New Publication: Landfill Disposals Tax (Wales) Bill – Summary of changes at Stage 2

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The Landfill Disposals Tax (Wales) Bill (‘the Bill’) was laid before the Assembly on 28 November 2016. The Bill was introduced in plenary by Mark Drakeford, the Cabinet Secretary for Finance and Local Government, on 29 November 2016.

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A financial health check – have local health boards and NHS Trusts in Wales met their financial duties?

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The annual accounts for 2016-17 of National Health Service (NHS) bodies in Wales are the first to report performance against the first statutory financial duty introduced by the National Health Service Finance (Wales) Act 2014.

The annual accounts for 2016-17 for the seven Local Health Boards (LHBs) and three NHS Trusts in Wales were laid by the Auditor General for Wales at the National Assembly for Wales on 9 June 2017.

What are the statutory financial duties?

Under the National Health Service (Wales) Act 2006, each LHB in Wales was required to ensure that the use of its resources in a financial year did not exceed the spending limits set for it in relation to that year by Welsh Ministers.

On 1 April 2014, the National Health Service Finance (Wales) Act 2014 amended the National Health Service (Wales) Act 2006, replacing the duty to balance the books each and every year with a requirement on LHBs to manage their resources within approved limits over a three-year rolling period. This is known as the first statutory financial duty.   It was envisaged that this change in requirement would give LHBs in Wales the flexibility needed to enable more long-term service, financial and workforce planning, as well as helping to ensure the sustainable transformation of healthcare services.

Financial planning in response to the 2014 Act is underpinned by the second statutory duty, which requires that each LHB prepares and has approved by Welsh Ministers a rolling three-year Integrated Medium Term Plan (IMTP).

Welsh Health Circular WHC/2016/054 clarified the statutory financial duties of NHS bodies in Wales and confirmed that, while the change of legislation introduced by the National Health Service Finance (Wales) Act 2014 related to LHBs, the two financial duties also applied to Welsh NHS Trusts.

How will performance against the first financial duty be measured?

Schedule 9 of the National Health Service (Wales) Act 2006 requires LHBs and NHS Trusts to prepare annual accounts. Section 61 of the Public Audit (Wales) Act 2004 requires that these annual accounts are examined and certified by the Auditor General for Wales, who is also responsible for laying a copy of the certified accounts before the National Assembly for Wales.   The annual accounts of LHBs and NHS Trusts report their performance against the two financial duties.

Have LHBs and NHS Trusts met the first financial duty?

The first three-year period under the first financial duty ran from 2014-15 to 2016-17.  Performance against this duty is assessed for the first time in 2016-17 and reported in the annual accounts for 2016-17.

All NHS trusts in Wales met the first statutory duty by balancing their books. However, this was not the case for all LHBs. Only three LHBs reported that they had met the first statutory financial duty by operating within their revenue spending limit over the three-year period 2014-15 to 2016-17. The remaining four LHBs did not meet the first duty, reporting an  overspend over the three years 2014-15 to 2016-17.  The aggregate position for all LHBs for the three-year period to 2016-17 was a net overspend of £253 million. The reported position against the revenue spending limit for each LHB is shown below:

All seven LHBs stayed within their limits for capital spending over the three-year period 2014-15 to 2016-17.

Have LHBs met the second financial duty?

The annual accounts for NHS bodies in Wales from 2014-15 onwards report whether LHBs and NHS Trusts have met the second financial duty.  The performance is summarised below:

A number of these NHS bodies, whilst not having had a three year IMTP approved, have submitted a one-year plan.

What is the impact of the reported deficits?

Paragraph 22, Enclosure 1 of Welsh Health Circular WHC/2016/054 notes that:

Failure to achieve the first financial duty is viewed as a serious matter by the Welsh Government and will be considered in accordance with the NHS Wales Delivery Framework included annually in the IMTP guidance and the escalation and intervention arrangements in the NHS in Wales.

In a written statement on 9 June 2017, the Cabinet Secretary for Health, Wellbeing and Sport, Vaughan Gething AM, set out how the Welsh Government had responded to the financial performance concerns in the four LHBs that reported an overspend in the three-year period 2014-15 to 2016-17. This included monitoring of their financial performance and undertaking financial governance reviews.   The Cabinet Secretary noted that “these reviews have recently concluded, and we will be considering the lessons to be learned and follow-up action required early in this financial year”.

The Cabinet Secretary also reported that:

Additional cash support has continued to be provided when required to all Boards in deficit to enable them to meet their normal cash commitments including payroll expenditure. This cash assistance is repayable in future financial years when appropriate and improved plans are developed and approved under the Act to enable the repayment of deficits.

