About 80% of local council funding is set by the Welsh Assembly Government.
Most Assembly funding for local councils comes from the block grant paid to the Assembly by the Westminster government. This comes to the Assembly unhypothecated: this means the Assembly can spend it on what it chooses given its powers. The money the Assembly allocates to local councils is called the Revenue Support Grant (RSG).
The total of the RSG and pooled business rates is called Aggregated External Finance (AEF). The level of AEF set for any one year is sometimes called “the settlement”.
AEF is allocated to local councils according to need. Need is measured by a range of factors, such as population and indicators of social need. The AEF allocation also takes account of the different potential council tax yield in different parts of Wales, because of different house prices.