The Welsh Government is developing a protocol in case cash-strapped councils in Wales face financial emergencies such as bankruptcy, a committee heard.

Jayne Bryant, who was appointed local government secretary over the summer, said: “I’ve met with local authority leaders already … and it’s clear to me the severity of the situation.”

She pointed to pressures including years of austerity, the pandemic, inflation and rising demand as she appeared before the Senedd’s local government committee on October 10.

Pressed about financial resilience, Ms Bryant said: “We’re jointly developing, with local authorities, a protocol to apply in case of significant financial challenge.”

Last year, a report warned Welsh councils could face a funding gap of £744m by 2027/28.

Ms Bryant. the MS for Newport West, told the committee: “Services have had to be changed, some have faced reductions and councils have had to prioritise. Elected members and officers have been under a significant amount of pressure for a long time.”

Referring to Audit Wales reports on council finances, the Conservatives’ Altaf Hussain warned some face fundamental issues that put their financial sustainability at serious risk.

Ms Bryant replied to Dr Hussain: “If necessary, I do have powers of intervention but of course that would be a step I would not take lightly.”

She said the Welsh Government will have greater clarity after the UK budget on October 30.

The Welsh Government’s draft budget for the 12 months from April will be published on December 10, with the provisional local government settlement set to follow soon after.

Judith Cole, deputy director for local government finance, said if a council faced a section 114 (bankruptcy) notice, it could seek assistance from the Welsh Government.

But she cautioned: “The moral hazard means that we would not be suggesting to the cabinet secretary that she opens up the bank because we haven’t got any.”

She added that councils could use an improvement fund given to the WLGA before getting to the stage of a section 114 notice.

She said: “There is nobody who has formally come to us and said ‘we need help’ at this point, what we are conscious of is the sector as a whole is saying it’s really difficult.”

Ms Cole told the committee the protocol aims to ensure a “no-surprises” approach.

Reg Kilpatrick, director of local government, said the Welsh Government has an “open and frank” dialogue with councils about finances throughout the year.

He recognised “concerning messages” coming out of Audit Wales reports.