The requirement to repay the cash assistance and overspends will add to existing financial pressures on LHBs in the short and long term.   The first financial duty is to be assessed on a rolling three-year period.  Therefore, any overspends reported for 2015-16 and 2016-17 will be assessed next year with LHB’s financial performance in 2017-18.    The value of the total overspend reported by four LHBs for 2015-16 and 2016-17 is £198 million.

NHS Wales is facing long term funding and sustainability pressures including an increasingly ageing population with increased morbidity, a growing rate of obesity and related conditions and developments in technology leading to more complex treatments coming on line.

A number of recent reports have highlighted the pressures facing healthcare in Wales. The Health Foundation report The path to sustainability: Funding projections for the NHS in Wales to 2019/20 and 2030/31 (October 2016) stated that the NHS in Wales is “facing the most financially challenging period in its history” and the savings needed are “extremely challenging”. The report set out that NHS Wales needed additional funding, but also improved efficiency and services adapted to meet changing patient needs.

Similarly, the Public Policy Institute for Wales report Efficiency and the NHS Wales Funding Gap (October 2016) identified the need for improved efficiency and service change, but also for a more strategic and sustained national approach to improving efficiency and supporting change. The Welsh NHS Confederation have also highlighted the financial pressures facing NHS Wales and argued that there will need to be some difficult choices made on future services and priorities in an environment where finances will continue to be extremely tight.

The Cabinet Secretary’s written statement of 9 June 2017 reports that he is confident that the health and social services budget has broken even overall in 2016-17. At the same time, the evidence suggests that ongoing and future financial challenges remain.


Article by Dr Paul Worthington and Joanne McCarthy, National Assembly for Wales Research Service.

Final local government settlement 2017-18 published

21 December 2016

Article by Martin Jennings and David Millett, National Assembly for Wales Research Service

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Following the Welsh Government Final Budget for 2017-18 (released on Tuesday 20 December 2016) the Cabinet Secretary for Finance and Local Government has today published the Final Local Government Settlement 2017-18, this outlines funding for each of Wales’ twenty-two local authorities.

The total settlement is £4.113 billion, which is an increase of £10 million (0.2%) when compared to the Final Settlement in 2016-17. This is the first increase in the local government settlement since 2013-14.

The provisional settlement includes increases and decreases in funding for different local authorities. The largest increase is 1.1% in Gwynedd and the largest decrease is -0.5% for three local authorities (Wrexham, Powys and Merthyr Tydfil).

The full breakdown of percentage change in funding by local authority is outlined in the below infographic.

draft-budget-2017-18-local-government-settlement-01

This year no authority will experience a decrease more than -0.5%. Of the three authorities where the funding change equates to -0.5%, two have received top-up funding totalling £1.6 million to ensure they do not experience a reduction beyond -0.5%, allocated as below:

  • Powys – £1,237,000
  • Merthyr Tydfil – £391,000

General Capital Funding for local authorities in 2017-18 is £143 million.

The Cabinet Secretary’s letter to local authorities, the Local Government Finance Report 2017-18 and the Local Government Revenue and Capital Settlement 2017-18: All Wales – Tables, can be found on the Welsh Government website.

Provisional local government settlement 2017-18 published

19 October 2016

Article by Owen Holzinger and David Millett, National Assembly for Wales Research Service

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Following the Welsh Government Draft Budget for 2017-18 (released on Tuesday 18 October 2016) the Cabinet Secretary for Finance and Local Government has today published the Provisional Local Government Settlement 2017-18, this outlines funding for each of Wales’ twenty-two local authorities.

The total settlement is £4.107 billion, which is an increase of £3.8 million (0.1%) when compared to the Final Settlement in 2016-17. This is the first increase in the local government settlement since 2013-14.

The provisional settlement includes increases and decreases in funding for different local authorities. The largest increase is 0.9% in Gwynedd and the largest decrease is -0.5% for five local authorities (Wrexham, Powys, Merthyr Tydfil, Blaenau Gwent and Torfaen).

The full breakdown of percentage change in funding by local authority is outlined in the below infographic.

draft-budget-2017-18-local-government-settlement-01

This year no authority will experience a decrease of more than -0.5%. Of the five authorities where the funding change equates to -0.5%, four have received top-up funding totalling £2.3 million to ensure they do not experience a reduction beyond -0.5%, allocated as below:

  • Wrexham – £181,000
  • Powys – £1,374,000
  • Merthyr Tydfil – £585,000
  • Blaenau Gwent – £147,000

The Cabinet Secretary’s letter to local authorities, the Local Government Finance Report 2017-18 and the Local Government Revenue and Capital Settlement 2017-18 (Provisional): All Wales – Tables, can be found on the Welsh Government website.

General Capital Funding for local authorities in 2017-18 is £143 million.

