With financial experts warning of a repeat of the financial crisis of 1976, which resulted in substantial cuts in public funding, North Wales MS Mark Isherwood has asked the Cabinet Secretary for Finance what contingency plans the Welsh Government are putting in place with Local Authorities to manage the risk of this.
Mr Isherwood raised the matter in this afternoon’s meeting of the Welsh Parliament during a question about ‘Inflationary Pressures’ on Local Authorities to the Cabinet Secretary for Finance, Mark Drakeford MS.
He said:
“The current Labour UK Government inherited inflation at the Bank of England's target rate of 2 per cent, and deficit levels at only 40 per cent of those inherited in 2010 by the Conservative UK Government, despite the financial shocks caused by the global pandemic and the global cost-of-living crisis.
“As I warned here in March, budget decisions by UK Chancellor Rachel Reeves remain the Number 1 barrier to economic growth, and the Number 1 domestic contributor to cost-of-living increases, stoking inflation, and borrowing costs have since hit a 27-year high.
“The International Monetary Fund (IMF) has warned that Rachel Reeves will have to increase taxes further or make cuts, and leading economists, including the former head of the National Institute of Economic and Social Research and a former member of the Bank of England’s Monetary Policy Committee, have highlighted the risk of a repeat of the crisis in 1976, when a Labour Chancellor was forced to go cap in hand to the IMF for a bail-out, requiring substantial cuts in public spending. I remember it well; I’m sure you do also. What contingency plans are you therefore putting in place with local authorities to manage the risk of this?”
In his response, the Cabinet Secretary said in the current financial year, local authorities in Wales are receiving an uplift of 4.5 per cent on a like-for-like basis, and that over and above the money that goes into the RSG (Revenue Support Grant), local authorities in Wales receive a settlement of over £1.3 billion in revenue grants, and over £1 billion in capital grants in the current year.
He added: “That is how we protect local authorities in Wales, and I look forward to discussions—continuing discussions—with local authority leaders and finance leads in order to ensure that we go on doing that into 2026.”
Speaking outside the Chamber, Mr Isherwood said:
“Our local authorities are already facing huge pressures resulting in service cuts and the situation is only likely to get worse. The Welsh Government therefore needs to get its head out the sand and start planning properly for the identified financial risks ahead.”