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Wales’ auditor general has warned that councils’ finances are “unsustainable” over the medium-term and services “increasingly stretched”.

Adrian Crompton said local government provides “valued services” from education and social services to waste and libraries.

In a new report published by Audit Wales, he said the “commitment” of officers and councillors – as well as their “tough decisions already made” – had to date protected any Welsh local authority from issuing a so-called Section 114 notice.

Councils which issue those notices effectively declare bankruptcy because they are unable to deliver a balanced budget.

“However, as the cumulative impact of financial restraint builds, we cannot assume that the future for the sector is sustainable,” warned Mr Crompton. “The position is fragile and sensitive to the competing and complex factors that affect council finances.”

Action must be taken to improve the sustainability of local government finances, he added.

The Audit Wales report includes assessments of each council’s financial health and highlights any weaknesses in their plans.

Auditors said Caerphilly County Borough Council has a “clear but untested” approach to improving its financial sustainability.

While it understands its medium-term financial position, it has “not identified how it will meet” its funding gap over that period.

The council has relied on reserves to plug more immediate holes but has a “less well-developed” plan for future service demands, Audit Wales judged.

Cllr Eluned Stenner, cabinet member for finance and performance, said: “We note the findings of the Audit Wales report and we will now use this information to review the areas that have been highlighted for improvement.

“The council has a long-standing record of robust and sustainable financial management and we welcome this type of scrutiny, which helps us strengthen our financial planning going forward.”

‘More and more precarious’

Commenting on the national findings in the Audit Wales report, Plaid Cymru Senedd Member Peredur Owen Griffiths said it was “clear that the financial position is becoming more and more precarious” for Welsh local authorities, which he blamed on “punitive” austerity policies at a UK level.

The report should “set alarm bells ringing”, and “to ignore it would jeopardise the financial viability of many of our local authorities, as well as hit the most vulnerable in society the hardest”, he added.

A Welsh Government spokesperson said the Audit Wales report was “an important piece of work, and we will carefully consider its findings and recommendations and respond in due course”.

On Friday December 6, the Welsh Government announced councils will be given a total of £120m of funding so they “can continue delivering essential services in their communities”.

Jayne Bryant, the local government secretary, said she recognised the “real challenges and financial pressures” councils face.

“This additional funding recognises and will help alleviate some of these pressures and support a range of housing, education and social care services,” she added.