How can councils in Wales balance their books?

Following the announcement of the new Welsh Government Cabinet, Mark Drakeford becomes the Cabinet Secretary responsible for Finance and Local Government. He does so at a time when Welsh Government funding to councils is reducing by an average of 1.4 per cent for 2016-17. While these cuts are not as deep as many had feared, it is clear that councils have to make tricky choices if they are to balance the books and protect the frontline services.

Councils in England have faced even larger cuts and over a longer period, so we thought it would be helpful to look at how they have coped, to find out what strategies have worked and to see what Welsh councils might learn from this. Our report concludes that the experiences of English local authorities show that focusing on short-term measures to improve efficiency isn’t enough. Welsh councils also need to change the ways they deliver services and find new ways of meeting local needs.

At the start of the era of austerity, most English councils cut costs by reducing services and improving efficiency. Some also drew on reserves. But they quickly reached the limits of what can be achieved through these approaches – a position that Welsh councils increasingly find themselves in. The councils in England that have best navigated their way through these tough times have found ways to manage demand better and have embraced strategic commissioning, collaboration and place based approaches. Some have also promoted commercialisation and introduced ways of making better use of digital technology.

These strategies are designed to provide a long term response that enables councils to live within their means – but they often require major adjustments in the expectations of council workers, service users and tax payers. Some of the examples we looked at include:

• Library services in Suffolk have been transferred from the council to Suffolk Libraries, a not-for-profit charity. As a result, libraries that were otherwise threatened with closure have been kept open, the council has made significant savings, and users reported increased satisfaction with library services.

• Councils like Devon, Kensington and Chelsea, and Knowsley have set up public service mutuals to deliver youth services. These are employee owned, but councils still play a role in specifying the services to be provided and monitoring the quality of their activities.

• Oldham Council has improved outcomes for troubled families through investment in prevention and early intervention. It has seen a reduction in the need for police call outs, Accident and Emergency attendances, and school support attendances, which have led to substantial savings.

Insights for Wales

Councils in Wales are not starting from scratch; they can build on a lot of good work that has been going on over the last five years. But the pressures they face are real and growing. Available spend for controllable budgets is projected to decrease substantially, with a funding gap forecast to be between £2.6bn and £4.6bn within a decade according to Wales Public Services 2025.

We think that, like their neighbours in England, councils here will need to look hard at new ways of working and at the social impacts of alternative approaches to coping with cuts. Councils in England and Scotland benefit from a social impact tool developed by the Joseph Rowntree Foundation and Glasgow University – an easy to use Excel workbook pre-populated with key data for each local authority. Developing something similar for Wales would help councils assess how their spending plans will affect vulnerable service users.

The Welsh Government also has a role to play. The experiences of English councils suggest two ways that it can help to mitigate the impacts of the cuts.

First, if councils know what their future settlements will be two to three years ahead they should be much better at medium term financial planning. Without this, they inevitably focus on short term measures to balance budgets year by year rather than investing in long term services transformation. The evidence from England suggests that uncertainty about future allocations also makes councils more cautious and more likely to hold onto their reserves.

Second, the experience of English councils shows that having discretion about how they use their funding has helped them to cope with cuts in overall budgets. Wales has a much larger number of ‘specific grants’ that are earmarked by the Welsh Government for particular programmes and services than either England or Scotland. The evidence suggests that it would make sense for Welsh Ministers to give councils here more control over how they allocate the funds between services.