The cost of coronavirus

Further funding and financial flexibilities are needed to avoid in-year cuts to vital local services during the pandemic.

It is councils that have led local communities across the country through the coronavirus crisis.

As they continue to work day and night to protect the most vulnerable, support local businesses and bring together communities, many councils have seen increased cost and demand pressures as a result of the pandemic, at the same time as a significant drop in income.

Early payment of some grants by the Government and deferring payment of business rates by councils to the Treasury has helped with immediate cash-flow issues. The £3.2 billion of emergency funding provided by government so far has helped meet the financial impact of COVID-19 over the past three months.

The Government initially promised that councils would get all the resources they needed to cope with this pandemic. Our analysis of the May financial returns to the Ministry of Housing, Communities and Local Government (MHCLG) shows councils could need as much as £6 billion more this financial year. Almost two-thirds of further funding needed would be to cover lost tax income (council tax and business rates) and non-tax income (mostly sales, fees and charges), and the rest would be to cover extra cost pressures.

“Robust evidence of a looming financial crisis cannot be ignored”

However, councils desperately need certainty of further funding. Financial freedoms and flexibilities are needed, alongside access to short-term Public Works Loan Board loans, to ease immediate cash-flow pressures and to avoid short-term loans at expensive rates.

Without further funding and financial flexibilities, many councils will have to take measures in anticipation of future funding shortfalls. This could mean in-year cuts to vital local services that communities are relying on to get through this pandemic.

We are already starting to see this being borne out in town halls of all political colours. Wiltshire Council has warned of a £50 million funding gap this year – 15 per cent of its net budget. Manchester City Council is gearing up for an emergency budget, while Luton Council has begun seeking views from its residents on how to make in-year savings.

Norfolk County Council has warned that COVID-19 budget pressures are set to increase the county council’s £38.9 million budget gap next year, while Leicestershire County Council has written to local MPs for help to secure its financial sustainability.

All of this is a distraction from the vital role councils are playing in leading communities through this crisis and supporting national efforts to beat this disease.

As first was going to press, councils were preparing to submit the next set of detailed financial returns to MHCLG, which deserves credit for showing a commitment to fully understanding the financial pressures that councils are facing as a result of COVID-19.

This cannot, however, just be a tick-box exercise for government. Within those spreadsheets is robust evidence of a looming financial crisis that cannot be ignored.

Only with ongoing and consistent funding in the weeks and months ahead can councils keep supporting communities, local economies, the care sector and health service during the COVID-19 crisis.

The scale of the economic, environmental and community challenges that we will face should not be underestimated. It is vital that councils can support the economic recovery as emergency measures are lifted and we come through this crisis. This is essential if we are to ensure that all communities can contribute to and benefit from this recovery.

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

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