What does Council Tax pay for?

Mike Hedges – MS for Swansea East

There is a widely held belief by Council Taxpayers that their Council Tax pays for the services provided by the Council.

What also happens is that people will say all I get from the council is refuse collection whilst ignoring the over six hundred services that they benefit from.

Examples of services provided include food safety including the “scores on the doors,”
trading standards and environmental matters as well as the major services such as
education, social services, and highways.

What has happened in recent years is that Council Tax has increased whilst services have reduced, and Council Taxpayers have had a variety of reactions varying between anger and confusion.

This is because Council Tax pays for less than a quarter of the total Council services with the rest being mainly funded by the rate support grant and the Councils’ share of business rates both provided by the Welsh Government.

The business rate payment to a Council is not related to the business rates collected in the council’s area but is distributed via a formula.

Some Council areas are net contributors to the national business rates, most notably Cardiff, whilst others are net gainers from the system.

Looking at Swansea Council income in 2024/25:

Rate support grant = £346,446 000
National nondomestic rates = £88,244 000
Council tax = £154 020 000
Fees and charges £15.6 million
Community council tax   – £2,206 000
Total income = £606 516
The biggest items of expenditure are.
Social Services budget – £171 001 000
Education Budget          – £227,069 000

With Education and social services amounting to almost two thirds of council expenditure then this means that if Councils protect Social Services, which is a demand led and Education expenditure then any cuts made by local councils will disproportionately affect the other services.

This is what we have seen occur throughout Wales irrespective of either type of area or
political control. Libraries, sports facilities and other discretionary or non-statutory services have seen substantial cuts.

This disconnect between the Council Tax bill and the level of service provided is bad for
democracy and bad for Local Government. As other areas of council expenditure are cut to protect Education and Social services the percentage spent on Education and Social Services can only increase.

What can the Welsh government do to support local authorities:

Return business rates to local authorities and let them set the business rates for their
council area. This would increase the proportion of council expenditure raised locally and have a direct relationship between business rates and the local council.

Council grants, some of which are small should be moved into the block grant thus reducing the administrative costs relating to the grants.

Increase the rate support grant in line with the increase in Welsh government income each year.

In England we have seen councils such as Northamptonshire and Birmingham becoming effectively bankrupt, proving that large councils are not immune to serious financial problems.

In the face of “unprecedented financial challenges,” it has been warned that several local authorities in England either have already issued Section 114 notices or are
likely to do so, effectively announcing that they are unable to deliver a balanced budget.

Some of the smallest councils in England have built up huge debts by buying supermarkets, business parks and offices, tying the future of their public services to the uncertainty of the property market.

Councils across England have borrowed huge sums, in some cases the equivalent of ten times their annual budgets to finance the purchase of real estate.

Gamble

Spelthorne has so far borrowed £1 billion despite having a net annual budget of just £22 million; this equates to forty-six times its spending power. Three other councils, Woking, Runnymede, and Eastleigh have borrowed more than ten times their annual budget.

In Wales, no council has gone bankrupt or gambled on the property market, at least in part because councils have been better resourced in Wales but there are serious financial threats currently and budgets are tight.

When additional duties are placed on councils by the Welsh government and no additional money is provided, then pressure is put on existing services.

Welsh councils need a better funding settlement that acknowledges the vital role they play and the important services they provide.

Local government provides services that benefit the whole community, and we need to see that local government is adequately funded.