What we looked at

We looked at how the Welsh Government funds the 22 principal councils in Wales. This includes the annual local government settlement and restricted grants. The settlement sets out the amount of funding councils will each receive from the Welsh Government without restrictions in its use. We examined how and when the settlement and grant funding is allocated and the accuracy and timeliness of the data used to inform the settlement. 

We also looked at how well the Welsh Government supports councils with their financial planning, including if they were to experience significant financial difficulty, and how it estimates the costs of new responsibilities placed on councils. 

We used our findings to make recommendations to improve the value for money (VFM) generated from funding awarded to councils.

This report is the latest in a series of reports on council finances. In 2024, we reported on the financial sustainability of each council and in a nationalsummary. Earlier in 2026, we also reported on capital planning by councils.

Why this is important

Councils currently face significant financial challenges. Against this backdrop, they must deliver the services their communities rely on and plan for their future needs. Balancing short and long term demands for services is difficult for councils to do. This increases the importance of financial planning to help them to meet demand and deliver value for public money. 

The funding councils get from the Welsh Government is the main way that they pay for their services. How the Welsh Government makes this available to councils can have a significant impact on councils’ ability to deliver VFM.

What we have found

The way that the Welsh Government allocates funding to councils does not always help them to get value for money from it, particularly over the longer-term. 

In concluding this, we found that:

• the Welsh Government has not fully reviewed how it allocates its funding to make sure it is effective and based on timely information; 
• the Welsh Government’s approach to estimating the costs of implementing new laws does not help councils to plan their budgets; and
• the Welsh Government has not set out how it can help councils with their financial planning if they faced a section 114 report. 

What we recommend 

In this report we make five recommendations to the Welsh Government to improve the way in which it allocates funding to councils. They are about:

• improving how it allocates funding to councils;
• giving more notice of future funding levels;
• being clearer on the costs of new responsibilities placed on councils; and 
• being clearer on the financial support available to councils if they faced a section 114 report