The Welsh Government has commissioned fresh research to examine how funding is allocated to local authorities across Wales, marking a significant step towards reforming a system that has been in place for decades.
The work, which will be led by the Wales Centre for Public Policy, delivers a key First 100 Days commitment from the Welsh Government. The review aims to ensure funding distribution better reflects the real costs of providing essential public services in different parts of the country.
A substantial part of the project is already underway, with efforts focused on updating the evidence base that underpins the current formula. Initial attention is being given to Education and Personal Social Services, which together account for almost 75% of the overall funding distribution.
The review will consider how factors such as rurality, sparsity, deprivation and demographic change influence service delivery costs. Officials say the updated evidence will help ensure future funding allocations more accurately reflect the differing challenges faced by local authorities.
Alongside this work, the WCPP will conduct an independent assessment of funding distribution models used elsewhere in the UK and internationally. The findings will help inform recommendations on whether alternative approaches could provide a fairer system for Wales.
Given the complexity and scale of the exercise, ministers have indicated that the earliest any changes could be introduced would be through the 2028/29 local government settlement.
The proposals were discussed with local government leaders and representatives from the Welsh Local Government Association at the Finance Sub-Group meeting on 8 July 2026. Members received an update on progress, reviewed the proposed scope of the work and endorsed the overall direction of travel.
Minister for Local Government, Housing and Planning, Siân Gwenllian, said:
“Local authorities across Wales are on the front line of delivering the services people rely on every day, and it's right that the way we fund them is based on evidence and keeps pace with how our communities are changing.
“That's why I've been clear that this review must be done in partnership with local government, and I'm pleased colleagues on the Finance Sub-Group have supported the work so far.
“This is about making sure that funding reflects the real pressures faced by different parts of Wales, whether that's a sparsely populated rural authority or an area with a growing and ageing population.”
The review is expected to play a crucial role in shaping future local government finance arrangements, with councils across Wales closely watching the outcome as pressures on public services continue to grow.
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