WIREDGOV

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 to 2029 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.