Local government finance
The revenue income of local government is principally derived from council tax, non-domestic rates and government grants, the largest of which is the 'revenue support grant'. Principal councils and community councils may also receive income from fees, charges and investments.
The Welsh Ministers have a general supervisory role in relation to local government finance. The law is contained in a number of acts including the Local Government Act 1972, the Local Government (Wales) Act 1994 and the Local Government Finance Acts of 1988 and 1992. The majority of the functions of the Secretary of State under these enactments have been transferred to the Welsh Ministers who therefore have an array of executive powers to set out how local government is funded and how finances must be administered.
Under the Local Government (Wales) Act 1994 each principal council is required to establish and maintain a fund, known as the council fund, into which all sums received and from which all payments, must be paid (apart from transactions relating to trust funds). Principal councils are required to keep accounts of all transactions involving their council fund.
Principal councils are required to conduct their financial affairs responsibly. Under the Accounts and Audit (Wales) Regulations 2014, councils are responsible for ensuring that there is a sound system of internal control which facilitates the effective exercise of their functions.
Non-domestic rates and council tax are the means by which principal councils derive funds from the domestic and non-domestic property in their area. The non-domestic rating system was established by the Local Government Finance Act 1988 (LGFA 1988) and council tax by the Local Government Finance Act 1992 (LGFA 1992). The majority of the functions conferred on the Secretary of State under these Acts, so far as exercisable in relation to Wales, are now exercisable by the Welsh Ministers. The current law must be ascertained by reference to numerous statutory instruments, as well as to the Acts themselves.
Non-domestic rates, often referred to as 'business rates', are usually levied on the occupiers or owners of non-domestic property. Principal councils (county and county borough councils) are 'billing authorities' under LGFA 1988 and they collect and recover non-domestic rates. The amount of non-domestic rate that falls to be paid depends on the rateable value of a property. Rateable value is determined on the basis of the principles set out in LGFA 1988.
The Welsh Ministers have powers to make orders and regulations setting out how non-domestic rates are levied and administered. The amount of the rate is prescribed by the Welsh Ministers who may set a multiplier annually which is used to calculate the payable amount.
While billing authorities are responsible for the collection of non-domestic rates, all receipts are pooled centrally and redistributed by the Welsh Ministers to the billing authorities and major precepting authorities. The basis of distribution is set out in the annual local government finance report.
The legislative framework for the collection and administration of council tax is set out in Part 1 of LGFA 1992. Section 1 of that Act imposes a duty on each billing authority to levy and collect council tax in respect of the chargeable dwellings in its area.
Council tax is payable in respect of any dwelling which is not an exempt dwelling. A listing officer for each billing authority must value the dwellings in the area and compile and maintain a valuation list. All dwellings are placed in one of eight bands and the amount of tax levied depends on the valuation band. A billing authority must set the amount of council tax payable in relation to the dwellings that fall within each band.
The way in which the amount of council tax must be calculated is set out in Part 1, Chapter 3 of LGFA 1992. For each financial year a billing authority is required to calculate its budget requirement in accordance with sections 32 to 37 of LGFA 1992. This enables the authority to determine the basic amount of tax.
Community councils are local precepting authorities for the purpose of LGFA 1992 and may issue a precept to the billing authority for each financial year. Precepts issued to a billing authority by local precepting authorities must be taken into account when calculating the principal council’s budget requirement and form part of the council tax calculated by the billing authority. The amount of the precept is collected by the billing authorities as part of council tax and forms the bulk of the budget of the community councils.
Police and Crime Commissioners are 'major' precepting authorities and must issue a precept to the billing authority for each financial year representing an amount required for their own purposes. The majority of police funding, however, is provided by the UK government.
The amount of council tax levied is the aggregate of the council tax calculated by the billing authority and the amount required by the major precepting authorities.
Revenue support grant
The Welsh Ministers are required to pay a revenue support grant to principal councils and to bodies that provide services for local authorities that are specified by the Welsh Ministers in regulations made under section 76(4) of LGFA 1988.
For each financial year, the Welsh Ministers are required to lay before Senedd Cymru a local government finance report. The report sets out how much revenue support grant the Welsh Ministers propose to distribute to principal councils and to other specified bodies. The report also sets out how non-domestic rates will be distributed. The Local Government Act 2003 amended LGFA 1988 to allow a separate report to be produced for Police and Crime Commissioners in Wales.
Councils may also receive specific grants to fund certain services or expenditure.