The Wales Centre for Public Policy explores the fiscal challenges facing local government, and argues that fostering and sustaining strong community partnerships will be essential for success.
The Labour party’s resounding victory in the 2024 general election marks a new chapter in British politics, but it also sets the stage for monumental challenges. There is no magic wand that local government in Wales can wield to resolve the issues caused by years of fiscal strain. Despite the hope generated by the new UK government’s pledge to increase investment in public services, local authorities in Wales will be watching closely to see if Labour’s promises of increased funding for the devolved nations translate into tangible change. With many of Wales’s communities some of the hardest hit by the cost-of-living crisis, the stakes have never been higher.
Many local authorities will be asking themselves how they can best serve their communities given the harsh economic reality they are facing. The most up to date analysis suggests that spending pressures across Wales will increase by 3.8% in 2024-2025, while funding is only expected to rise by 0.3%. The estimated funding gap for Wales is projected to increase to £744 million by 2027 if we continue on our current trajectory. Now is a time for thinking outside the box, exploring alternate community-based solutions, and digital innovations to improve services without spending more.
Chancellor of the Exchequer Rachel Reeves made a statement to Parliament on July 29, which described the discovery, on her first day at the Treasury, of a £22 billion hole in public finances. Even before this, in real terms, the spending power for authorities in 2024/25 was 4.7% lower than it would have been if inflation had stayed at forecasted levels in 2022. The spending commitments Labour have made in their manifesto mean that the settlements for unprotected areas of public spending – including local government – will decline by an average of 2.4% per year in real terms. This reduction in spending power has diminished margins for error, making the system less resilient and more susceptible to financial instability. The outlook for local authorities in Wales beyond the upcoming financial year remains very challenging.
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These issues are not unique to Wales. Our colleagues at the International Public Policy Observatory (IPPO) have been exploring how local authorities in England are responding to financial pressures, particularly how they are using their financial power and how they are approaching preventative support and services. Similarly, colleagues in Scotland are looking at the value of evidence in addressing these challenges which are exacerbated by ageing populations which further increase pressure on public services in Scotland and Wales.
At the end of June 2024, UK public sector net debt (excluding public sector bank debt) was provisionally estimated at 99.5% of gross domestic product (GDP); this was 2.8 percentage points more than at the end of June 2023, and remains at levels last seen in the early 1960s. With economic growth (and therefore tax revenues) continuing to be weaker than initial OBR estimates, the UK is facing its highest tax burden since 1948. Coupled with the continuing cost of living crisis, it will be exceedingly challenging for the new UK Government to borrow more or raise taxes. Given these circumstances, it’s unrealistic to expect local government to simply weather the storm, especially when experts warn that ‘the worst is yet to come.’
In addition to the fiscal challenges, public service productivity in the UK has yet to rebound to its pre-coronavirus peak. Public service productivity refers to how efficiently public services use resources to achieve relevant outputs and outcomes. It’s essentially a measure of how well public services translate their resources into improvements in areas such as healthcare, education, and other essential services. The Institute for Government’s recent report describes productivity as the “missing ingredient” in the performance of public services. In Quarter 1 of 2024, public service productivity was 0.6% lower compared to the same quarter the previous year.
Well-targeted investment in things like improving digital systems and data-sharing is often cited as a route to increased efficiency of public services, as well as something the public increasingly expect in a digital world.
Public service productivity in Quarter 1 2024 is estimated to be 6.4% below its pre-coronavirus pandemic peak (Quarter 4 2019) but has remained relatively stable through the post-pandemic period. With costs set to remain high, and continued reduction in real world spending power for local authorities, finding ways to improve public service productivity is one way to improve or maintain performance without spending more.
In the November 2023 autumn statement ex-chancellor Jeremy Hunt set a target for public sector productivity to grow by 0.5% per year. Institute for Government research has shown that there are no silver bullets to immediately increase public service productivity, but that there are several barriers to productive working that, if addressed, could lead to improved productivity in the longer-term. Well-targeted investment in things like improving digital systems and data-sharing is often cited as a route to increased efficiency of public services, as well as something the public increasingly expect in a digital world.
In any large-scale improvement programme, having solid data on which to build upon is essential. However, there is currently a lack of comprehensive local authority data on service quality and accessibility. The Institute for Government has highlighted the difficulty in assessing and comparing how local authorities managed to get the most out of reduced budgets. They found that central government has performance indicators for less than a third of neighbourhood spending, meaning it cannot analyse around £10 billion of local spending properly. What data is available is described as being “held in different places with often with little consistency between datasets”. This dearth of data, coupled with inconsistent data management, hampers performance analysis. Innovative use of data and analytics forms a significant part of the Welsh Government’s plans to deliver savings and improve services in Wales. However, the possibility of further staffing reductions in some councils poses a significant obstacle to implementing improvements in data collection and linkage.
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Any transformation agenda will require investment, and with the hope of increased funding for Wales being delivered by the incoming Labour government following their promises of increased funding for the devolved nations, we must consider innovative ways to utilise local government funds for better outcomes.
In Wales, there is a desire to ‘do things differently’ when it comes to delivering services collaboratively, supported by groundbreaking infrastructure and legislation. The Well–being of Future Generations (Wales) Act provides a legally binding mandate for public bodies to prioritise long-term thinking, engage more effectively with communities, and adopt a holistic approach to problem-solving. This act embodies the growing ethos of partnership between the public sector and communities, crucial for enhancing public service provision in Wales.
The Wales Centre for Public Policy (WCPP), in collaboration with the Resourceful Communities Partnership—the nation’s largest cross-sectoral alliance—has been investigating the pivotal role of community wellbeing and cooperative efforts. Evidence suggests effective collaboration can not only improve the quality of service provision but can provide a way of spending money differently in local government to achieve better outcomes. As public services in Wales and beyond navigate through their fiscal challenges, fostering and sustaining strong community partnerships will be essential for success.
As public services in Wales and beyond navigate through their fiscal challenges, fostering and sustaining strong community partnerships will be essential for success.
The Welsh Government is uniquely placed to play an important role in steering and maintaining effective collaborations, oversee and challenge local and regional actors, and develop solutions that meet communities’ needs and aspirations. effective collaboration can not only improve the quality of service provision but can provide a way of spending money differently in local government to achieve better outcomes. As public services in Wales and beyond navigate through their fiscal challenges, fostering and sustaining strong community partnerships will be essential for success. The Welsh Government is uniquely placed to play an important role in steering and maintaining effective collaborations, oversee and challenge local and regional actors, and develop solutions that meet communities’ needs and aspirations.
Whatever approach the new UK Government takes, given this context of a mounting public service funding gap and diminished spending power in local authorities, there is a clear need for the Welsh Government and local authorities to explore strategies to enable them to continue delivering essential services and improve community collaboration.
The Wales Centre for Public Policy will be supporting the Welsh Local Government Association in exploring these issues. We invite you to join us in tackling these challenges and investigating potential solutions. If you’re interested in collaborating or have suggestions for making a meaningful impact, please get in touch via [email protected].
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