Councils face imminent £2bn funding gap

Councils in England face a £2 billion funding gap in the current financial year and could be forced to cut services if the Government does not meet the cost of soaring COVID-19 spending, the Institute for Fiscal Studies (IFS) has warned.

Its report, co-funded by the LGA, says 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”.

The IFS calculates that, although the Government has so far provided £5.2 billion in extra funds, councils expect to spend £4.4 billion more than planned this year because of the pandemic, and face £2.8 billion in losses from fees and charges, leaving them with a £2 billion shortfall. This is in addition to losses on business rates and council tax.

Even if the Government offers additional support this year, the report warns that the crisis facing local government is likely to continue into 2021/22, when collapsing council tax and business rates collection since lockdown starts to feed into council budgets.

Although the simplest way of preventing cuts would be for ministers to provide more grant funding, they could also relax rules that prevent councils from borrowing money to fund day-to-day services – which would help spread the pressure over several years, said the IFS.

While English councils, collectively, have identified around £3.3 billion of available reserves, the IFS estimates that around 40 per cent of councils would still be unable to balance their books, even if they spent all their reserves.

Cllr James Jamieson, LGA Chairman, said: “The funding already received from government has been a positive step and recognises the crucial role councils have played in keeping the country going throughout the COVID-19 pandemic.

“This independent research shows that unmet funding pressures remain. The LGA therefore reiterates its call for the Government to meet all extra cost pressures and income losses in full, so that councils aren’t faced with making tough decisions on in-year cuts to services to meet their legal duty to set a balanced budget.”

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