Wednesday, August 19, 2020
Huge funding gap facing local councils
The impact of COVID-19 on the economy and public services has already been quite substantial, but as this article in the Guardian reports the impact on local councils could be as severe as that on businesses.
The paper says that the Institute for Fiscal Studies believes that councils in England face a £2bn “perfect storm” over the next few months and will be forced to cut services if the government does not meet the cost of soaring Covid-19 spending.
They add that without additional financial support, councils “face a difficult choice between depleting their reserves to low and potentially risky levels or cutting spending on important local services”:
Although the government has so far provided £5.2bn in extra funds, councils expect to spend £4.4bn more than expected on the pandemic this year, as well as £2.8bn in losses from fees and charges, leaving them with a £2bn shortfall.
Even if the government offers additional support this year, the crisis facing local government is likely to continue into 2021-22 when collapsing council tax and business rates collection since lockdown start to feed into council budgets, it added.
David Phillips, an associate director at IFS, said: “Even if more funding or flexibilities are forthcoming this year, councils will still not be out of the Covid-19 woods.”
Although the simplest way of preventing cuts would be for ministers to provide more grant funding, they could also consider relaxing rules that prevent councils from borrowing money to fund day-to-day services, the IFS said. “This would help spread the pressure over several years and mean councils could avoid needing to make immediate cuts to balance their budgets.”
Although English councils collectively have around £3.3bn of available reserves, the amounts vary widely between authorities. The IFS estimates that around 40% of councils would still be unable to balance their books even if they spent all their reserves.
There is no indication of the position in Wales or the other devolved nations, but one imagines that the issues are very similar.
The paper says that the Institute for Fiscal Studies believes that councils in England face a £2bn “perfect storm” over the next few months and will be forced to cut services if the government does not meet the cost of soaring Covid-19 spending.
They add that without additional financial support, councils “face a difficult choice between depleting their reserves to low and potentially risky levels or cutting spending on important local services”:
Although the government has so far provided £5.2bn in extra funds, councils expect to spend £4.4bn more than expected on the pandemic this year, as well as £2.8bn in losses from fees and charges, leaving them with a £2bn shortfall.
Even if the government offers additional support this year, the crisis facing local government is likely to continue into 2021-22 when collapsing council tax and business rates collection since lockdown start to feed into council budgets, it added.
David Phillips, an associate director at IFS, said: “Even if more funding or flexibilities are forthcoming this year, councils will still not be out of the Covid-19 woods.”
Although the simplest way of preventing cuts would be for ministers to provide more grant funding, they could also consider relaxing rules that prevent councils from borrowing money to fund day-to-day services, the IFS said. “This would help spread the pressure over several years and mean councils could avoid needing to make immediate cuts to balance their budgets.”
Although English councils collectively have around £3.3bn of available reserves, the amounts vary widely between authorities. The IFS estimates that around 40% of councils would still be unable to balance their books even if they spent all their reserves.
There is no indication of the position in Wales or the other devolved nations, but one imagines that the issues are very similar.
