LGA analysis: COVID-19 council funding gap widens to £7.4 billion

1 Jul 2020 03:00 PM

The Local Government Association is calling for the Government to urgently bring forward details of its comprehensive plan to ensure the financial sustainability of councils this year and next.

• Survey shows that, between March and June, councils have incurred £4.8 billion of extra cost pressures and income losses as a result of the COVID19 pandemic.
• The estimated financial challenge councils face as a result of the pandemic will reach £10.9 billion.
• The Government has provided £3.2 billion of emergency funding to councils and CCGs have provided funding of £300 million which has helped meet some of the pressures so far - leaving councils facing a funding gap of £7.4 billion.
• As it holds its virtual Annual Conference, the Local Government Association is calling for the Government to urgently bring forward details of its comprehensive plan to ensure the financial sustainability of councils this year and next.

Local communities have rightly looked to their council for leadership during this crisis and they have delivered. Councils continue to work tirelessly to create new services to support vulnerable people, have helped most rough sleepers off the streets and into safe accommodation, and kept most normal services running like kerbside waste and recycling collections.

They are doing an amazing job but are facing increased cost and demand pressures as a result, at the same time as seeing a significant drop in income.

In order to provide the most robust evidence to government on the financial challenges they face, councils have been completing detailed monthly returns to the Ministry of Housing, Communities and Local Government.

New LGA analysis of June’s returns – completed by every council in England and published as the LGA holds its first-ever virtual Annual Conference – sets out the scale of the cost pressures and income losses councils are facing as they lead communities through the COVID-19 crisis and look ahead to a national recovery.

The Government has indicated it is working on a comprehensive plan to address the ongoing financial challenges councils face this financial year. The LGA is urging the Government to ensure it address three key elements of the pressures facing councils: 

• All additional costs councils are set to incur result of the pandemic must be met in full (forecast to be £4.4 billion this financial year).
• A guarantee that councils will be compensated for all lost income from fees and charges and other sources (forecast to be £2.8 billion this financial year).
• A third of the financial challenge facing councils is lost tax income (£3.7 billion in council tax and business rates). The Government will need to provide a solution to cover councils for losses of local taxation which will hit councils’ council tax and business rates collection funds next year.

Without this, the LGA is warning that councils will have to take measures in anticipation of future funding shortfalls. This could mean in-year cuts to vital local services that are supporting communities through this crisis and crucial to the national recovery.

The scale of the economic, environmental and community challenges that we will face as a result of the pandemic cannot be under-estimated.

The LGA’s new discussion paper - Re-thinking Local - sets out how, with the right funding and powers, councils can grasp this once-in-a-lifetime opportunity to not just recover from this crisis but to go further and address the stark inequalities the virus has exposed, develop a green recovery, address skills gaps and rebuild the economy so that it benefits everyone.

Cllr James Jamieson, LGA Chairman, said:

“Councils are leading local communities through the coronavirus crisis. They continue to work all day and night to protect the most vulnerable, support local businesses and try and keep normal services running.

“As this new analysis shows, they continue to face unsustainable finance pressures. Not only do councils need to be fully funded to help our communities beat this virus now but also to help support the nation as we look towards the next phase.

“Councils have a legal duty to balance their budgets each year. Further funding and flexibilities are now urgent if councils are to have the certainty they need to avoid taking steps, such as in-year cuts to local services, to cope with funding shortfalls. We are already starting to see this being borne out in towns halls of all political colours across the country.

“The Government has shown a firm commitment to fully understanding the financial pressures councils are facing as a result of COVID-19 and we are pleased it is working on a comprehensive plan to address these this financial year. We urge the Government to bring forward details as soon as possible.”

Notes

1. Rethinking Local: A vision for the future – the LGA’s new discussion paper
2. The LGA’s first virtual Annual Conference includes a series of webinars featuring keynote speakers including Labour Leader Sir Keir Starmer and Communities Secretary Robert Jenrick.