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Councils are facing an “unprecedented” £540m budget shortfall, with two local authorities concerned they are facing bankruptcy and more may follow, the Senedd heard.

Peter Fox, the Tory shadow local government secretary, said: “There are many on the brink … and we cannot continue to ignore the situation – it is very real, it is very much growing.”

Mr Fox, who led Monmouthshire Council before his election to the Senedd in 2021, raised concerns about reports of an increase in employer National Insurance contributions.

He pointed out that about 140,000 people are employed by councils as he questioned Wales’ local government minister in the Senedd on October 16.

Mr Fox said the public service workforce, including private contractors, is about 480,000 and even a 1% increase would lead to an estimated £100m bill for councils.

‘Huge hole’

He said: “Councils provide vital public services for the people of Wales and financial pressures will force councils to pass on costs to working families who cannot afford that.”

Warning of a “huge hole” opening up, Mr Fox suggested yet more pressure could be on the way following the UK Government’s budget on October 30.

The Monmouth MS asked whether Welsh ministers are considering any mechanisms, such as a funding floor, to “fend off” potential council bankruptcies.

Mike Hedges pointed out that both Labour and Conservative councils in England, including Birmingham, which is the biggest in Europe, have faced bankruptcy.

The former Swansea council leader said: “We have not had a bankruptcy of a council in Wales because of a better settlement and also good political management and good departmental management. But that can’t continue forever.”

‘Disaster’

Peredur Owen Griffiths, Plaid Cymru’s shadow local government secretary, raised concerns about Rhondda Cynon Taf and Merthyr Tydfil councils’ plans to cut school transport.

“Caerphilly Council is consulting on the same, not to mention huge cuts to libraries,” he said.

Mr Owen Griffiths, who represents South Wales East, warned of a looming disaster, adding that cuts will have a disproportionate impact on the most vulnerable.

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Responding for the Welsh Government, Jayne Bryant acknowledged the “huge challenges” that councils across Wales have faced for many years.

Wales’ local government secretary, who was appointed in July, recognised councils are balancing key services such as social care and education amid increasing demand.

‘Frontline’

She stressed that no Welsh council has issued a section 114 (bankruptcy) notice, saying: “We’re working hard and we’re not taking that for granted.”

Ms Bryant said ministers are jointly developing a protocol for councils in case of emergencies, which will include options but not additional funding.

The minister said the Welsh Local Government Association, the voice of Wales’ 22 councils, will present a paper on pressures at the next finance sub-group meeting on October 22.

She told the Senedd that local government will be a key part of the Welsh Government’s draft spending plans for 2025/26 which are due to be published on December 10.

She said: “We will protect frontline public services as far as possible and continue to target support at those in greatest need.”