Funding local government

27 May 2016

Article by Owen Holzinger, National Assembly for Wales Research Service

The Fourth Assembly saw significant reductions to local government budgets. With the potential for financial pressure to increase in the Fifth Assembly, will there be changes to the financial model?

From 2010-11 to 2014-15 local authority revenue funding fell by £461 million in real terms. This pressure has led to questions about how finances are distributed and, more fundamentally, whether the current financial model is robust enough to manage further strain.

Local government cuts

The Welsh Government provides around 80% of the funding for local authorities. During the Fourth Assembly, this funding reduced significantly as the decrease in the Welsh block grant (estimated to be £1.2 billion lower in real terms in 2014-15 than 2010-11) impacted on local government.

Demographic changes

While funding has been decreasing, pressure on local services is increasing. Wales’s population is growing, with Welsh Government projections forecasting a proportional increase in the most dependent age groups (0-15 and 65+) compared to the working age population.

The reductions have fallen disproportionately on particular services. The Welsh Local Government Association (WLGA) estimates that libraries, cultural services and transport services (among other areas) have faced cuts of between 20% and 50%, leading to significant change in how these services are delivered. Other services, such as social care and schools, have been protected.

Local authorities have reacted to the budget reductions by generating internal efficiencies, or by cutting, commercialising or limiting services. All 22 local authorities have raised council tax year on year since 2011 (between 2010-11 and 2015-2016, average council tax rose 18% across Wales).

Local authorities have also been exploring the use of alternative delivery models (ADMs) and community asset transfers (CATs) to operate some or all aspects of services. The Welsh Government has consulted on a national framework to support decision-making for ADMs and produced best practice guidance for CATs. The Fifth Assembly may see more of these cost-saving methods.

In 2014-15 local authorities held £832 million in earmarked reserves and £196 million in general reserves. If future funding reductions fall at the more extreme end of the scale, there could be further scrutiny of how these reserves are used.

Recommendations from the Fourth Assembly

In reviewing the 2016-17 budget and local government settlement, the Finance Committee recommended the Welsh Government should review the funding formula.

Maintaining the formula

Reduced budgets have led many to question the method used by the Welsh Government to distribute funding to local authorities. The ‘distribution formula’ is maintained by the Distribution Sub-Group and it contains 68 different indicators. For example, there are indicators that relate to:

  • population;
  • numbers of children and older adults;
  • road lengths;
  • deprivation; and
  • rurality and sparsity.

Elements of the formula are updated each year, with the formula last fully reviewed ahead of the 2001-02 settlement. Some of the calculations use data from the 1991 and 2001 censuses and this has been raised as a concern.

Historically, funding floors, caps and top-ups have been used to limit reductions, when necessary. Most recently in 2016-17 the three authorities with the largest reductions received a top-up grant, meaning no reduction was more than 3%. This required an additional £2.5 million allocation from Welsh Government reserves.

Rural authorities have argued that the formula does not adequately account for the additional cost of providing services across sparsely populated areas. Of the total indicators, only 6% relate to sparsity, while 69% are based on clients (e.g. population, pupil numbers) and 25% on deprivation.

A step-change in data could mean very different funding situations for authorities from one year to the next, and any review would need to consider how to moderate large drops in funding.

Flexibility and localism

Alongside other reforms, the previous Welsh Government acknowledged a need to review the local government finance system, seeing the current system as complex. The last Welsh Government said it would aim to produce a system that, among other things, allowed greater freedom to make local decisions.

Local government itself has also called for changes, requesting more fiscal autonomy and more flexibility to decide how authorities spend their money. This would allow local solutions and more accountability, and the WLGA sees this as complementing the efficiencies and innovation required by the current financial climate. The Independent Commission on Local Government Finance Wales (2016) has echoed this call for more flexibility.

The draft Wales Bill could give powers to the Assembly to design its own budget process and potentially implement some of these recommendations. A redesigned budget could include such things as multi-year funding strategies, as recommended by the Fourth Assembly’s Finance Committee’s inquiry into Best Budget Practice, and as requested by local authorities.

Following the UK Government’s announcement in October 2015 that English councils will retain 100% of business rates collected by 2020, the Welsh Government could potentially allow Welsh local authorities to retain rates as well. Further de-hypothecation of grants could be another option that would allow local authorities more control over how they manage the money they are allocated.

Pressure in the Fifth Assembly

The UK Government’s Spending Review in 2015 outlined that the Welsh block grant will continue to decrease in real terms going into the Fifth Assembly. In line with this, local authorities may have to anticipate similar budget reductions to those they experienced in the Fourth Assembly, at least in the near future.

Structural changes such as mergers provide a potential solution (see article on local government reform) but will come at a cost and saving levels are not guaranteed. With mounting pressure, Welsh Government decisions on changes to the financial model will be pivotal in defining the long term future of local authorities.

Key sources

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