budget, financed entirely by a block grant from the Treasury, and £1.6 billion revenue from council tax and Non Domestic rates.

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