Council chiefs called for a minimum four per cent increase in funding for each local authority and three-year settlements to avert the risk of a Welsh council going bust.

Andrew Morgan, leader of the Welsh Local Government Association, warned of “extreme” budget pressures as he appeared before the Senedd’s finance committee on January 15.

He welcomed a £253m uplift in the overall settlement from the Welsh Government but contrasted the increase against a £559m funding gap in the 12 months from April.

He said: “Clearly, the figures show it actually only meets about half of the actual demand for the coming 12 months, so there is going to be significant pressure on local authorities.”

Cllr Morgan, who is also leader of Rhondda Cynon Taf Council, said the collective voice of Wales’ 22 councils, added: “It is increasingly difficult to be able to explain to the public that we’ve put council tax up while still reducing services.”

He told the committee: “When it comes to council tax, most local authorities are in the range of 5% or upwards for budget planning at least at this stage.

“We are acutely aware of the pressure on local residents in terms of the cost of living, so it is a real dilemma for local authorities.”

Pressed on whether any councils in Wales could issue section 114 (bankruptcy) notices, Cllr Morgan said: “I certainly don’t think there will be any risk of 114 notices in the coming year but that’s not to say that there isn’t a risk there in the medium to long term.”

Asked about Audit Wales’ warning that councils are financially unsustainable, Cllr Morgan called for a three-year settlement to allow planning beyond a 12-month cycle.

He said: “Welsh Government comes out with a provisional settlement in December, that only gives us 10 or 12 weeks for us to line up all our ducks in terms of making budgets add up – that’s what’s not sustainable, I would suggest.”

Anthony Hunt, leader of Torfaen council, described the challenge next year as “orders of magnitude different” due to a better-than-expected settlement from the Welsh Government.

He said: “There will be schools that retain staff, there will be services that can be maintained.”

Cllr Hunt told the committee a flat budget or 1% increase, as first feared, would have had “unthinkable” consequences, with “massive” service cuts and redundancies across Wales.

With councils receiving increases ranging from 2.6% to 5.6%, he made the case for a 4% floor which would be funded from outside the settlement at a cost of about £13m.

He emphasised that the 22 principal councils will never be happy with the wider funding formula because there will always be winners and losers.

Lis Burnett, leader of Vale of Glamorgan council, raised the example of hospital discharges.

She said: “I think we’re probably one of the best in Wales now that we can actually get a care package sorted out for people to go home within approximately three days.

“That has been of great benefit to the health board but it basically means that we’re £10m overspent in our social care.”

Turning to education, Cllr Burnett said: “We’re having to be very, very careful in terms of how we rationalise spending for education. The demands, and the complexity of demand, have gone up exponentially – particularly since the pandemic.”

She said her council was “lowest funded by a long way” in terms of education, adding that there is an appetite for reform of the funding formula.

Nia Jeffreys, leader of Gwynedd council, said her local authority has cut £74m over the past decade, nearly a quarter of its day-to-day revenue budget.

Warning of no easy choices, Cllr Jeffreys told the committee: “The efficiency savings have been made already and we’re in a situation now where we’re looking at real-terms cuts … that means stopping doing things and halting services that people rely upon.”

She said Gwynedd and other councils in north Wales are looking at increasing council tax by 8% to 9%, placing a burden on families already struggling with a cost-of-living crisis.

Cllr Jeffreys echoed calls for an “absolutely vital” funding floor, pointing to additional costs of delivering public services in more rural areas.

Asked about increases in employer national insurance contributions, she put the cost to Gwynedd council at about £4.5m.

Cllr Hunt said councils have been assured that they will be given money towards the cost of the rise for directly employed staff.

He stressed: “That national insurance rise is one of the reasons why there’s more money now for public service organisations. And I think we need to be a bit careful not to welcome funding but complain about where it’s come from – it needs to come from somewhere.”

Cllr Morgan said the biggest concern is the money to cover the cost being “Barnettised” (ie based on spending in England) which could leave Welsh councils short.

He told the committee education and social care now make up about 70% of all council budgets, suggesting only so much “tinkering” can be done within the other 30%.

He raised concerns about the “eye-watering” costs of children’s care to councils, with some specialist placements costing a five-figure sum each week for every child.