The Welsh Government has commissioned new research by
the Wales Centre for Public Policy (WCPP) to review the formula
used to distribute funding to local authorities in Wales.
This delivers a First 100 Days' commitment to
commission a review of the funding formula for local government,
bringing forward recommendations for reform so that it better
reflects the real cost of delivering services
in different parts of Wales.
Work is already underway to update the evidence base underpinning
the formula, with initial focus on Education and
Personal Social Services, which together account for nearly
three-quarters of the funding distribution.
This includes evidence to reflect
any additional costs arising from sparsity,
rurality, deprivation and demographic change.
An external review of wider approaches to distribution is
included in the proposed programme of work by the WCPP, which
will review funding distribution methods used across the UK and
internationally.
Given the scale and complexity of the review, the earliest point
at which any changes could be implemented would be for the
2028-29 local government settlement.
The review was discussed with local government in the
Finance Sub-Group, which includes leaders from local
authorities and the Welsh Local Government Association, on 8 July
2026. The group was provided with an update on progress
to date, the proposed scope of the review, and proposals for
future work. The group supported the 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.
Dr Helen Tilley, Director of Policy and Practice (Welsh
Government) at the Wales Centre for Public Policy said:
We are delighted to have been invited to provide evidence for
this critically important review, particularly by considering how
the experiences of other countries may be relevant to Wales.
"The thorough nature of the review is commensurate with the
significant impact that the revised formula will have on the
day-to-day lives of people across Wales, both directly through
the provision of public services and more broadly through its
influence on labour market participation and, in turn, the Welsh
economy.
Notes to editors
A range of analytical improvements are being considered as part
of the review, including:
- Development of new sparsity and dispersion measures,
including those derived from travel-time data, to better capture
the costs of delivering services in rural and remote areas.
- Development of school-level and pupil-based indicators to
better reflect need within the education system.
- Engagement with counterparts in Scotland on approaches to
updating needs-based distributions.
- Consideration of the implications of an ageing population for
patterns of need and service demand, particularly within Personal
Social Services.
The review continues to be underpinned by four established
principles agreed by the Distribution Sub-Group and Finance
Sub-Group:
- Equity, ensuring funding is distributed fairly in line with
relative need across authorities.
- Stability, providing a degree of predictability and avoiding
unnecessary volatility in allocations year to year.
- Clarity, ensuring the formula and its inputs and outputs are
transparent and explainable.
- Relevance, ensuring indicators and data continue to reflect
genuine patterns of need and service demand.
