Getting finances on track

The Government’s funding package for councils offers some positive measures and recognises the pressures they are facing, but more is needed.

The LGA has been calling for the Government to urgently bring forward details of its comprehensive plan to ensure the financial sustainability of councils this year and next.

At our virtual annual conference in July, Communities Secretary Robert Jenrick MP announced a package of measures that seeks to address the financial challenges facing councils as they continue to lead communities through the COVID-19 crisis and beyond.

If a council incurs lost income from sales, fees and charges worth more than 5 per cent of its previously planned income, 75p of every additional pound lost will be reimbursed by government. Councils will remain liable for the first 5 per cent of all such lost income.

The Government will also bring in changes to allow councils to spread council tax and business rates deficits over three years instead of the current one-year rule. It will decide how irrecoverable local tax losses will be shared between central and local government in the Comprehensive Spending Review.

In addition, local government as a whole will receive a further non-ringfenced £500 million in response to spending pressures in local areas – building on the £3.2 billion non-ringfenced funding already allocated to councils and £300 million from clinical commissioning groups (CCGs).

While this package offers some positive measures and recognises the pressures councils are facing, more is desperately needed to fully address the severe financial challenges facing councils and our local services as a result.

With the Government’s income guarantee failing to cover full losses, and not extending to commercial and other income losses, the LGA has warned that councils will still be left having to absorb a substantial and unforeseen loss of funding, in particular the loss of local taxes.

So we have reiterated our call for government to meet all extra cost pressures and income losses from fees and charges and other sources – including commercial activity – in full. Otherwise, councils may have to make tough decisions on in-year cuts to services to meet their legal duty to set a balanced budget this year.

Councils have been completing detailed monthly returns to the Ministry of Housing, Communities and Local Government (MHCLG) on the financial challenges they face. This shows the Government is committed to fully understanding the impact of the pandemic, and the robust evidence provided by councils shows a looming financial crisis that cannot be ignored.

The latest MHCLG survey of all councils found that – between March and June – councils incurred £4.8 billion of extra cost pressures and income losses as a result of the COVID-19 pandemic, and this figure could reach £10.9 billion.

Local communities have rightly looked to their council for leadership during this crisis – and they have delivered. Without costs and income losses being met in full, 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.

As first was going to press, the next monthly MHCLG finance survey was due to be sent out to councils. The LGA will continue working with government on the further measures and funding needed to protect local services.

For more on the LGA’s work on council finances, please visit www.local.gov.uk/topics/finance-and-business-rates

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